2014-07-04
In the past the IRS has written several internal memoranda on the taxation of contributions into the Singapore Central Provident Fund (the “Fund”). The issue in the memoranda was whether an employee could exclude from income (under the Code §911 foreign earned income exclusion) contributions made into the Fund.
In 1988, the IRS concluded that the amount paid by an employer out of the employer’s own funds was taxable under Code §402(b) and that the amount withheld from the employee’s wages was taxable under Code §61(a). The portion of the contributions taxable to the employee under Code §61(a) could be excluded, but the portion that was taxable under Code §402(b) could not be excluded. See Code §911(b)(1)(B)(i).
In 1996 and 1997, the IRS concluded that all of the contributions (including the amount withheld from the employee’s wages) was taxable under Code §402(b). Thus, the IRS concluded that none of the contributions into the Fund could be excluded from income under the foreign earned income exclusion.
Below are selected excerpts from the memoranda.
Under Singapore law, an employer is required to make contributions on behalf of the employee, but the employer is entitled to deduct from the employee’s monthly wages 50 percent of the total amount required to be distributed.
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The “employee’s contributions” (the amounts contributed by the employer that are withheld from the employee’s wages at the employer’s election) to the Fund are withheld by the employer each pay period and, together with the employer’s contributions, are paid over to the Singapore government each month. The total amount contributed is held by the government in trust for the employee.
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The amounts contributed to the Fund on behalf of an employee that are employer contributions are includible in the employee’s gross income by reason of section 402(b) of the Code. * * * The amounts withheld from the employee’s salary and contributed to the Fund as employee contributions are includible in the employee’s gross income pursuant to section 61(a).
1996 memorandum from Bernard T. Bress to Robert Uhar
* * * [A]mounts withheld from an employee’s wages and contributed to the Fund can be treated as employer contributions that are includible in the employee’s gross income by reason of section 402(b) (rather than section 61(a)). * * *
[W]e have concluded that the Fund is a nonexempt employees’ trust described in § 402(b). It appears that contributions to the Fund generally are made as a uniform percentage of salary for the vast majority of each employer's employees. Thus, for most employers, Fund benefits of highly compensated employees would not be subject to the rules of § 402(b)(4)(A). * * *
For an employee who is taxed under the rules of 402(b)(1), contributions paid by the employer to Fund are taxable pursuant to § 402(b)(1). Because nonelective contributions withheld from an employee’s salary are not withheld at the election of the employee and are not constructively received by the employee, those contributions are considered employer contributions and are taxable pursuant to § 402(b)(1). See Hicks v. United States, 205 F.Supp. 343 (W.D. Va. 1962), aff’d, 314 F.2d 180 (4th Cir. 1963); Rev. Rul. 63-180, 1963-1 C.B. 189. But cf. Rev. Rul. 56-473, 1956-2 C.B. 22; Rev. Rul. 57-326, 1957-2 C.B. 42; Rev. Rul. 72- 250, 1972-1 C.B. 22 (contrary pre-ERISA precedents that are superseded by § 414(h)). Additional contributions to the Fund made at the election of the employee are employee contributions that are taxed pursuant to § 61. As long as these additional elective contributions to an employee’s account do not exceed employer contributions to the employee’s account, no portion of the Fund will be considered owned by the employee under the grantor trust rules pursuant to § 402(b)(3) and § 1.402(b)-1(b)(6).
October 10, 1997 memorandum from Barbara Felker to Robert Uhar (two memoranda in the same PDF)
[N]onelective amounts withheld from an employee’s wages and contributed to the Fund are includible in the employee’s gross income by reason of section 402(b) (rather than section 61) * * *. Consequently, such amounts are not excludible from the employee’s gross income under section 911.