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U.S. Code as of:
01/19/04
Section 404A. Deduction for certain foreign deferred compensation plans
(a) General rule
Amounts paid or accrued by an employer under a qualified foreign
plan -
(1) shall not be allowable as a deduction under this chapter,
but
(2) if they would otherwise be deductible, shall be allowed as
a deduction under this section for the taxable year for which
such amounts are properly taken into account under this section.
(b) Rules for qualified funded plans
For purposes of this section -
(1) In general
Except as otherwise provided in this section, in the case of a
qualified funded plan contributions are properly taken into
account for the taxable year in which paid.
(2) Payment after close of taxable year
For purposes of paragraph (1), a payment made after the close
of a taxable year shall be treated as made on the last day of
such year if the payment is made -
(A) on account of such year, and
(B) not later than the time prescribed by law for filing the
return for such year (including extensions thereof).
(3) Limitations
In the case of a qualified funded plan, the amount allowable as
a deduction for the taxable year shall be subject to -
(A) in the case of -
(i) a plan under which the benefits are fixed or
determinable, limitations similar to those contained in
clauses (ii) and (iii) of subparagraph (A) of section
404(a)(1) (determined without regard to the last sentence of
such subparagraph (A)), or
(ii) any other plan, limitations similar to the limitations
contained in paragraph (3) of section 404(a), and
(B) limitations similar to those contained in paragraph (7)
of section 404(a).
(4) Carryover
If -
(A) the aggregate of the contributions paid during the
taxable year reduced by any contributions not allowable as a
deduction under paragraphs (1) and (2) of subsection (g),
exceeds
(B) the amount allowable as a deduction under subsection (a)
(determined without regard to subsection (d)),
such excess shall be treated as an amount paid in the succeeding
taxable year.
(5) Amounts must be paid to qualified trust, etc.
In the case of a qualified funded plan, a contribution shall be
taken into account only if it is paid -
(A) to a trust (or the equivalent of a trust) which meets the
requirements of section 401(a)(2),
(B) for a retirement annuity, or
(C) to a participant or beneficiary.
(c) Rules relating to qualified reserve plans
For purposes of this section -
(1) In general
In the case of a qualified reserve plan, the amount properly
taken into account for the taxable year is the reasonable
addition for such year to a reserve for the taxpayer's liability
under the plan. Unless otherwise required or permitted in
regulations prescribed by the Secretary, the reserve for the
taxpayer's liability shall be determined under the unit credit
method modified to reflect the requirements of paragraphs (3) and
(4). All benefits paid under the plan shall be charged to the
reserve.
(2) Income item
In the case of a plan which is or has been a qualified reserve
plan, an amount equal to that portion of any decrease for the
taxable year in the reserve which is not attributable to the
payment of benefits shall be included in gross income.
(3) Rights must be nonforfeitable, etc.
In the case of a qualified reserve plan, an item shall be taken
into account for a taxable year only if -
(A) there is no substantial risk that the rights of the
employee will be forfeited, and
(B) such item meets such additional requirements as the
Secretary may by regulations prescribe as necessary or
appropriate to ensure that the liability will be satisfied.
(4) Spreading of certain increases and decreases in reserves
There shall be amortized over a 10-year period any increase or
decrease to the reserve on account of -
(A) the adoption of the plan or a plan amendment,
(B) experience gains and losses, and (!1)
(C) any change in actuarial assumptions,
(D) changes in the interest rate under subsection (g)(3)(B),
and
(E) such other factors as may be prescribed by regulations.
(d) Amounts taken into account must be consistent with amounts
allowed under foreign law
(1) General rule
In the case of any plan, the amount allowed as a deduction
under subsection (a) for any taxable year shall equal -
(A) the lesser of -
(i) the cumulative United States amount, or
(ii) the cumulative foreign amount, reduced by
(B) the aggregate amount determined under this section for
all prior taxable years.
(2) Cumulative amounts defined
For purposes of paragraph (1) -
(A) Cumulative United States amount
The term "cumulative United States amount" means the
aggregate amount determined with respect to the plan under this
section for the taxable year and for all prior taxable years to
which this section applies. Such determination shall be made
for each taxable year without regard to the application of
paragraph (1).
(B) Cumulative foreign amount
The term "cumulative foreign amount" means the aggregate
amount allowed as a deduction under the appropriate foreign tax
laws for the taxable year and all prior taxable years to which
this section applies.
(3) Effect on earnings and profits, etc.
In determining the earnings and profits and accumulated profits
of any foreign corporation with respect to a qualified foreign
plan, except as provided in regulations, the amount determined
under paragraph (1) with respect to any plan for any taxable year
shall in no event exceed the amount allowed as a deduction under
the appropriate foreign tax laws for such taxable year.
(e) Qualified foreign plan
For purposes of this section, the term "qualified foreign plan"
means any written plan of an employer for deferring the receipt of
compensation but only if -
(1) such plan is for the exclusive benefit of the employer's
employees or their beneficiaries,
(2) 90 percent or more of the amounts taken into account for
the taxable year under the plan are attributable to services -
(A) performed by nonresident aliens, and
(B) the compensation for which is not subject to tax under
this chapter, and
(3) the employer elects (at such time and in such manner as the
Secretary shall by regulations prescribe) to have this section
apply to such plan.
(f) Funded and reserve plans
For purposes of this section -
(1) Qualified funded plan
The term "qualified funded plan" means a qualified foreign plan
which is not a qualified reserve plan.
(2) Qualified reserve plan
The term "qualified reserve plan" means a qualified foreign
plan with respect to which an election made by the taxpayer is in
effect for the taxable year. An election under the preceding
sentence shall be made in such manner and form as the Secretary
may by regulations prescribe and, once made, may be revoked only
with the consent of the Secretary.
(g) Other special rules
(1) No deduction for certain amounts
Except as provided in section 404(a)(5), no deduction shall be
allowed under this section for any item to the extent such item
is attributable to services -
(A) performed by a citizen or resident of the United States
who is a highly compensated employee (within the meaning of
section 414(q)), or
(B) performed in the United States the compensation for which
is subject to tax under this chapter.
(2) Taxpayer must furnish information
(A) In general
No deduction shall be allowed under this section with respect
to any plan for any taxable year unless the taxpayer furnishes
to the Secretary with respect to such plan (at such time as the
Secretary may by regulations prescribe) -
(i) a statement from the foreign tax authorities specifying
the amount of the deduction allowed in computing taxable
income under foreign law for such year with respect to such
plan,
(ii) if the return under foreign tax law shows the
deduction for plan contributions or reserves as a separate,
identifiable item, a copy of the foreign tax return for the
taxable year, or
(iii) such other statement, return, or other evidence as
the Secretary prescribes by regulation as being sufficient to
establish the amount of the deduction under foreign law.
(B) Redetermination where foreign tax deduction is adjusted
If the deduction under foreign tax law is adjusted, the
taxpayer shall notify the Secretary of such adjustment on or
before the date prescribed by regulations, and the Secretary
shall redetermine the amount of the tax for the year or years
affected. In any case described in the preceding sentence,
rules similar to the rules of subsection (c) of section 905
shall apply.
(3) Actuarial assumptions must be reasonable; full funding
(A) In general
Except as provided in subparagraph (B), principles similar to
those set forth in paragraphs (3) and (7) of section 412(c)
shall apply for purposes of this section.
(B) Interest rate for reserve plan
(i) In general
In the case of a qualified reserve plan, in lieu of taking
rates of interest into account under subparagraph (A), the
rate of interest for the plan shall be the rate selected by
the taxpayer which is within the permissible range.
(ii) Rate remains in effect so long as it falls within
permissible range
Any rate selected by the taxpayer for the plan under this
subparagraph shall remain in effect for such plan until the
first taxable year for which such rate is no longer within
the permissible range. At such time, the taxpayer shall
select a new rate of interest which is within the permissible
range applicable at such time.
(iii) Permissible range
For purposes of this subparagraph, the term "permissible
range" means a rate of interest which is not more than 20
percent above, and not more than 20 percent below, the
average rate of interest for long-term corporate bonds in the
appropriate country for the 15-year period ending on the last
day before the beginning of the taxable year.
(4) Accounting method
Any change in the method (but not the actuarial assumptions)
used to determine the amount allowed as a deduction under
subsection (a) shall be treated as a change in accounting method
under section 446(e).
(5) Section 481 applies to election
For purposes of section 481, any election under this section
shall be treated as a change in the taxpayer's method of
accounting. In applying section 481 with respect to any such
election, the period for taking into account any increase or
decrease in accumulated profits, earnings and profits or taxable
income resulting from the application of section 481(a)(2) shall
be the year for which the election is made and the fourteen
succeeding years.
(h) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section (including
regulations providing for the coordination of the provisions of
this section with section 404 in the case of a plan which has been
subject to both of such sections).
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