26 U.S.C. § 407 : US Code - Section 407: Certain employees of domestic subsidiaries engaged in business outside the United States

Search 26 U.S.C. § 407 : US Code - Section 407: Certain employees of domestic subsidiaries engaged in business outside the United States

(a) Treatment as employees of domestic parent corporation
(1) In general
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 a domestic
parent corporation, an individual who is a citizen or resident of
the United States and who is an employee of a domestic subsidiary
(within the meaning of paragraph (2)) of such domestic parent
corporation shall be treated as an employee of such domestic
parent corporation, if -
(A) the plan of such domestic parent corporation expressly
provides for contributions or benefits for individuals who are
citizens or residents of the United States and who are
employees of its domestic subsidiaries; and
(B) 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 domestic
subsidiary.
(2) Definitions
For purposes of this section -
(A) Domestic subsidiary
A corporation shall be treated as a domestic subsidiary for
any taxable year only if -
(i) such corporation is a domestic corporation 80 percent
or more of the outstanding voting stock of which is owned by
another domestic corporation;
(ii) 95 percent or more of its gross income for the three-
year period immediately preceding the close of its taxable
year which ends on or before the close of the taxable year of
such other domestic corporation (or for such part of such
period during which the corporation was in existence), was
derived from sources without the United States; and
(iii) 90 percent or more of its gross income for such
period (or such part) was derived from the active conduct of
a trade or business.
If for the period (or part thereof) referred to in clauses (ii)
and (iii) such corporation has no gross income, the provisions
of clauses (ii) and (iii) shall be treated as satisfied if it
is reasonable to anticipate that, with respect to the first
taxable year thereafter for which such corporation has gross
income, the provisions of such clauses will be satisfied.
(B) Domestic parent corporation
The domestic parent corporation of any domestic subsidiary is
the domestic corporation which owns 80 percent or more of the
outstanding voting stock of such domestic subsidiary.
(b) Special rules for application of section 401(a)
(1) Nondiscrimination requirements
For purposes of applying section 401(a)(4) and section 410(b)
with respect to an individual who is treated as an employee of a
domestic parent corporation under subsection (a) -
(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 domestic parent
corporation; and
(B) 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 domestic parent corporation and by
determining such individual's status with regard to such
domestic parent corporation.
(2) Determination of compensation
For purposes of applying paragraph (5) of section 401(a) with
respect to an individual who is treated as an employee of a
domestic parent corporation under subsection (a), the total
compensation of such individual shall be the remuneration paid to
such individual by the domestic subsidiary which would constitute
his total compensation if his services had been performed for
such domestic parent corporation, and the basic or regular rate
of compensation of such individual shall be determined under
regulations prescribed by the Secretary.
[(c) Repealed. Pub. L. 104-188, title I, Sec. 1401(b)(8), Aug. 20,
1996, 110 Stat. 1789]
(d) Deductibility of contributions
For purposes of applying section 404 with respect to
contributions made to or under a pension, profit-sharing, stock
bonus, or annuity plan by a domestic parent corporation, or by
another corporation 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 domestic corporation under
subsection (a) -
(1) except as provided in paragraph (2), no deduction shall be
allowed to such domestic parent corporation or to any other
corporation which is entitled to deduct its contributions under
such sections,
(2) there shall be allowed as a deduction to the domestic
subsidiary 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 domestic parent corporation
if he were an employee of the domestic parent corporation, and
(3) 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 domestic subsidiary under this
subsection shall be deductible for its taxable year with or within
which the taxable year of such domestic parent corporation ends.
(e) Treatment as employee under related provisions
An individual who is treated as an employee of a domestic parent
corporation under subsection (a) shall also be treated as an
employee of such domestic parent corporation, with respect to the
plan described in subsection (a)(1)(A), for purposes of applying
the following provisions of this title:
(1) Section 72(f) (relating to special rules for computing
employees' contributions).
(2) Section 2039 (relating to annuities).