Does anyone have experience with this issue? I feel as if I have lost all my analytical skills, because I am having a hard time parsing through the Code provisions. Unlike Section 3121(e), which explicitly includes Puerto Rico as a "State" for FICA purposes, the general definitions in 7701(a) of "United States" and "State" do not. Thus, it would seem that Puerto Rican citizens would be nonresident aliens. However, if Puerto Rican income is not U.S. source income, why would Section 933 (which excludes Puerto Rican income) be needed? Are Puerto Rican employees nonresident aliens who do have U.S. source income? Thanks to anyone who can respond.

After posting the preceding message, further research indicates that Puerto Rican citizens are U.S. citizens (although with limited rights); therefore they could not be treated as excludable for 410(B) purposes.



[This message has been edited by Wessex (edited 02-10-99).]

No one else is stepping forward so I'll give this a shot . . .

Sec. 7701(b) defines a nonresident alien as one who is neither a citizen nor a resident of the U.S. My encyclopedia tells me that Congressional action in 1917 made Puerto Ricans U.S. citizens, ergo, they aren't nonresident aliens.

I think the confusion arises because for income tax purposes, Puerto Ricans are subject to their own income tax code and thus Puerto Rican income is generally not U.S. income in the taxable sense. Figuring out how this carries through in various benefits-related areas is currently beyond me!

Individuals born in Puerto Rico on or after January 13, 1941, and subject to United States jurisdiction are United States citizens at birth. Also, all residents of Puerto Rico on January 13, 1941, that were born there between April 11, 1899, and January 12, 1941, and subject to the jurisdiction of the United States are United States citizens. 8 U.S.C. §1402.

In addition to the Section 3121 and Section 7701 inconsistencies, a confusing aspect of the residency classification issue is that, for purposes of Subtitle A, Ch. 1N, Part IIA (§§ 871-871 - Nonresident Alien Individuals), aliens residing in Puerto Rico who are bona fide residents of Puerto Rico for the entire tax year, are treated as U.S. resident aliens. §876(a). For other purposes of the tax law, however, an alien who is a resident of Puerto Rico is a nonresident alien.

So, bottom line, Puerto Ricans are NOT nonresident aliens, and ARE included in 410(B) testing and have 414(s) compensation (albeit not U.S.-taxable)?

Nice bottom line, Shipp. Right again.

Has any done a comparison between a 401(k)plan and a 165(e) plan/

Would a Puerto Rico resident be considered a US citizen or a nonresident alien for purposes of information reporting on distributions from a US qualified plan? Should a 1099-R be used or a 1042-S?