SECTION 5. DEFERRED

COMPENSATION ITEMS

A. In general

Section 877A(c)(1) provides that the tax under the mark-to-market regime provided in section 877A(a) does not apply to any deferred compensation item, as defined below. Instead, alternative tax regimes apply to “eligible deferred compensation items” and “ineligible deferred compensation items.” In the case of an “eligible deferred compensation item,” section 877A(d)(1)(A) provides generally that the payor must deduct and withhold a tax equal to 30 percent of any taxable payment to a covered expatriate with respect to such an item. In the case of “ineligible deferred compensation items,” section 877A(d)(2)(A) provides that a covered expatriate generally is subject to taxation on the ineligible deferred compensation item as if received by the covered expatriate on the day before the expatriation date.

Sections 5.B(2) and 5.B(3) of this notice provide definitions for “eligible deferred compensation items” and “ineligible deferred compensation items,” respectively. Sections 5.C and 5.D of this notice provide guidance on the taxation of “eligible deferred compensation items” and “ineligible deferred compensation items,” respectively.

B. Definitions

The following definitions apply for purposes of section 877A and this notice.

(1) Deferred compensation item means: a. Any interest in a plan or arrangement described in section 219(g)(5), which means:

i. a plan described in section 401(a) that includes a trust exempt from tax under section 501(a),

ii. an annuity plan described in section 403(a), iii. a plan established for its employees by the United States, by a State or political subdivision thereof, or by an agency or instrumentality of any of the foregoing, but excluding an eligible deferred compensation plan (within the meaning of section 457(b)), iv. an annuity contract described in section 403(b),

v. a simplified employee pension (within the meaning of section 408(k)),

vi. a simplified retirement account (within the meaning of section 408(p)), or

vii. a trust described in section 501(c)(18); b. Any interest in a foreign pension plan or similar retirement arrangement or program;

c. Any item of deferred compensation, as defined in section 5.B(4) of this notice; or

d. Any property, or right to property, that the individual is entitled to receive in connection with the performance of services to the extent not previously taken into account under section 83 or in accordance with section 83. Until further guidance is issued, a deferred compensation item described in this section 5.B(1)d means property that has been transferred (as defined in § 1.83–3(a)) to the covered expatriate, or a right to property that the covered expatriate, as of the expatriation date, has a legally binding right to receive, in connection with the performance of services (whether or not such property or right to property is substantially vested), but only to the extent the covered expatriate has not taken such item into account under, or in accordance with, section 83. For this purpose, the following generally constitute property or a right to property: statutory and nonstatutory stock options (see sections 421 through 424 and § 1.83–7); stock and other property; stock-settled stock appreciation rights; and stock-settled restricted stock units. A covered expatriate will be considered to have taken property or a right to property into account under section 83 or in accordance with section 83 to the extent that: (A) on or before the expatriation date, there has been a transfer of property

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In the case of a defined contribution plan described in section 5.B(1)a, until further guidance is issued, the present value of the covered expatriate’s accrued benefit is the account balance. In the case of a defined benefit plan described in section 5.B(1)a, until further guidance is issued, the present value of the covered expatriate’s accrued benefit is determined using the method set forth in section 4.02 of Rev. Proc. 2004–37, 2004–1 C.B. 1099, determined as of the day before the expatriation date. See section 5.E of this notice with respect to an amount of deferred compensation attributable to services performed outside the United States while the covered expatriate was not a citizen or resident of the United States.

With respect to any ineligible deferred compensation item not described in section 5.B(1)a or 5.B(1)d of this notice, until further guidance is issued, the present value of the covered expatriate’s accrued benefit is determined by applying principles in Prop. Treas. Reg. § 1.409A–4, except as provided herein. Where such proposed regulations provide for a determination to be made as of the end of the taxable year, such determination shall be made as of the day before the expatriation date. For the purposes of this section 5.D, the present value of the covered expatriate’s accrued benefit is determined without regard to any substantial risk of forfeiture. See section 5.E of this notice with respect to an amount of deferred compensation attributable to services performed outside the United States while the covered expatriate was not a citizen or resident of the United States.

With respect to any ineligible deferred compensation item described in section 5.B(1)d of this notice, the rights of the covered expatriate to such item will be treated as becoming transferable (within the meaning of Treas. Reg. § 1.83–3(d)) and not subject to a substantial risk of forfeiture (within the meaning of Treas. Reg. § 1.83–3(c)) on the day before the expatriation date. Thus, for example, in the case of property transferred to or on behalf of the covered expatriate in connection with the performance of services that has not become substantially vested as of the expatriation date, such as restricted stock, to the extent that the covered expatriate has not previously taken into account under section 83 or in accordance with section

ment the compensation is payable to (or on behalf of) the covered expatriate on or after the expatriation date, but such term does not include any deferred compensation item that is described in section 5.B(1)a, 5.B(1)b, or 5.B(1)d of this notice. An item of deferred compensation generally includes an amount (other than a deferred compensation item described in sections 5.B(1)a, 5.B(1)b, or 5.B(1)d of this notice), whether or not substantially vested, that constitutes nonqualified deferred compensation for purposes of section 404(a)(5) (determined without regard to § 1.404(b)–1T, Q&A 2), including a cash-settled stock appreciation right, a phantom stock arrangement, a cash-settled restricted stock unit, an unfunded and unsecured promise to pay money or other compensation in the future (other than such a promise to transfer property in the future), and an interest in a trust described in section 402(b)(1) or (4) (commonly referred to as a secular trust).

(5) Property has the meaning set out in § 1.83–3(e).

(6) Stock appreciation right means a right to compensation based on the appreciation in value of a specified number of shares of stock or other property during a specified period (such as a period beginning on the date of grant or some other specified date and the date of exercise of such right). A stock appreciation right is a stock-settled stock appreciation right to the extent that the compensation payable under such right is in the form of a transfer of shares of stock or other property or a right to receive property in the future. A stock appreciation right is a cash-settled stock appreciation right to the extent that it is not a stock-settled stock appreciation right.

(7) Restricted stock unit means a right to receive compensation in cash, shares of stock, or other property, as defined in section 5.B(5) of this notice, following the satisfaction of a specified vesting condition. A restricted stock unit is a stock-settled restricted stock unit to the extent that the compensation payable under such restricted stock unit is in the form of a transfer following the satisfaction of such vesting condition of shares of stock or other property or a right to receive property in the future. A restricted stock unit is a cash-settled restricted stock unit to the ex

tent that it is not a stock-settled restricted stock unit.

(8) Substantially vested has the meaning set out in § 1.83–3(b).

C. Taxation of eligible deferred compensation items

If a deferred compensation item qualifies as an eligible deferred compensation item, the payor must deduct and withhold a tax equal to 30 percent of any taxable payment to a covered expatriate with respect to such an item. Section 877A(d)(1)(B) provides that a taxable payment is any payment to the extent it would be includible in gross income of the covered expatriate if such person continued to be subject to tax as a citizen or resident of the United States. Because the covered expatriate must waive his or her right to claim treaty benefits with respect to an eligible deferred compensation item, the 30 percent withholding tax cannot be reduced or eliminated by treaty. See section 5.E of this notice for rules with respect to an amount of deferred compensation attributable to services performed outside the United States while the covered expatriate was not a citizen or resident of the United States. See section 5.F of this notice for information concerning the application of the withholding rules.

D. Taxation of ineligible deferred compensation items

With respect to any ineligible deferred compensation item described in section 5.B(1)a, 5.B(1)b, and 5.B(1)c of this notice, an amount equal to the present value of the covered expatriate’s accrued benefit is treated as having been received by the covered expatriate on the day before the expatriation date as a distribution under the plan and must be included on the covered expatriate’s Form 1040 (or other schedule, as provided in Treas. Reg. § 1.6012–1(b)(2)(ii)( b )) for the portion of the taxable year that includes the day before the expatriation date.

Within 60 days of the receipt of a properly completed Form W–8CE, the payor of the ineligible deferred compensation item must advise the covered expatriate of the present value of the covered expatriate’s accrued benefit in the deferred compensation item on the day before the expatriation date. See section 8 of this notice for more information concerning Form W–8CE.

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triation date while the covered expatriate was not a citizen or resident of the United States, the amount includible in income under section 877A(d)(2)(A) with respect to such item will not include such portion.

Until further guidance is issued, taxpayers may use any reasonable method that is consistent with existing guidance (including Treas. Reg. § 1.861–4(b)(2), Revenue Ruling 79–388, and Revenue Procedure 2004–37) and is based upon a reasonable, good faith interpretation of section 877A(d)(5) to determine the portion of a deferred compensation item that is attributable to services performed outside the United States while the covered expatriate was not a citizen or resident of the United States.

F. Application of withholding rules

Section 877A(d)(6) provides that the tax that is imposed on taxable payments from eligible deferred compensation items by section 877A(d)(1) is imposed under section 871, but that the payment is subject to withholding under section 877A(d)(1) and not under section 1441 or Chapter 24. Any amount due under section 871 that is not paid by means of withholding must be reported on the income tax return filed by the covered expatriate for the relevant taxable year. Section 877A(d)(6)(A) provides that rules similar to the rules of sections 1461 through 1464 apply for purposes of section 877A(d). Thus, a payor is liable for the tax as stated under section 1461. The covered expatriate must notify the payor of his or her covered expatriate status by submitting Form W–8CE to the trustee on the earlier of (1) the day prior to the first distribution on or after the expatriation date or (2) 30 days after the expatriation date.

Section 877A(g)(1)(C) provides that in the case of any covered expatriate who is subject to tax as a citizen or resident of the United States for any period beginning after the expatriation date, such individual will not be treated as a covered expatriate during such period for purposes of the 30 percent withholding tax on a taxable payment from an eligible deferred compensation item. Thus, the taxable payment would not be subject to tax under section 871, but would be subject to the tax imposed on payments to a citizen or resident of the United States.

83 with respect to such transfer, generally such property will be treated as having become substantially vested for purposes of section 83 on the day before the expatriation date. Consequently, the fair market value of such property (determined without regard to any lapse restriction as defined in Treas. Reg. § 1.83–3(i)), reduced by the amount (if any) the covered expatriate paid for the property, generally will be includible in the covered expatriate’s income for Federal income tax purposes as of such date.

With respect to a right to a transfer of property in the future (such as a stock-settled stock appreciation right or a stock-settled restricted stock unit), such right will be treated as substantially vested as of the day before the expatriation date and, under the cash-equivalency doctrine (see Cowden v. Commissioner, 289 F.2d 20 (5 ^th Cir. 1961)), the value of such right generally will be includible in the income of the covered expatriate as of such date. Until further guidance is issued, the value of such right is determined by applying principles similar to Prop. Treas. Reg. § 1.409A–4, except that where such proposed regulations provide for a determination to be made as of the end of the taxable year, such determination shall be made as of the day before the expatriation date.

Under section 877A(d)(2)(B), no early distribution tax will be imposed by reason of the treatment resulting from section 877A(d)(2)(A). For purposes of this notice, an early distribution tax is any additional tax that would be imposed under sections 72(t), 220(e)(4), 223(f)(4), 409A(a)(1)(B), 529(c)(6), or 530(d)(4) if the amounts required to be included in the income of the covered expatriate under section 877A(d)(2) had actually been paid or transferred to the covered expatriate on the day before the expatriation date.

Section 877A(d)(2)(C) provides that appropriate adjustments shall be made to subsequent distributions from the plan to reflect the tax imposed by section 877A(d)(2). Thus, when the covered expatriate receives distributions, the amount that was includible in his or her gross income under section 877A(d)(2) will be treated as investment in the contract for purposes of section 72 in cases where such section would apply to such amounts.

In other cases, the covered expatriate may make an appropriate adjustment to the amount that would otherwise be includible in the covered expatriate’s income to prevent amounts previously taxed under section 877A(d)(2) from being includible in income and subject to Federal income tax a second time. With respect to ineligible deferred compensation items to which Prop. Treas. Reg. § 1.409A–4 would apply, such adjustment will be made pursuant to principles similar to Prop. Treas. Reg. § 1.409A–4. With respect to any ineligible deferred compensation items to which section 72 does not apply and Prop. Treas. Reg. § 1.409A–4 would not apply, until further guidance is issued, taxpayers may use any reasonable method to determine the amount of such adjustment, so long as such method: is consistently applied to all such ineligible deferred compensation items with respect to the covered expatriate; does not reduce the amount includible in the covered expatriate’s income with respect to any ineligible deferred compensation item below zero; and does not result in an aggregate amount of such adjustments that, when combined with amounts treated as investment in the contract for purposes of section 72 and pursuant to principles similar to Prop. Treas. Reg. § 1.409A–4, exceeds the amount included in the covered expatriate’s income pursuant to section 877A(d)(2)(A).

E. Services performed outside the United States

Section 877A(d)(5) provides that the rules of sections 877A(d)(1) and (2) shall not apply to any deferred compensation item to the extent attributable to services performed outside the United States while the covered expatriate was not a citizen or resident of the United States. Thus, in the case of an eligible deferred compensation item, the amount of a taxable payment under section 877A(d)(1)(A) with respect to such item will not include the portion of such item that is attributable to services performed outside the United States before or after the expatriation date while the covered expatriate was not a citizen or resident of the United States.

To the extent that a portion of an ineligible deferred compensation item is attributable to services performed outside the United States before or after the expa

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This notice does not address certain withholding issues with respect to deferred compensation items. Pending further guidance, employers and plans need not withhold income taxes with respect to amounts deemed received under section 877A(d)(2)(A). Instead, the covered expatriate should report ineligible deferred compensation items on his or her Form 1040 (or other schedule, as provided in Treas. Reg. § 1.6012–1(b)(2)(ii)( b )) for the portion of the taxable year that includes the day before the expatriation date. Also pending further guidance, the FICA and FUTA taxation of deferred compensation items should be determined without regard to section 877A. The IRS and Treasury Department invite public comments on these issues and expect to provide future guidance on such withholding requirements.

G. Examples

Example 9 . On January 3, 2006, Corporation Y, a U.S. corporation, granted B, an employee of Corporation Y, 10 stock-settled stock appreciation rights and 10 cash-settled stock appreciation rights in connection with B’s performance of services. B can exercise the stock appreciation rights at any time from January 3, 2006, through January 2, 2016. Each stock-settled stock appreciation right entitles B to receive upon exercise a number of shares of the common stock of Corporation Y equal to the difference between the value of a share of Corporation Y common stock on the date B exercises the right over the value of a share of such stock on the date of grant, divided by the value of a share of such stock on the date of exercise. Each cash-settled stock appreciation right entitles B to a cash payment upon exercise equal to the excess of the value of a share of Corporation Y stock on the date of exercise over the value of a share of such stock on the date of grant. The stock appreciation rights do not provide for a deferral of compensation under section 409A, in accordance with Treas. Reg. § 1.409A–1(b)(5). On January 3, 2006, the per share price of the Corporation Y stock was $10. As of November 18, 2009, B had not exercised any of the stock appreciation rights and the value of a share of the Corporation Y stock was $20. On November 19, 2009, B ceases to be a lawful permanent resident of the United States and becomes a covered expatriate. During B’s employment with Corporation Y, B performed all services for Corporation Y in the United States.

The stock-settled stock appreciation rights are deferred compensation items within the meaning of section 877A(d)(4)(D). Pursuant to section 877A(d)(2)(A)(ii), the stock-settled stock appreciation rights are treated as substantially vested on November 18, 2009, and their value is includible in B’s income on that date. Pursuant to Prop. Treas. Reg. § 1.409A–4(b)(6), B is required to include $100 in income on that date with respect to such rights.

The cash-settled stock appreciation rights are deferred compensation items within the meaning of section 877A(d)(4)(C). Under section 877A(d)(2)(A)(i), B is treated as having received on November 18, 2009, an amount equal to the present value of the cash-settled stock appreciation rights. Pursuant to Prop. Treas. Reg. § 1.409A–4(b)(6), B is required to include $100 in income with respect to such rights.

Example 10. Assume the same facts as in Example 9, except that, with respect to all of B’s stock appreciation rights, B timely notifies Corporation Y of her status as a covered expatriate and irrevocably waives any right to claim any withholding reduction under any treaty with the United States. On January 15, 2010, when the value of a share of Corporation Y stock is $25, B exercises all of her stock appreciation rights.

The stock appreciation rights are eligible deferred compensation items within the meaning of section 877A(d)(3). B has no income inclusion on November 18, 2009, with respect to the stock appreciation rights.

With respect to the stock-settled stock appreciation rights, on January 15, 2010, B is required to include $150 in income. Corporation Y is required to deduct and withhold a tax equal to $45 from the $150 of income recognized by B on January 15, 2010 (30% of the amount included in B’s gross income). With respect to the cash-settled stock appreciation rights, Corporation Y is required to deduct and withhold a tax equal to $45 from the $150 that is includible in B’s income on January 15, 2010.

Example 11. C relinquishes his citizenship on December 17, 2009 and becomes a covered expatriate. On December 16, 2009, C was an employee of Corporation Z, a U.S. corporation. During C’s employment with Corporation Z, C performed all services for Corporation Z in the United States.

On December 16, 2009, C had stock-settled restricted stock units that entitle C to 100 shares of Corporation Z’s common stock if C continues to provide substantial services to Corporation Z until December 16, 2013. Corporation Z granted C the restricted stock units on December 16, 2008, in connection with C’s performance of services. Under Treas. Reg. § 1.409A–1(b)(4), the restricted stock units do not provide for a deferral of compensation for purposes of section 409A. On December 16, 2009, the fair market value of a share of Corporation Z stock was $30.

The stock-settled restricted stock units are deferred compensation items within the meaning of section 877A(d)(4)(D). Pursuant to section 877A(d)(2)(A)(ii), the stock-settled restricted stock units are treated as substantially vested on December 16, 2009, and the value of such units is includible in C’s income on December 16, 2009. Pursuant to Prop. Treas. Reg. § 1.409A–4(b)(6), C is required to include $3,000 in income on December 16, 2009, the amount of the fair market value of Corporation Z’s stock on that date multiplied by the number of shares covered by the restricted stock units ($30 x 100).

Example 12 . Assume the same facts as in Example 11, except that, on December 16, 2009, with respect to the restricted stock units, C timely notifies Corporation Z of his status as a covered expatriate and irrevocably waives any right to claim any withholding reduction under any treaty with the United

States. C continues to perform services for Corporation Z outside the United States and, on December 16, 2013, C fulfills the requirements of the vesting schedule and receives 100 shares of Corporation Z’s common stock when the share price of Corporation Z stock is $50.

The restricted stock units are eligible deferred compensation items within the meaning of section 877A(d)(3). C has no income inclusion on December 16, 2009, with respect to the restricted stock units.

Pursuant to section 5.E of this notice, C reasonably determines that 80% of the value of the stock transferred to C on December 16, 2013 pursuant to the restricted stock units is attributable to services performed outside the United States while C was not a citizen or resident of the United States. Therefore, $1,000 (20% of $5,000) will be includible in C’s gross income and Corporation Z is required to deduct and withhold a tax equal to $300.

Example 13 . D has been a U.S. citizen since birth. D relinquishes her citizenship on November 19, 2009 and becomes a covered expatriate. On November 18, 2009, the day before D’s relinquishment of citizenship, D was an employee of Corporation W, a U.S. corporation. After November 18, 2009, D performs services for Corporation W outside the United States.

On November 18, 2009, D had 1,000 shares of restricted common stock of Corporation W that Corporation W granted to D on November 18, 2008, in connection with D’s performance of services. Under the terms of the award, D will forfeit all of the restricted shares if D ceases to be employed by Corporation D before November 18, 2013. D’s shares of restricted stock become substantially vested on November 17, 2013. D did not make an election pursuant to section 83(b) with respect to the shares of restricted stock and paid nothing for them. On November 18, 2009, the fair market value of Corporation W’s stock was $100 per share.

The shares of restricted stock are deferred compensation items within the meaning of section 877A(d)(4)(D). Pursuant to section 877A(d)(2)(A)(ii), D’s rights to the shares of restricted stock are treated as substantially vested on November 18, 2009. Accordingly, D is required to include in income $100,000 ($100 x 1,000) on that date.

Example 14 . Assume the same facts as in Example 13, except that, with respect to the restricted stock, D timely notifies Corporation W of her status as a covered expatriate and irrevocably waives any right to claim any withholding reduction under any treaty with the United States. On November 18, 2013, D’s shares of restricted stock become substantially vested and the fair market value of Corporation W’s stock is $200.

Corporation W is required to deduct and withhold a tax equal to 30% from any income that would be includible in D’s gross income as a result of D being treated as a citizen or resident of the United States. Pursuant to section 5.E of this notice, D reasonably determines that 80% of the value of the restricted stock on November 18, 2013, is attributable to services performed outside the United States while D was not a citizen or resident of the United States. Therefore, on November 18, 2013, $40,000 (20% of $200,000) is includible in D’s gross income, and Cor

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poration W is required to deduct and withhold a tax equal to $12,000.

Example 15. E, a covered expatriate, relinquishes his citizenship on November 19, 2009, and becomes a resident of Country N. Country N does not have a tax treaty with the United States. Until November 19, 2009, while a citizen of the United States, E performed services as an employee for Corporation V, a U.S. corporation, in and outside the United States. After November 18, 2009, E performs services for Corporation V solely outside the United States.

On November 18, 2009, E participates in an account balance nonqualified deferred compensation plan. E’s account balance under the plan is deemed to be invested in a specified predetermined actual investment. The value of the deemed investment under E’s account balance plan is $1,000,000 on that date. Under the plan, Corporation V is required to pay E an amount equal to E’s account balance under the plan on November 30, 2012. E’s account balance plan complies with the requirements of section 409A at all relevant times and no amounts are set aside in a trust or otherwise to pay amounts due under the plan.

The account balance plan is an item of deferred compensation within the meaning of section 877A(d)(4)(C). Pursuant to section 877A(d)(2)(A)(i) and Prop. Treas. Reg. § 1.409A–4(b)(3), E is treated as having received $1,000,000 on November 18, 2009. If, on November 30, 2012, the value of the deemed investment in the account balance plan is $1,500,000 and that amount is includible in E’s gross income on that date, then, pursuant to section 877A(d)(2)(C) and Prop. Treas. Reg. § 1.409A–4, an appropriate adjustment is made as a result of E’s treatment as having received $1,000,000 on November 18, 2009. Accordingly, only $500,000 is includible in E’s gross income on November 30, 2012. Example 16. Assume the same facts as in Example 15, except that, with respect to the account balance plan, E timely notifies Corporation V of his status as a covered expatriate and irrevocably waives any right to claim any withholding reduction under any treaty with the United States.

The account balance plan is an eligible deferred compensation item within the meaning of section 877A(d)(3). E has no income inclusion on November 18, 2009, with respect to the account balance plan. On November 30, 2012, $1,500,000 is includible in E’s gross income as a result of E being treated as a citizen or resident of the United States, and Corporation V is required to deduct and withhold a tax equal to $450,000 from the amount it pays to E pursuant to the account balance plan.

Example 17. F relinquishes his citizenship on November 11, 2009, and becomes a covered expatriate. On November 10, 2009, the day before F’s relinquishment of citizenship, F was a participant in a plan described in section 401(a) that includes a trust exempt from tax under section 501(a). F complies with the procedures prescribed in section 8 of this notice for notifying the payor of his status as a covered expatriate and making an irrevocable waiver of any right to claim treaty benefits with respect to withholding on the payment. Therefore, F’s interest in the plan is an eligible deferred compensation item and tax will not be due under section 877A until F receives taxable payments from the plan. When F receives taxable

payments from the plan, the payor will be required to withhold 30 percent of the gross amount of each taxable payment pursuant to section 877A(d)(1).

Example 18. G relinquishes her citizenship on November 12, 2009, and becomes a covered expatriate. On November 11, 2009, the day before G’s relinquishment of citizenship, G was a participant in a plan described in section 401(a) that includes a trust exempt from tax under section 501(a). G does not comply with the prescribed procedures for notifying the payor of her status as a covered expatriate and making an irrevocable waiver of any right to claim treaty benefits with respect to withholding on the payment. Therefore, G’s interest in the plan is an ineligible deferred compensation item. Under section 877A(d)(2), G is treated as having received on November 11, 2009, an amount equal to the present value of her accrued benefit in the plan determined in accordance with section 5.D of this notice and is required to report this amount on her federal income tax return for the taxable year that includes November 11, 2009. G will not be subject to any tax on early distributions that might otherwise be payable.

When G receives distributions from the plan, the amount that G includes in her gross income for her taxable period ending on November 12, 2009, will be treated as investment in the contract for purposes of section 72. Thus, a portion of each distribution will constitute investment in the contract and will not be taxed again.

Example 19. H relinquishes his citizenship on November 13, 2009, and becomes a covered expatriate. On November 12, 2009, the day before H’s relinquishment of citizenship, H is a participant in a foreign pension plan that provides benefits pursuant to a trust described in section 402(b)(4) and that does not provide for a deferral of compensation under Treas. Reg. § 1.409A–1(b)(6). The trustee of the trust under the foreign pension plan does not comply with the procedures for electing to be treated as a U.S. person for purposes of section 877A(d)(1). Therefore, H’s interest in the plan is an ineligible deferred compensation item even if H complies with the prescribed procedures for notifying the payor of his status as a covered expatriate and makes an irrevocable waiver of any right to claim treaty benefits with respect to withholding on the payment. Under section 877A(d)(2), on November 12, 2009, H is treated as having received an amount equal to the present value of his accrued benefit in the plan determined in accordance with section 5.D of this notice and is required to report such amount (other than his investment in the contract) on his federal income tax return for the taxable year that includes November 12, 2009.