EP Exam Process Guide - Puerto Rico Plans FAQs - What is the tax effect if Puerto Rican plans fail any qualification requirements?


If it is determined that a plan with an election under ERISA Section 1022(i)(2) is no longer qualified under the Internal Revenue Code, one would have to determine if it is qualified under Puerto Rico Code Section 1081.01 and covers only Puerto Rican residents. If not, then participants and employers would lose their favorable tax treatment.

If a dual-qualified plan were determined not to be qualified under the Internal Revenue Code, a revocation would apply even if it were qualified under the Puerto Rico Code. These plans must qualify under both Codes to provide the Puerto Rican participants with favorable tax benefits.

Dual-qualified and ERISA Section 1022(i)(2) plans may use the EPCRS program to correct any plan failure covered under that program. The plan sponsor must coordinate with Hacienda regarding maintaining the plan’s qualified status in Puerto Rico. Hacienda may apply Closing Agreement options to maintain the plan’s qualification under the Puerto Rico Code.

Return to List of FAQs