SECTION 5. EXAMPLES

.01 Retirement at age 65 . (a) Facts . P, a nonresident alien individual, is a citizen and resident of Country B. P will be age 65 on December 31, 2004. There is no income tax treaty in force between the United States and Country B.

P has been an employee of Company X, a domestic corporation, since 1975 and is retiring on December 31, 2004. P worked in Company X’s branch office in Country B from January 1, 1975, through December 31, 1984. On January 1, 1985, P was transferred to the United States to work at Company X’s headquarters. While P worked in the United States, P was classified as a resident alien under § 7701(b)(1)(A)(ii). On January 1, 1995, P was transferred back to Company X’s branch office in Country B, where P will have worked until retiring on December 31, 2004. In total, P will have worked 360 months for Company X, including 240 months worked in Country B and 120 months worked in the United States.

Throughout P’s employment by Company X, P has been a participant in a defined benefit plan (“Plan A”) maintained by Company X. The trust forming part of Plan A is a trust created or organized in the United States that constitutes a qualified trust under § 401(a). The normal form of retirement benefit under Plan A is a straight life annuity. The amount payable under the straight life annuity form is an annual benefit of 1 percent of highest-five years’ pay multiplied by years of service credited under the plan, payable monthly for life commencing at normal retirement age (age 65) or at actual retirement age, if later. Plan A provides for an actuarially reduced amount to be payable if the participant has a severance from employment before normal retirement age, but the reduction is smaller if the participant retires after age 55 with at least 20 years of service (for example, only a 16.67% reduction applies at age 55). Contributions under Plan A are not made on behalf of specific individual participants.

P is entitled to a monthly pension from Plan A beginning at age 65, the annual amount of which will be $30,000 payable as a straight life annuity. P elects to receive payment of that pension in the form of a straight life annuity commencing immediately. P has never made any after-tax

contributions to Plan A, and § 871(f), relating to an exclusion from gross income for certain amounts received from certain qualified pension plans, does not apply to any amounts received by P from Plan A.

(b) Application . The total deemed contributions for the benefit of P under the method set forth in section 4.01 of this revenue procedure equal $95,972, which is the product of $301,800 (the present value of P’s pension benefit from Plan A under section 4.02(a), computed as the product of $30,000 multiplied by 10.06, which is the applicable adjustment factor under Table II of section 4.03), multiplied by 0.0106 (the number from Table I that corresponds to the total number of years of accumulation for P before the annuity starting date), multiplied by 30 (P’s total years of service credited under the plan). Under section 4.04 of this revenue procedure, the portion of each payment that is treated as income from sources without the United States is equal to the quotient of (i) the product of 240/360 multiplied by $95,972, divided by (ii) $301,800, or 21 percent. The remaining 79 percent is treated as income from sources within the United States that is subject to withholding under § 1441(a).

.02 Early Retirement . (a) Facts . The facts with respect to Plan A and Company X are the same as in Example 5.01 . Q, a nonresident alien individual, is a citizen and resident of Country B. Q will be age 55 on December 31, 2004. There is no income tax treaty in force between the United States and Country B.

Q has been an employee of Company X since 1985 and is retiring on December 31, 2004. Q worked in Company X’s branch office in Country B from January 1, 1985, through December 31, 1994. On January 1, 1995, Q was transferred to the United States to work at Company X’s headquarters. While Q worked in the United States, Q was classified as a resident alien under § 7701(b)(1)(A)(ii). On September 1, 2001, Q was transferred back to Company X’s branch office in Country B, where Q will have worked until retiring on December 31, 2004. In total, Q will have worked 240 months for Company X, including 160 months worked in Country B and 80 months worked in the United States.

Throughout Q’s employment by Company X, Q has been a participant in Plan A. Q is entitled to a monthly pension

2004-26 I.R.B. 1103 June 28, 2004

national). However, other personnel from the IRS and Treasury Department participated in its development. For further information regarding this revenue procedure generally, contact Ms. Lyon at (202) 622–3880 (not a toll-free call). For information regarding computations under the method set forth in section 4 of this revenue procedure, contact Diane S. Bloom at (202) 283–9888 (not a toll-free call).

for determining the source of a pension payment to a nonresident alien individual from a trust under a defined benefit plan that is qualified under § 401(a) if the proposed method is inconsistent with sections 4.01, 4.02, and 4.03 of Revenue Procedure 2004–37, 2004–26 I.R.B. 1099.