Non-Resident Withholding

[Guest lvegas]

Can anyone tell me whether 871(f), which generally provides an exclusion from gross income for amounts received as an annuity from certain qualified plans, would apply in the case of a qualified plan that only pays distributions in the form of a SLA or QJSA. In other words, can the word "annuity" for purposes of this section be interepreted so broadly as to include run-of-the-mill SLA pension payments? Or is it only an annuity that has been purchased by a qualified plan or something similar?

[Guest mjb]

IRC 871 taxes income earned in the US by non resident aliens at a rate of 30%. 871(f) exempts certain pension payments to non resident aliens from this tax. You need to consult tax counsel regarding your question.

[GBurns]

I doubt that this is a non-resident alien?

lvegas

Is this a citizen or permanent resident who is no longer residing in the US or did you mean a non-resident alien who never had legal resident status but was a plan participant who made contributions and who now is no longer in the US?

Or is this a beneficiary who does not live in the US?

[Guest lvegas]

Assume that one DB plan participant in pay status is subject to non-resident withholding as a foreign person b/c he is neither a U.S. citizen nor a resident alien. Employer contributions were made on behalf of the individual for services perfomed only in his country of residence.

Would the answer be different if the surviving spouse (who is a NRA for the same reasons) were receiving QJSA benefits?

[GBurns]

Are you saying that this person never entered the US, did not do the work in the US, was not on a US payroll, has no citizen or immigrant status, but was a plan participant for whom employer contributions were made?

[Guest Harry O]

The Code and regulations do not define what qualifies as an "annuity" for this purpose. However, the IRS issued a PLR in the early 90s that concluded that 5 year installments, paid quarterly, qualified as an "annuity" under 871(f). The IRS looked to Section 72 for purposes of what payments qualify as an "annuity". There is no need for the plan to purchase an annuity. The trust can make periodic payments directly to the participant an qualify for the exception. It should also be permissible to pay a J&S and to have the surviving spouse receive payments.

The issue that sometime causes problems under 871(f) is that the participant must not have performed any services in the U.S. Ocassional business trips to the U.S., for example, can result in the loss of this exclusion.

[GBurns]

So will training and orientation trips. I had 1 case where the person attended a Trade show or two so as to see how it was done and also to get the opportunity to see products that would not normally be seen from both the employer and the competition. Since it was on paid company time and company paid travel it became services performed in the US and created other problems as well.

It can be a very much a fact and circumstances issue.

[Guest lvegas]

Interesting and helpful. Any cites to PLRs, etc. regarding the occasional service in the U.S. issue? I imagine coming to the U.S. for a trade association convention, even if only every three years, would take you out of the exception (at least for those years).

[GBurns]

It should not.

If the trade show is attended as a member of the public rather than as an exhibitor/sponsor/employer representative, it will be no problem. It also should not matter who pays the cost but have a public entrance ticket. Travel cost payment should not be an issue.

If not done as yet the entry visa should be a visitors visa not a business classification. I do not know hat they use nowadays, but that was an issue in the 1970s and 1980s.

Unfortunately, I cannot give a cite since these were all IRS audit or plan compliance issues which were not reportable and which I no longer have the documents.

1 of the cases was my personal case, in another I did the IRS audit representation. That is why I have some insight.

[Guest lvegas]

The non-resident alien came to the trade association convention in the U.S. as a requirement of his employment with the Canadian arm of the trade association (i.e., he's an association employee) and his way was paid by his employer so I think there might be a concern given your experience.