§406 — Employees of foreign affiliates covered by section 3121(l) agreements
60 cases·7 followed·1 distinguished·2 questioned·5 overruled·45 cited—12% support
Statute Text — 26 U.S.C. §406
For purposes of applying this part with respect to a pension, profit-sharing, or stock bonus plan described in section 401(a) or an annuity plan described in section 403(a), of an American employer (as defined in section 3121(h)), an individual who is a citizen or resident of the United States and who is an employee of a foreign affiliate (as defined in section 3121(
l
)(6)) of such American employer shall be treated as an employee of such American employer, if—
such American employer has entered into an agreement under section 3121(
l
) which applies to the foreign affiliate of which such individual is an employee;
the plan of such American employer expressly provides for contributions or benefits for individuals who are citizens or residents of the United States and who are employees of its foreign affiliates to which an agreement entered into by such American employer under section 3121(
l
) applies; and
contributions under a funded plan of deferred compensation (whether or not a plan described in section 401(a) or 403(a)) are not provided by any other person with respect to the remuneration paid to such individual by the foreign affiliate.
For purposes of applying section 401(a)(4) and section 410(b) with respect to an individual who is treated as an employee of an American employer under subsection (a)—
if such individual is a highly compensated employee (within the meaning of section 414(q)), he shall be treated as having such capacity with respect to such American employer; and
the determination of whether such individual is a highly compensated employee (as so defined) shall be made by treating such individual’s total compensation (determined with the application of paragraph (2) of this subsection) as compensation paid by such American employer and by determining such individual’s status with regard to such American employer.
For purposes of applying paragraph (5) of section 401(a) with respect to an individual who is treated as an employee of an American employer under subsection (a)—
the total compensation of such individual shall be the remuneration paid to such individual by the foreign affiliate which would constitute his total compensation if his services had been performed for such American employer, and the basic or regular rate of compensation of such individual shall be determined under regulations prescribed by the Secretary; and
such individual shall be treated as having paid the amount paid by such American employer which is equivalent to the tax imposed by section 3101.
For purposes of applying section 404 with respect to contributions made to or under a pension, profit-sharing, stock bonus, or annuity plan by an American employer, or by another taxpayer which is entitled to deduct its contributions under section 404(a)(3)(B), on behalf of an individual who is treated as an employee of such American employer under subsection (a)—
except as provided in paragraph (2), no deduction shall be allowed to such American employer or to any other taxpayer which is entitled to deduct its contributions under such sections,
there shall be allowed as a deduction to the foreign affiliate of which such individual is an employee an amount equal to the amount which (but for paragraph (1)) would be deductible under section 404 by the American employer if he were an employee of the American employer, and
any reference to compensation shall be considered to be a reference to the total compensation of such individual (determined with the application of subsection (b)(2)).
Any amount deductible by a foreign affiliate under this subsection shall be deductible for its taxable year with or within which the taxable year of such American employer ends.
An individual who is treated as an employee of an American employer under subsection (a) shall also be treated as an employee of such American employer, with respect to the plan described in subsection (a)(2), for purposes of applying the following provisions of this title:
Section 72(f) (relating to special rules for computing employees’ contributions).
Section 2039 (relating to annuities).
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.406-1 Treatment of certain employees of foreign subsidiaries as employees of the domestic corporation
- Treas. Reg. §Treas. Reg. §1.406-1(a) Scope—(1) General rule.
- Treas. Reg. §Treas. Reg. §1.406-1(b) Application of this section—(1) Requirements.
- Treas. Reg. §Treas. Reg. §1.406-1(c) Special rules—(1) Nondiscrimination requirements.
- Treas. Reg. §Treas. Reg. §1.406-1(d) Termination of status as deemed employee not to be treated as separation from service for purposes of capital gain provisions and limitation of tax.
- Treas. Reg. §Treas. Reg. §1.406-1(e) Deductibility of contributions—(1) In general.
- Treas. Reg. §Treas. Reg. §1.406-1(f) Treatment as an employee of the domestic corporation under related provisions.
- Treas. Reg. §Treas. Reg. §1.406-1(g) Nonexempt trust.
- Treas. Reg. §Treas. Reg. §1.406-1(i) §1.406-1(i)
60 Citing Cases
Because petitioner failed to prove that the IRS proceeded with administrative orjudicial action against the taxpayers on the basis ofhis information, we hold that he is not.
We hold that we.do.3 Background The following background is drawn from the petition and respondent's motion to dismiss for lack ofsubject matterjurisdiction and responses filed by both parties.
We hold that we do.3 Background The following background is drawn from the petition and respondent's motion to dismiss for lack ofsubject matterjurisdiction and responses filed by both parties.
For our purposes, section 4975(c) is similar to ERISA section 406, 29 U.S.C.
2922, 2958 (effective Dec. 20, 2006). The 2006 legislation added to section 7623 a new subsection (b), which requires the payment of nondiscretionary whistleblower awards in specified circumstances and provides this Court jurisdiction to review IRS determinations regarding such awards. See Cooper v. Commissioner, 135 T.C. 70, 73
at 2958, however, Congress made some whistleblower awards nondiscretionary and gave usjurisdiction to hear the appeals ofwhistleblowers disgruntled by the Commissioner's refusal to give them what they thought they deserved. See sec. 7623(b); Whistleblower 10949-13W v. Commissioner, T.C. Memo. 2014-106, at *8. Section 7623(b)(4)
at 2958, to address perceived problems with the discretionary award regime. See Whistleblower 11332-13W v. Commissioner, 142 T.C. 396, 400 (2014). TRHCA sec. 406 amended section 7623 to require the Secretaryto pay whistleblower awards under certain circumstances. TRHCA sec. 406(a)(1)(D), 120 Stat. at 2959 (adding to section 7623
at 2958; Cooper v. Commissioner, 135 T.C. at 73. Section 7623(b) was enacted to encourage whistleblowers to provide information about the underpayment oftax and violation oftax laws. Lippolis v. Commissioner, 143 T.C. 393, 399 (2014); Cooper v. Commissioner, 135 T.C. at 73. Under the new provisions, a whistleblower generally is
at 2958 (effective Dec. 20, 2006). The 2006 legislation added to section 7623 a new subsection (b), which requires the payment ofnondiscretionarywhistleblower awards in specified circumstances and provides this Courtjurisdiction to review IRS determinations regarding such awards. See Cooper, 135 T.C. at 73. A claimant who does n
2958 (effective Dec. 20, 2006).. » Sectione 7623(b) (4) provides: (4) Appeal of award determination.--Any determination regarding an award under paragraph (1), (2), or (3) may, within 30 days of such determination, be.appealed to.the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter). Section 7623
A;,;sec 406 ,- 120 Stat ., 2958 (effective,;Dec . the Secretary to pay nondiscretionary whistleblower awards and to provide this-Court with .jurisdiction to review such awards . , whistleblower is now entitled to.a minimum nondiscretionary percent of the collected .proceeds if the Commissioner, . proceeds with administrative,or,.judicial action using i
om and board expenses are limited to the minimum amount as determined in the “cost of attendance”, as defined in the Higher Education Act of 1965, Pub. L. 89-329, 79 Stat. 1219, as amended by the Higher Education Amendments of 1986, Pub. L. 99-498, sec. 406 (adding sec. 472 to the Higher Education Act of 1965), 100 Stat. 1454, codified at 20 U.S.C. sec. 108711(3) (Supp. IV 1998), as in effect on the date of the enactment of this paragraph.10 Section 529(e)(3) was added by the Taxpayer Relief Act
We concluded on that issue as follows: After a review of the statutory framework and legislative history of section 4975 and the case law interpreting ERISA section 406, we conclude that the prohibited transactions contained in section 4975(c)(1) are just that.
857,6 section 406 of the Revenue Act of 1935, ch. 829, 49 Stat. 1027, removed the prerequisite of a return for a finding of reasonable cause, and it ceases to be a prerequisite today, see sec. 6651(a)(1); see also Bowlen v. Commissioner, 4 T.C. 486, 494 (1944); Estate of Kirchner v. Commissioner, 46 B.T.A. 578 (1942). The knowledge that we do impute to p