Compliance June 9, 2004

IRS Release Nonresident Alien Pension Payment Guidance

June 9, 2004 (PLANSPONSOR.com) - The Internal Revenue Service (IRS) has provided plan sponsors with guidance on the tax withholdings of pension distributions to nonresident aliens.
Reported by

>Revenue Procedure 2004-37 offers plan sponsors the purpose, method and scope of the method for determining the source of a pension payment to a nonresident alien.  The revenue procedure covers pensiondistributions that take the form of a lump-sum distribution or astraight life annuity, the IRS said in a news release.

>Additionally, the Revenue Procedure also provides a method to determine the total contributions to a defined benefit plan of the nonresident alien, which the IRS defines as the product of the three quantities multiplied by one another:

  • present value of the individual’s pension payable at the annuity starting date;
  • the proper amount from a supplied table that when contributed on an annual basis, will accumulate to $1.00 at the starting date;
  • number of years from when the individual became a participant to the annuity starting date.

>Further, the Revenue Ruling lays out the calculations necessary to derive the three factors.   Example of different scenarios are also provided to assist plan sponsors, such as how to determine theU.S.-source portion of a pension distribution under a defined-benefitplan in cases where the retiree has performed services both in theUnited States and abroad during his or her employment.

A copy of Revenue Procedure 2004-37 is available at   http://www.treas.gov/press/releases/reports/rp%20200437.doc.

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