PLR 200844002: Foreign pension arrangement was classified as a trust

Plain-English summary

A foreign pension arrangement provided retirement, disability, and survivor benefits to covered employees and their surviving relatives. It received employer and employee contributions, invested under a regulated plan, and was governed by a board with equal employer and employee representation. Its assets had to protect accumulated benefits, and participants could not unilaterally transfer their pension rights. The tax regulations treat an arrangement as a trust when trustees protect and conserve property for beneficiaries who do not share responsibility for operating a business for profit. Based on the submitted facts and representations, the IRS classified the arrangement as a trust for federal tax purposes. It did not decide whether the arrangement or its beneficiaries qualified for any Code or treaty benefits.

Ruling snapshot

• Question: Was the foreign pension arrangement a trust for federal tax purposes?
• Outcome: Approved. The IRS classified the arrangement as a trust under Treas. Reg. § 301.7701-4(a).
• Key authorities: Treas. Reg. §§ 301.7701-1(b), 301.7701-2, 301.7701-3, 301.7701-4(a)

Full text (IRS public release)

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Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 200844002
Release Date: 10/31/2008
Index Number: 7704.03-00

---------------------------------- Person To Contact:
--------------------------------------------------- -----------------------, ID No. -------------
--------------------------------------- Telephone Number:
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-------------------- Refer Reply To:
--------------------- CC:PSI:2
---------------------------- PLR-113641-08
Date:
July 08, 2008

Legend

Taxpayer: -----------------------------------------------------------------

Entity: -----------

Country: ----------------------

Covered Employees: ----------------------------------------------------

Act: -----------------

Body: ------------------------------------------------------

Dear -----------------------------------------:

  This responds to a letter dated November 19, 2007, and subsequent

correspondence, submitted on behalf of Taxpayer by its authorized representative,
requesting a ruling that Taxpayer is treated as a trust for federal tax purposes under
§ 301.7701-4 of the Procedure and Administration Regulations.

    The information submitted states that Taxpayer is organized as an Entity under

the laws of Country. Taxpayer was created to provide a vehicle for making retirement,
disability, and survivor benefits available to Covered Employees and their surviving
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relatives in Country. Taxpayer is exempt from income taxation under the laws of
Country on its pension-related activities.

   Taxpayer is governed by Act, as well as its own governing documents, and

regulated by Body. Body is the official government body established to supervise
pension funds in Country.

   Taxpayer’s governing documents provide that Taxpayer’s purpose is to ensure

the pensions of the Covered Employees and their surviving dependents. Taxpayer has
the power to engage in any activity that conforms with Act and that serves to protect the
benefits accumulated by the parties.

   Taxpayer’s governing documents provide that the governance and management

of Taxpayer is determined by the Board of Trustees (Board), which consists of an equal
number of directors elected by the employers and employees. All Board resolutions are
required to be passed by majority vote.

   Taxpayer derives its income from a combination of employee contributions,

employer contributions, and income from investments. The available funds of Taxpayer
are required to be invested responsibly based on an investment plan adopted by Board
pursuant to Act. Taxpayer is required to annually produce an audited report of its
financial position, including a signed statement from the auditors.

   Taxpayer has an unlimited life. If Taxpayer is to be liquidated, there must be an

extraordinary resolution to vest the whole or any part of its assets in some other body
having similar objects or functions. In the event of the dissolution of Taxpayer, Board is
authorized to settle the interests of the active and deferred participants and other
interested parties. Board is authorized to transfer the liabilities and obligations with
respect to pensions and other benefits to another pension fund governed by the Act.
Members of Taxpayer cannot unilaterally assign or transfer their pension benefits to
another person.

  Section 301.7701-1(b) provides that the classification of organizations that are

recognized as separate entities is determined under § 301.7701-2, § 301.7701-3, and
§ 301.7701-4 unless a provision of the Internal Revenue Code provides for special
treatment of that organization.

   Section 301.7701-4(a) provides that, in general, an arrangement will be treated

as a trust if it can be shown that the purpose of the arrangement is to vest in trustees
responsibility for the protection and conservation of property for beneficiaries who
cannot share in the discharge of this responsibility and, therefore, are not associates in
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a joint enterprise for the conduct of business for profit. If an entity has both associates
and a business purpose, it cannot be classified as a trust for federal tax purposes.

   Based solely on the facts submitted and the representations made, we conclude

that Taxpayer is classified as a trust for federal tax purposes under § 301.7701-4(a).

   Except as expressly provided, no opinion is expressed concerning the federal tax

consequences of the facts described above under any other provision of the Code.
Specifically, we make no determination concerning whether Taxpayer or its
beneficiaries are entitled to any benefits under the Code or the income tax treaty
entered into by Country and the United States concerning income derived from the
United States.

  This ruling is directed only to the taxpayers receiving it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.

     In accordance with the power of attorney on file with this office, a copy of this

letter is being sent to Taxpayer's authorized representative.

                                           Sincerely,



                                           Bradford R. Poston
                                           Senior Counsel, Branch 2
                                           Associate Chief Counsel
                                           (Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes
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