26 U.S.C. § 404A: Deduction for certain foreign deferred compensation plans

shall not be allowable as a deduction under this chapter, but if they would otherwise be deductible, shall be allowed as a deduction under this section for the taxable year for which such amounts are properly taken into account under this section. 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. on account of such year, and not later than the time prescribed by law for filing the return for such year (including extensions thereof). a plan under which the benefits are fixed or determinable, limitations similar to those contained in clauses (ii) and (iii) of subparagraph (A) of section 404(a)(1) (determined without regard to the last sentence of such subparagraph (A)), or any other plan, limitations similar to the limitations contained in paragraph (3) of section 404(a), and limitations similar to those contained in paragraph (7) of section 404(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 the amount allowable as a deduction under subsection (a) (determined without regard to subsection (d)), to a trust (or the equivalent of a trust) which meets the requirements of section 401(a)(2), for a retirement annuity, or to a participant or beneficiary. 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. 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. there is no substantial risk that the rights of the employee will be forfeited, and such item meets such additional requirements as the Secretary may by regulations prescribe as necessary or appropriate to ensure that the liability will be satisfied. the adoption of the plan or a plan amendment, experience gains and losses, any change in actuarial assumptions, changes in the interest rate under subsection (g)(3)(B), and such other factors as may be prescribed by regulations. the cumulative United States amount, or the cumulative foreign amount, reduced by the aggregate amount determined under this section for all prior taxable years. 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). The term “cumulative foreign amount” means the aggregate amount allowed as a deduction under the appropriate foreign tax laws for the taxable year and all prior taxable years to which this section applies. 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. such plan is for the exclusive benefit of the employer’s employees or their beneficiaries, performed by nonresident aliens, and the compensation for which is not subject to tax under this chapter, and the employer elects (at such time and in such manner as the Secretary shall by regulations prescribe) to have this section apply to such plan. The term “qualified funded plan” means a qualified foreign plan which is not a 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. performed by a citizen or resident of the United States who is a highly compensated employee (within the meaning of section 414(q)), or performed in the United States the compensation for which is subject to tax under this chapter. 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, if the return under foreign tax law shows the deduction for plan contributions or reserves as a separate, identifiable item, a copy of the foreign tax return for the taxable year, or such other statement, return, or other evidence as the Secretary prescribes by regulation as being sufficient to establish the amount of the deduction under foreign law. 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. Except as provided in subparagraph (B), principles similar to those set forth in paragraphs (3) and (6) of section 431(c) shall apply for purposes of this section. 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. 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. 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. Any change in the method (but not the actuarial assumptions) used to determine the amount allowed as a deduction under subsection (a) shall be treated as a change in accounting method under section 446(e). 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. 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). The amendments made by this section [enacting this section and section 6689 of this title and amending sections 679 and 905 of this title] shall apply with respect to employer contributions or accruals for taxable years beginning after December 31, 1979 . The taxpayer may elect to have the amendments made by this section [enacting this section and section 6689 of this title and amending sections 679 and 905 of this title] apply retroactively with respect to its foreign subsidiaries. Any election made under this paragraph shall apply with respect to all foreign subsidiaries of the taxpayer for the taxpayer’s open period. The election under this paragraph shall apply to distributions made by a foreign subsidiary only if made out of accumulated profits (or earnings and profits) earned after December 31, 1970 . An election under this paragraph may be revoked only with the consent of the Secretary of the Treasury or his delegate. For purposes of this subsection, the term ‘open period’ means, with respect to any taxpayer, all taxable years which begin before January 1, 1980 , and which begin after December 31, 1971 , and for which, on December 31, 1980 , the making of a refund, or the assessment of a deficiency, was not barred by any law or rule of law. the taxpayer elects to have this paragraph apply, and the taxpayer agrees to the assessment of all deficiencies (including interest thereon) arising from all erroneous deductions, which the taxpayer claimed for a taxable year (or could have claimed if the amendments made by this section [enacting this section and section 6689 of this title and amending sections 679 and 905 of this title] applied to taxable years beginning before January 1, 1980 ) beginning before January 1, 1980 , which was not allowable, and with respect to which, on December 1, 1980 , the assessment of a deficiency was not barred by any law or rule of law. An election under paragraph (2) or (3) may be made only on or before the due date (including extensions) for filing the taxpayer’s return of tax under chapter 1 of the Internal Revenue Code of 1986 [section 1 et seq. of this title] for its first taxable year ending on or after December 31, 1980 . An election under paragraph (2) may be made only by a statement attached to the taxpayer’s return for its first taxable year ending on or after December 31, 1980 . An election under paragraph (3) may be made only if the taxpayer, on or before the last day for making the election, files with the Secretary of the Treasury or his delegate such amended return and such other information as the Secretary of the Treasury or his delegate may require, and agrees to the assessment of a deficiency for any closed year falling within the open period, to the extent such deficiency is attributable to the operation of such election.”