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EP Exam Process Guide - Puerto Rico Plans FAQs - If a plan fails to qualify, what form(s) must be filed?

If a Section 1022(i)(2) plan is no longer treated as qualified under the Internal Revenue Code or Puerto Rico Code, the trust would be treated as a foreign trust, taxable in the U.S. on certain U.S. source income, and subject to withholding under Section 1441. The withholding agent, typically the payor of the income, would have to file Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, with the IRS.

If a dual-qualified plan is no longer treated as qualified under the Internal Revenue Code, the trust would no longer be exempt and would be taxable. Form 5500 would have to be converted to Form 1041, U.S. Income Tax Return for Estates and Trusts, as with any disqualified domestic trust.

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Page Last Reviewed or Updated: 25-Sep-2014