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U.S. Subsidiary of Foreign Company cannot establish a SIMPLE Plan.


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In counting employees to see if the employer has less than 100 employees and may offer a SIMPLE IRA plan, does any one know of any guidance which would allow a U.S. subsidiary (which is part of a control group with a foreign entity) to disregard the foreign employees who are employed outside the U.S.?

As I read IRS Notice 98-4, Q & A B-1, employees who can be excluded from participation in the SIMPLE under Code Section 410(B)(3) (union employees, and nonresident aleins with no US source income) still have to be counted for purposes of the 100 employee threshold. This would preclude the U.S. sales office of a foreign corporation from offering such a plan.

What policy purpose can be served by precluding a small sales office of a foreign entity from offering a SIMPLE?

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As I see it, the definition of nonresident alien does not solve the dilemia, because the first step is to count the number of employees in the control group. In doing that count one cannot exclude individuals who might later be excluded from eligiblity, such as union folks or nonresident aliens with no US source income.

What I would love to find is something that says, oh, by the way, for SIMPLE Plans, we want to encourage offering of retirement plans, so for control group purposes, one can disregard (when applying the 100 employee test) all employees of control group members who are non-U.S. corporations.

Any thoughts on how a non-U.S. parent corporation could be excluded from the control group as defined under 414(B)?

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