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In a Chief Counsel Advice (IRS CCA 201003013) issued on January 22, 2010, the IRS determined that a Canadian Registered Retirement Savings Plan (RRSP) was not included in an estate of a Canadian citizen who was not a U.S. citizen and who was not domiciled in the U.S. at the time of his death. The decedent owned land and buildings in the U.S., which necessitated filing of an estate tax return.

The decedent's RRSP held shares of Canadian mutual funds, which the IRS determined were properly classified as foreign corporations for U.S. tax purposes. The IRS found so because the default classification of a foreign entity with more than two members who have limited liability is a corporation, even though mutual funds were classified as trusts for Canadian tax purposes. Because the mutual funds were classified as foreign corporations, the shares in the funds were not U.S. situs property under Sec. 2014(a). Therefore, the IRS determined that no portion of RRSP was includible in the decedent's gross estate.

This is good news for Canadians with RRSPs who are not U.S. citizens and do not domicile in the U.S., but who have property in the U.S. that may be subject to U.S. estate tax. The Chief Counsel Advice clarifies that, as long as the holdings of the RRSPs are classified as foreign corporations, RRSPs will not be subject to US estate tax. Of course, if a Canadian citizen is a dual U.S. citizen, or domiciles in the U.S., his or her entire worldwide assets are subject to U.S. estate tax (subject to application of the U.S.-Canada Tax Treaty).