Residents of U.S. territory

[Just Tri]

It is my understanding that residents (not citizens) of U.S. territories would not be excluded as nonresident aliens, but that nonresidents aliens of the U.S. territory would not have U.S. source income and therefore would be excluded.   Am I correct in that understanding? 

Thank you for any guidance

[Peter Gulia]

First, read the documents of the particular retirement plan.

Some plan administrators and some advisers imagine that a plan’s exclusion is identical to an exclusion Internal Revenue Code § 410(b)(3)(C) states for some purposes about whether a plan meets a tax-qualification condition. While such an assumption might often be so, or nearly so, it is not necessarily so. A plan’s provision might set an exclusion less wide, or more wide, than I.R.C. § 410(b)(3)(C)’s exclusion.

To the extent that a plan expresses an exclusion about nonresident aliens by reference to terms that have a meaning under Federal tax law, consider:

resident alien I.R.C. § 7701(b)(1)(A)

nonresident alien I.R.C. § 7701(b)(1)(B)

lawful permanent resident I.R.C. § 7701(b)(6)

presence in the United States I.R.C. § 7701(b)(7)

earned income I.R.C. § 911(d)(2)

income from sources within the United States I.R.C. § 861(a)(3).

Also, an income tax treaty between the United States and a nation in which the alien is domiciled or resides might, depending on the governing plan documents’ text, affect whether the plan excludes an individual.

In some circumstances, whether an alien’s services are performed for an office or place of business in a State of the United States, or in a possession of the United States, might matter. See I.R.C. § 861(a)(3)(C)(ii).

This is not advice to anyone.