Internal Revenue Code · 26 U.S.C.
§ 404A. Deduction for certain foreign deferred compensation plans
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 404A
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Added
- December 28, 1980 by Pub. L. 96–603
- Last amended
- March 23, 2018 by Pub. L. 115–141
- Amendments
- 4 dated changes in the source credit
- Length
- 8 subsections · 1,845 words · about 8 min to read
- Defines
- 6 terms
- Cross-references
- cites 7; cited by 3 Code sections and 6 other regulations
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.
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.
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.
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.
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).
(Added Pub. L. 96–603, § 2(a), Dec. 28, 1980, 94 Stat. 3505; amended Pub. L. 99–514, title XI, § 1114(b)(8), title XVIII, § 1851(b)(2)(C)(iii), Oct. 22, 1986, 100 Stat. 2451, 2863; Pub. L. 100–647, title I, § 1012(b)(4), Nov. 10, 1988, 102 Stat. 3496; Pub. L. 109–280, title VIII, § 801(c)(4), Aug. 17, 2006, 120 Stat. 995; Pub. L. 115–141, div. U, title IV, § 401(a)(74), Mar. 23, 2018, 132 Stat. 1187.)
Terms defined here
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Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 7 other sections
- § 404(a)(1) Deduction for contributions of an employer to an employees’ trust or annuity plan and compensation under a deferred-payment plan
- § 401(a)(2) Qualified pension, profit-sharing, and stock bonus plans
- § 414(q) Definitions and special rules
- § 905 Applicable rules
- § 431(c) Minimum funding standards for multiemployer plans
- § 446(e) General rule for methods of accounting
- § 481 Adjustments required by changes in method of accounting
Cited by 3 Code sections
- § 56A(c)(11)(B)(ii) Adjusted financial statement income
- § 419(e)(2)(C) Treatment of funded welfare benefit plans
- § 6689(b) Failure to file notice of redetermination of foreign tax
Cited in 6 regulations not issued under it
Amendment history
From the source credit and the official notes, newest first.
Where it sits in the Code
- Subtitle A Income Taxes
- Chapter 1 NORMAL TAXES AND SURTAXES
- Subchapter D Deferred Compensation, Etc.
- Part I PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
- Subpart A General Rule
Nearby sections
- § 402 Taxability of beneficiary of employees’ trust
- § 402A Optional treatment of elective deferrals as Roth contributions
- § 403 Taxation of employee annuities
- § 404 Deduction for contributions of an employer to an employees’ trust or annuity plan and compensation under a deferred-payment plan
- § 404A Deduction for certain foreign deferred compensation plans
- § 405 Repealed
- § 406 Employees of foreign affiliates covered by section 3121(l) agreements
- § 407 Certain employees of domestic subsidiaries engaged in business outside the United States
- § 408 Individual retirement accounts
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Editorial Notes
Amendments
2018—Subsec. (c)(4)(B). Pub. L. 115–141 struck out “and” at end.
2006—Subsec. (g)(3)(A). Pub. L. 109–280 substituted “paragraphs (3) and (6) of section 431(c)” for “paragraphs (3) and (7) of section 412(c)”.
1988—Subsec. (d)(3). Pub. L. 100–647 inserted “except as provided in regulations,” after “qualified foreign plan,”.
1986—Subsec. (a). Pub. L. 99–514, § 1851(b)(2)(C)(iii), substituted “under this chapter” for “under section 162, 212, or 404” in par. (1) and “they would otherwise be deductible” for “they satisfy the conditions of section 162” in par. (2).
Subsec. (g)(1)(A). Pub. L. 99–514, § 1114(b)(8), substituted “a highly compensated employee (within the meaning of section 414(q))” for “an officer, shareholder, or highly compensated”.
Statutory Notes and Related Subsidiaries
Effective Date of 2006 Amendment
Amendment by Pub. L. 109–280 applicable to years beginning after Dec. 31, 2007, see section 801(e)(1) of Pub. L. 109–280, set out as a note under section 404 of this title.
Effective Date of 1988 Amendment
Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Effective Date of 1986 Amendment
Amendment by section 1114(b)(8) of Pub. L. 99–514 applicable to years beginning after Dec. 31, 1988, see section 1114(c)(3) of Pub. L. 99–514, set out as a note under section 414 of this title.
Amendment by section 1851(b)(2)(C)(iii) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.
Effective Date
Pub. L. 96–603, § 2(e), Dec. 28, 1980, 94 Stat. 3510, as amended by Pub. L. 97–448, title III, § 305(a), Jan. 12, 1983, 96 Stat. 2399; Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
“(1) In general.— 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.“(2) Election to apply amendments retroactively with respect to foreign subsidiaries.—“(A) In general.— 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.“(B) Scope of retroactive application.— Any election made under this paragraph shall apply with respect to all foreign subsidiaries of the taxpayer for the taxpayer’s open period.“(C) Distributions by foreign subsidiary must be out of post-1971 earnings and profits.— 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.“(D) Revocation only with consent.— An election under this paragraph may be revoked only with the consent of the Secretary of the Treasury or his delegate.“(E) Open period.— 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.“(3) Allowance of prior deductions in case of certain funded branch plans.—“(A) In general.— If—“(i) the taxpayer elects to have this paragraph apply, and“(ii) the taxpayer agrees to the assessment of all deficiencies (including interest thereon) arising from all erroneous deductions,then an amount equal to 1⁄15th of the aggregate of the prior deductions which would have been allowable 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, shall be allowed as a deduction for the taxpayer’s first taxable year beginning in 1980, and an equal amount shall be allowed for each of the succeeding 14 taxable years.“(B) Prior deduction.— For purposes of subparagraph (A), the term ‘prior deduction’ means a deduction with respect to a qualified funded plan (within the meaning of section 404A(f)(1) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) of the taxpayer—“(i) 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,“(ii) which was not allowable, and“(iii) with respect to which, on December 1, 1980, the assessment of a deficiency was not barred by any law or rule of law.“(4) Time and manner for making elections.—“(A) Time.— 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.“(B) Manner.— 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.”
[Pub. L. 97–448, title III, § 311(c)(1), Jan. 12, 1983, 96 Stat. 2411, provided that: “The amendment made by subsection (a) of section 305 [amending par. (2)(E) of this note] shall take effect on December 28, 1980.”
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Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1114 of Pub. L. 99–514, see section 1141 of Pub. L. 99–514, set out as a note under section 401 of this title.
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.