[Code of Federal Regulations]
[Title 26, Volume 5]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.401(a)-50]

[Page 89-90]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.401(a)-50  Puerto Rican trusts; election to be treated as a 
domestic trust.

    (a) In general. Section 401(a) requires, among other things, that a 
trust forming part of a pension, profit-sharing, or stock bonus plan 
must be created or organized in the United States to be a qualified 
trust. Section 1022(i)(2) of the Employee Retirement Income Security Act 
of 1974 (ERISA) (88 Stat. 942) provides that trusts under certain 
pension, etc., plans created or organized in Puerto Rico whose 
administrators have made the election referred to in section 1022(i)(2) 
are to be treated as trusts created or organized in the United States 
for purposes of section 401(a). Thus, if a plan otherwise satisfies the 
qualification requirements of section 401(a), any trust forming part of 
the plan for which an election is made will be treated as a qualified 
trust under that section.
    (b) Manner and effect of election. A plan administrator may make an 
election under ERISA section 1022(i)(2) by filing a statement making the 
election, along with a copy of the plan, with the Director's 
Representative of the Internal Revenue Service in Puerto Rico. The 
statement making the election must indicate that it is being made under 
ERISA section 1022(i)(2). The statement may also be filed in conjunction 
with a written request for a determination letter. If the election is 
made with a written request for a determination letter, the election may 
be conditioned upon issuance of a favorable determination letter and 
will be irrevocable upon issuance of such letter. Otherwise, once made, 
an election is irrevocable. It is generally effective for plan years 
beginning after the date it has been made. However, an election made 
before March 3, 1983 may, at the option of the plan administrator at the 
time he or she makes the election, be considered to have been made on 
any date between September 2, 1974, and

[[Page 90]]

the actual date of the election. The election will then be effective for 
plan years beginning on or after the date chosen by the plan 
administrator.
    (c) Annuities, custodial accounts, etc. See section 401 (f) for 
rules relating to the treatment of certain annuities, custodial accounts 
or other contracts, as trusts for purposes of section 401(a).
    (d) Source of plan distributions to participants and beneficiaries 
residing outside the United States. Except as provided under section 
871(f) (relating to amounts received as an annuity by nonresident 
aliens), the amount of a distribution from an electing plan that is to 
be treated as income from sources within the United States is determined 
as described below. The portion of the distribution considered to be a 
return of employer contributions is to be treated as income from sources 
within the United States in an amount equal to the portion of the 
distribution considered to be a return of employer contributions 
multiplied by the following fraction:

Days of performance of labor or services within the United States for 
the employer.
________________________________________________________________________
Total days of performance of labor or services for the employer.


The days of performance of labor or services within the United States 
shall not include the time period for which the employee's compensation 
is deemed not to be income from sources within the United States under 
subtitle A of the Code. Thus, for example, if an employee's compensation 
was not deemed to be income from sources within the United States under 
section 861(a)(3), then the time the emloyee was present in the United 
States while such compensation was earned would not be included in 
determining the days of performance of labor or services within the 
United States in the numerator of the above fraction. In addition, days 
of performance of labor or services for the employer in both the 
numerator and denominator of the above fraction are limited to days of 
plan participation by the employee and any service used for determining 
an employee's accrued benefit under the plan. The remaining portion of 
the distribution, that is, any amount other than the portion of the 
distribution considered to be a return of employer contributions, is not 
to be treated as income from sources within the United States. For 
example, if a distribution consists of amounts representing employer 
contributions, employee contributions, and earnings on employer and 
employee contributions, no part of the portion of the distribution 
attributable to employee contributions, or earnings on employer and 
employee contributions, will be treated as income from sources within 
the United States.

[T.D. 7859, 47 FR 54297, Dec. 2, 1982]