§ 404A. Deduction for certain foreign deferred compensation plans
(b)
Rules for qualified funded plans
For purposes of this section—
(1)
In general
Except as otherwise provided in this section, in the case of a qualified funded plan contributions are properly taken into account for the taxable year in which paid.
(2)
Payment after close of taxable year
For purposes of paragraph (1), a payment made after the close of a taxable year shall be treated as made on the last day of such year if the payment is made—
(3)
Limitations
In the case of a qualified funded plan, the amount allowable as a deduction for the taxable year shall be subject to—
(4)
Carryover
If—
(A)
the aggregate of the contributions paid during the taxable year reduced by any contributions not allowable as a deduction under paragraphs (1) and (2) of subsection (g), exceeds
(B)
the amount allowable as a deduction under subsection (a) (determined without regard to subsection (d)),
such excess shall be treated as an amount paid in the succeeding taxable year.
(c)
Rules relating to qualified reserve plans
For purposes of this section—
(1)
In general
In the case of a qualified reserve plan, the amount properly taken into account for the taxable year is the reasonable addition for such year to a reserve for the taxpayer’s liability under the plan. Unless otherwise required or permitted in regulations prescribed by the Secretary, the reserve for the taxpayer’s liability shall be determined under the unit credit method modified to reflect the requirements of paragraphs (3) and (4). All benefits paid under the plan shall be charged to the reserve.
(2)
Income item
In the case of a plan which is or has been a qualified reserve plan, an amount equal to that portion of any decrease for the taxable year in the reserve which is not attributable to the payment of benefits shall be included in gross income.
(3)
Rights must be nonforfeitable, etc.
In the case of a qualified reserve plan, an item shall be taken into account for a taxable year only if—
(d)
Amounts taken into account must be consistent with amounts allowed under foreign law
(1)
General rule
In the case of any plan, the amount allowed as a deduction under subsection (a) for any taxable year shall equal—
(2)
Cumulative amounts defined
For purposes of paragraph (1)—
(A)
Cumulative United States amount
The term “cumulative United States amount” means the aggregate amount determined with respect to the plan under this section for the taxable year and for all prior taxable years to which this section applies. Such determination shall be made for each taxable year without regard to the application of paragraph (1).
(3)
Effect on earnings and profits, etc.
In determining the earnings and profits and accumulated profits of any foreign corporation with respect to a qualified foreign plan, except as provided in regulations, the amount determined under paragraph (1) with respect to any plan for any taxable year shall in no event exceed the amount allowed as a deduction under the appropriate foreign tax laws for such taxable year.
(e)
Qualified foreign plan
For purposes of this section, the term “qualified foreign plan” means any written plan of an employer for deferring the receipt of compensation but only if—
(f)
Funded and reserve plans
For purposes of this section—
(1)
Qualified funded plan
The term “qualified funded plan” means a qualified foreign plan which is not a qualified reserve plan.
(2)
Qualified reserve plan
The term “qualified reserve plan” means a qualified foreign plan with respect to which an election made by the taxpayer is in effect for the taxable year. An election under the preceding sentence shall be made in such manner and form as the Secretary may by regulations prescribe and, once made, may be revoked only with the consent of the Secretary.
(g)
Other special rules
(1)
No deduction for certain amounts
Except as provided in section
404
(a)(5), no deduction shall be allowed under this section for any item to the extent such item is attributable to services—
(2)
Taxpayer must furnish information
(A)
In general
No deduction shall be allowed under this section with respect to any plan for any taxable year unless the taxpayer furnishes to the Secretary with respect to such plan (at such time as the Secretary may by regulations prescribe)—
(i)
a statement from the foreign tax authorities specifying the amount of the deduction allowed in computing taxable income under foreign law for such year with respect to such plan,
(B)
Redetermination where foreign tax deduction is adjusted
If the deduction under foreign tax law is adjusted, the taxpayer shall notify the Secretary of such adjustment on or before the date prescribed by regulations, and the Secretary shall redetermine the amount of the tax for the year or years affected. In any case described in the preceding sentence, rules similar to the rules of subsection (c) of section
905 shall apply.
(3)
Actuarial assumptions must be reasonable; full funding
(B)
Interest rate for reserve plan
(i)
In general
In the case of a qualified reserve plan, in lieu of taking rates of interest into account under subparagraph (A), the rate of interest for the plan shall be the rate selected by the taxpayer which is within the permissible range.
(ii)
Rate remains in effect so long as it falls within permissible range
Any rate selected by the taxpayer for the plan under this subparagraph shall remain in effect for such plan until the first taxable year for which such rate is no longer within the permissible range. At such time, the taxpayer shall select a new rate of interest which is within the permissible range applicable at such time.
(iii)
Permissible range
For purposes of this subparagraph, the term “permissible range” means a rate of interest which is not more than 20 percent above, and not more than 20 percent below, the average rate of interest for long-term corporate bonds in the appropriate country for the 15-year period ending on the last day before the beginning of the taxable year.
(5)
Section
481 applies to election
For purposes of section
481, any election under this section shall be treated as a change in the taxpayer’s method of accounting. In applying section
481 with respect to any such election, the period for taking into account any increase or decrease in accumulated profits, earnings and profits or taxable income resulting from the application of section
481
(a)(2) shall be the year for which the election is made and the fourteen succeeding years.
(h)
Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section (including regulations providing for the coordination of the provisions of this section with section
404 in the case of a plan which has been subject to both of such sections).
[1] So in original. The word “and” probably should not appear.