(a)

General rule

Amounts paid or accrued by an employer under a qualified foreign plan -

(1)

shall not be allowable as a deduction under this chapter, but

(2)

if they would otherwise be deductible, shall be allowed as a deduction under this section for the taxable year for which such amounts are properly taken into account under this section.

(b)

Rules for qualified funded plans

For purposes of this section -

(1)

In general

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.

(2)

Payment after close of taxable year

For purposes of paragraph (1), a payment made after the close of a taxable year shall be treated as made on the last day of such year if the payment is made -

(A)

on account of such year, and

(B)

not later than the time prescribed by law for filing the return for such year (including extensions thereof).

(3)

Limitations

In the case of a qualified funded plan, the amount allowable as a deduction for the taxable year shall be subject to -

(A)

in the case of -

(i)

a plan under which the benefits are fixed or determinable, limitations similar to those contained in clauses (ii) and (iii) of subparagraph (A) of section 404(a)(1) (determined without regard to the last sentence of such subparagraph (A)), or

(ii)

any other plan, limitations similar to the limitations contained in paragraph (3) of section 404(a), and

(B)

limitations similar to those contained in paragraph (7) of section 404(a).

(4)

Carryover

If -

(A)

the aggregate of the contributions paid during the taxable year reduced by any contributions not allowable as a deduction under paragraphs (1) and (2) of subsection (g), exceeds

(B)

the amount allowable as a deduction under subsection (a) (determined without regard to subsection (d)),

such excess shall be treated as an amount paid in the succeeding taxable year.

(5)

Amounts must be paid to qualified trust, etc.

In the case of a qualified funded plan, a contribution shall be taken into account only if it is paid -

(A)

to a trust (or the equivalent of a trust) which meets the requirements of section 401(a)(2),

(B)

for a retirement annuity, or

(C)

to a participant or beneficiary.

(c)

Rules relating to qualified reserve plans

For purposes of this section -

(1)

In general

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.

(2)

Income item

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.

(3)

Rights must be nonforfeitable, etc.

In the case of a qualified reserve plan, an item shall be taken into account for a taxable year only if -

(A)

there is no substantial risk that the rights of the employee will be forfeited, and

(B)

such item meets such additional requirements as the Secretary may by regulations prescribe as necessary or appropriate to ensure that the liability will be satisfied.

(4)

Spreading of certain increases and decreases in reserves

There shall be amortized over a 10-year period any increase or decrease to the reserve on account of -

(A)

the adoption of the plan or a plan amendment,

(B)

experience gains and losses, and[FN 1]

So in original. The word "and" probably should not appear.

(C)

any change in actuarial assumptions,

(D)

changes in the interest rate under subsection (g)(3)(B), and

(E)

such other factors as may be prescribed by regulations.

(d)

Amounts taken into account must be consistent with amounts allowed under foreign law

(1)

General rule

In the case of any plan, the amount allowed as a deduction under subsection (a) for any taxable year shall equal -

(A)

the lesser of -

(i)

the cumulative United States amount, or

(ii)

the cumulative foreign amount, reduced by

(B)

the aggregate amount determined under this section for all prior taxable years.

(2)

Cumulative amounts defined

For purposes of paragraph (1) -

(A)

Cumulative United States amount

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).

(B)

Cumulative foreign amount

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.

(3)

Effect on earnings and profits, etc.

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.

(e)

Qualified foreign plan

For purposes of this section, the term "qualified foreign plan" means any written plan of an employer for deferring the receipt of compensation but only if -

(1)

such plan is for the exclusive benefit of the employer's employees or their beneficiaries,

(2)

90 percent or more of the amounts taken into account for the taxable year under the plan are attributable to services -

(A)

performed by nonresident aliens, and

(B)

the compensation for which is not subject to tax under this chapter, and

(3)

the employer elects (at such time and in such manner as the Secretary shall by regulations prescribe) to have this section apply to such plan.

(f)

Funded and reserve plans

For purposes of this section -

(1)

Qualified funded plan

The term "qualified funded plan" means a qualified foreign plan which is not a qualified reserve plan.

(2)

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.

(g)

Other special rules

(1)

No deduction for certain amounts

Except as provided in section 404(a)(5), no deduction shall be allowed under this section for any item to the extent such item is attributable to services -

(A)

performed by a citizen or resident of the United States who is a highly compensated employee (within the meaning of section 414(q)), or

(B)

performed in the United States the compensation for which is subject to tax under this chapter.

(2)

Taxpayer must furnish information

(A)

In general

No deduction shall be allowed under this section with respect to any plan for any taxable year unless the taxpayer furnishes to the Secretary with respect to such plan (at such time as the Secretary may by regulations prescribe) -

(i)

a statement from the foreign tax authorities specifying the amount of the deduction allowed in computing taxable income under foreign law for such year with respect to such plan,

(ii)

if the return under foreign tax law shows the deduction for plan contributions or reserves as a separate, identifiable item, a copy of the foreign tax return for the taxable year, or

(iii)

such other statement, return, or other evidence as the Secretary prescribes by regulation as being sufficient to establish the amount of the deduction under foreign law.

(B)

Redetermination where foreign tax deduction is adjusted

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.

(3)

Actuarial assumptions must be reasonable; full funding

(A)

In general

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.

(B)

Interest rate for reserve plan

(i)

In general

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.

(ii)

Rate remains in effect so long as it falls within 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.

(iii)

Permissible range

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.

(4)

Accounting method

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).

(5)

Section 481 applies to election

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.

(h)

Regulations

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).