[Federal Register Volume 63, Number 156 (Thursday, August 13, 1998)]
[Rules and Regulations]
[Pages 43303-43305]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: X98-20813]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Income Tax; Taxable Years Beginning After December 31, 1953
CFR Correction
In Title 26 of the Code of Federal Regulations, part 1 (Secs. 1.401
to 1.440), revised as of April 1, 1998, in Sec. 1.402(a)-1, paragraphs
(b)(2)(ii)(d) and (c) were inadvertently omitted. The reinstated text
of these paragraphs and the source note read as follows:
Sec. 1.402(a)-1 Taxability of beneficiary under a trust which meets
the requirements of section 401(a).
* * * * *
(b)* * *
(2)* * *
(ii)* * *
(d)(1) In all other cases, there shall be used the average cost (or
other basis) to the trust of all securities of the employer corporation
of the type distributed to the distributee which the trust has on hand
at the time of the distribution, or which the trust had on hand on a
specified inventory date which date does not precede the date of
distribution by more than twelve calendar months. If a distribution
includes securities of the employer corporation of more than one type,
the average cost (or other basis) to the trust of each type of security
distributed shall be determined. The average cost to the trust of
securities of the employer corporation on hand on a specified inventory
date (or on hand at the time of distribution) shall be computed on the
basis of their actual cost, considering the securities most recently
purchased to be those on hand, or by means of a moving average
calculated by subtracting from the total cost of securities on hand
immediately preceding a particular sale or distribution an amount
computed by multiplying the number of securities sold or distributed by
the average cost of all securities on hand preceding such sale or
distribution.
(2) These methods of computing average cost may be illustrated by
the following examples:
Example (1). A, a distributee who makes his income tax returns
on the basis of a calendar year, receives on August 1, 1954, in a
total distribution, to which paragraph (a)(6) of this section is
applicable, ten shares of class D stock of the employer corporation.
On July 1, 1954 (the specified inventory date of the trust), the
trust had on hand 80 shares of class D stock. The average cost of
the 10 shares distributed, on the basis of the actual cost method,
is $100 computed as follows:
------------------------------------------------------------------------
Cost
Shares Purchase date per Total
share cost
------------------------------------------------------------------------
20............................... June 24, 1954...... $101 $2,020
40............................... Jan. 10, 1953...... 102 4,080
20............................... Oct. 20, 1952...... 95 1,900
---------------------------------- --------
80............................... ................... 8,000
------------------------------------------------------------------------
Example (2). B, a distributee who makes his income tax returns
on the basis of a calendar year, receives on October 31, 1954, in a
total distribution, to which paragraph (a)(6) of this section is
applicable, 20 shares of class E stock of the employer corporation.
The specified inventory date of the trust is the last day of each
calendar year. The trust had on hand on December 31, 1952, 1,000
shares of class E stock of the employer corporation. During the
calendar year 1953 the trust distributed to four distributees a
total of 100 shares of such stock and acquired, through a number of
purchases, a total of 120 shares. The average cost of the
[[Page 43304]]
20 shares distributed to B, on the basis of the moving average
method, is $52 computed as follows:
------------------------------------------------------------------------
Total Average
Shares cost cost
------------------------------------------------------------------------
On hand Dec. 31, 1952...................... 1,000 $50,000 $50
Distributed during 1953 at average cost of
$50....................................... 100 5,000 (0)
----------------------------
900 45,000 (0)
Purchased during 1953...................... 120 8,000 (0)
On hand Dec. 31, 1953...................... 1,020 53,040 52
------------------------------------------------------------------------
(3) Unrealized appreciation attributable to employee contributions.
In any case in which it is necessary to determine the amount of net
unrealized appreciation in securities of the employer corporation which
is attributable to contributions made by an employee:
(i) The cost or other basis of the securities to the trust and the
amount of net unrealized appreciation shall first be determined in
accordance with the regulations in subparagraph (2) of this paragraph;
(ii) The amount contributed by the employee to the purchase of the
securities shall be solely the portion of his actual contributions to
the trust properly allocable to such securities, and shall not include
any part of the increment in the trust fund expended in the purchase of
the securities;
(iii) The amount of net unrealized appreciation in the securities
distributed which is attributable to the contributions of the employee
shall be that proportion of the net unrealized appreciation determined
under the regulations of subparagraph (2) of this paragraph which the
contributions of the employee properly allocable to such securities
bear to the cost or other basis to the trust of the securities;
(iv) If a distribution consists solely of securities of the
employer corporation, the contributions of the employee expended in the
purchase of such securities shall be allocated to the securities
distributed in a manner consistent with the principles set forth in
subparagraph (2)(ii) (a), (b), (c), or (d) of this paragraph, whichever
is applicable. Thus, the amount of the employee's contribution which
can be identified as having been expended in the purchase of a
particular security shall be allocated to such security, and the amount
of such contribution which cannot be so identified shall be allocated
ratably among the securities distributed. If a distribution consists in
part of securities of the employer corporation and in part of cash or
other property, appropriate allocation of a portion of the employee's
contribution to such cash or other property shall be made unless such a
location is inconsistent with the terms of the plan or trust.
(v) The application of this subparagraph may be illustrated by the
following example:
Example. A trust distributes ten shares of stock issued by the
employer corporation each of which has an average cost to the trust
of $100, consisting of employee contributions in the amount of $60
and employer contributions in the amount of $40, and on the date of
distribution has a fair market value of $180. The portion of the net
unrealized appreciation attributable to the contributions of the
employee with respect to each of the shares of stock is $48 computed
as follows:
(1) Value of one share of stock on distribution date............ $180
=======
(2) Employee contributions...................................... 60
(3) Employer contributions...................................... 40
-------
(4) Total contributions......................................... 100
=======
(5) Net unrealized appreciation................................. 80
(6) Portion of net unrealized appreciation attributable to
employee contributions \60/100\ (amount of employee
contributions (item 2) over total contributions (item 4) of $80
(item 5)....................................................... 48
(vi) For the purpose of determining gain or loss to the distributee
in the year or years in which any share of stock referred to in the
example in subdivision (v) of this subparagraph is sold or otherwise
disposed of in a taxable transaction, the basis of each such share in
the hands of the distributee at the time of the distribution by the
trust will be $132 computed as follows:
(a) Employee contributions...................................... $60
(b) Employer contributions (taxable as ordinary income in the
year the securities were distributed).......................... 40
(c) Portion of net unrealized appreciation attributable to
employer contributions (item 5) minus (item 6) (taxable as
ordinary income in the year the securities were distributed)... 32
-------
(d) Basis of stock.............................................. 132
(4) Change in exempt status of trust. For principles applicable in
making appropriate adjustments if the trust was not exempt for one or
more years before the year of distribution, see paragraph (a) of this
section.
(c) Certain distributions by United States to nonresident alien
individuals. (1) This paragraph applies to a distribution--
(i) Which is made by the United States under a pension plan
described in section 401(a);
(ii) Which is made in respect of services performed by an employee
of the United States; and
(iii) Which is received by, or made available to, a nonresident
alien individual (including a nonresident alien individual who is a
beneficiary of a deceased employee) during a taxable year beginning
after December 31, 1959.
The amount of such a distribution that is includible in the gross
income of the nonresident alien individual under section 402(a) (1) or
(2) shall not exceed an amount which bears the same ratio to the amount
which would be includible in gross income if it were not for this
paragraph, as--
(a) The aggregate basic salary paid by the United States to the
employee for his services in respect of which the distribution is being
made, reduced by the amount of such basic salary which was not
includible in the employee's gross income by reason of being from
sources without the United States, bears to
(b) The aggregate basic salary paid by the United States to the
employee for his services in respect of which the distribution is being
made.
See section 402(a)(4). See, also, paragraph (a) of this section for
rules relating to the amount that is includible in gross income under
section 402(a) (1) or (2) in the case of a distribution under a pension
plan described in section 401(a).
(2) For purposes of applying section 402(a)(4) and this paragraph
to distributions under the Civil Service Retirement Act (5 U.S.C.
2251), the term ``basic salary'' shall have the meaning provided in
section 1(d) of such Act. In applying section 402(a)(4) and this
paragraph to distributions under any other qualified pension plan of
the United States, such term shall have a similar meaning. Thus, for
example, ``basic salary'' does not, in any case, include bonuses,
allowances, or overtime pay.
(3) The rules in this paragraph may be illustrated by the following
examples:
Example (1). A, a retired employee of the United States who
performed all of his services for the United States in a foreign
country, receives, in respect of such services, a monthly pension of
$200 under the Civil Service Retirement Act (a pension plan described
in section 410(a)). A received an aggregate basic salary for his
services for the United States of $100,000. A was a nonresident alien
individual during the whole of his employment with the United States
and,
[[Page 43305]]
therefore, his basic salary from the United States was not includible
in his gross income by reason of being from sources without the United
States. A would be requited, under section 72 but without regard to
section 402(a)(4) and this paragraph, to include $60 of each monthly
pension payment in his gross income. The amount that is includible in
A's gross income under section 402(a)(1) with respect to the monthly
payments received during taxable years beginning after December 31,
1959, and while A is a nonresident alien individual, is computed as
follows:
(i) Amount of distribution includible in gross income under
section 72 without regard to section 402(a)(4)............... $60
(ii) Aggregate basic salary for services for United States.... 100,000
(iii) Aggregate basic salary for services for United States
reduced by amount of such salary not includible in A's gross
income by reason of being from sources without the United
States....................................................... 0
(iv) Amount includible in A's gross income under section
402(a)(1) ((iii)(ii) x (i), or $0/$100,000 x $60).... 0
Example (2). B, a retired employee of the United States who
performed services for the United States both in a foreign country
and in the United States, receives, in respect of such services, a
monthly pension of $240 under the Civil Service Retirement Act. B
received an aggregate basic salary for his services for the United
States of $120,000; $80,000 of which was for his services performed
in the United States, and $40,000 of which was for his services
performed in the foreign country. B was a nonresident alien
individual during the whole of his employment with the United States
and, consequently, the $40,000 basic salary for his services
performed in the foreign country was not includible in his gross
income by reason of being from sources without the United States. B
would be required, under section 72 but without regard to section
402(a)(4) and this paragraph, to include $165 of each monthly
pension in his gross income. The amount that is includible in B's
gross income under section 402(a)(1) with respect to the monthly
payments received during taxable years beginning after December 31,
1959, and while B is a nonresident alien individual, is computed as
follows:
(i) Amount of distribution includible in gross income under
section 72 without regard to section 402(a)(4)............... $165
(ii) Aggregate basic salary for services for United States.... 120,000
(iii) Aggregate basic salary for services for United States
reduced by amount of such salary not includible in B's gross
income by reason of being from sources without the United
States ($120,000-$40,000).................................... 80,000
(iv) Amount includible in B's gross income under section
402(a)(1)(iii)(ii) x (i), or $80,000/$120,000 x $165) 110
* * * * *
[T.D. 6500, 25 FR 11675, Nov. 26, 1960, as amended by T.D. 6497, 25
FR 10021, Oct. 20, 1960; T.D. 6676, 28 FR 10142, Sept. 17, 1963;
T.D. 6717, 29 FR 4092, Mar. 28, 1964; T.D. 6722, 29 FR 5073, Apr.
14, 1964; T.D. 6823, 30 FR 6340, May 6, 1965; T.D. 6885, 31 FR 7800,
June 2, 1966; T.D. 6887, 31 FR 8786, June 24, 1966; T.D. 8217, 53 FR
29673, Aug. 8, 1988; T.D. 8357, 56 FR 40545, Aug. 15, 1991; T.D.
8357, 57 FR 10290, Mar. 25, 1992; T.D. 8581, 59 FR 66180, Dec. 23,
1994]
BILLING CODE 1505-01-D