SECTION 2. BACKGROUND

Section 871(a) imposes a tax of 30 percent on amounts received by nonresident alien individuals as interest (other than original issue discount as defined in § 1273), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income to the extent the amount so received is from sources within the United States and is not effectively connected with the conduct of a trade or business within the United States.

Section 1441(a) provides for the withholding of tax, generally at a 30 percent rate, on certain income from sources within the United States paid to a nonresident alien individual. Section 1441(b) lists salaries, wages, annuities, compensations, remunerations, or other fixed or determinable annual or periodical gains, among other things, as items of income subject to the withholding of tax under § 1441(a).

Section 1.1441–4(b)(1)(ii) of the Income Tax Regulations provides generally that U.S.-source payments to a nonresident alien individual from a trust described in § 401(a) are subject to withholding under § 1441. But see § 871(f) (excluding from income certain amounts received from certain qualified plans); § 1.1441–4(d) (excluding such amounts from withholding).

Section 861(a)(3) provides generally that compensation for labor or personal

services performed in the United States is treated as income from sources within the United States. Section 862(a)(3) provides that compensation for labor or personal services performed outside the United States is treated as income from sources without the United States.

Employer contributions to an annuity or pension plan constitute compensation for labor or personal services. See, e.g., Rev. Rul. 56–82, 1956–1 C.B. 59. For purposes of determining the source of pension payments from a qualified trust under § 401(a), the portion of each payment that is attributable to employer contributions with respect to services rendered within the United States is treated as income from sources within the United States, the portion that is attributable to employer contributions with respect to services rendered outside the United States is treated as income from sources without the United States, and the portion that represents earnings and accretions to contributions of either the employer or the employee is treated as income from sources within the United States. Rev. Rul. 79–388, 1979–2 C.B. 270. See also, Clayton v. United States, 33 Fed. Cl. 628 (1995), aff’d with- out published opinion, 91 F.3d 170 (Fed. Cir. 1996), cert. denied, 519 U.S. 1040 (1996).

Employer contributions to a defined benefit plan qualified under § 401(a) covering more than one individual participant are not made for the benefit of specific participants, but are made based on aggregate liabilities to all participants. All funds held under the plan are available to provide benefits to any participant. Accordingly, it is not possible in such a case to allocate actual contributions to specific participants.