Rev. Rul. 72-149

Advice has been requested, under the facts set forth below, as to the source of an employer's contribution to a prefunded pension plan, and whether the portion of the distributions from the pension plan representing the employer's contribution will have the same source as the wages earned abroad with respect to which the contributions were made and be treated as earned income from sources without the United States.

The taxpayer, a citizen of the United States was employed abroad by a United States employer continuously from 1963 to 1969 when he retired and became eligible for a pension. Since his retirement, the taxpayer has resided abroad. During his employment his wages were excludable from gross income under section 911(a) of the Internal Revenue Code of 1954.

Section 911(a) of the Code provides, in part, that amounts received from sources without the United States (except amounts paid by the United States or an agency thereof) which constitute earned income attributable to services performed during an uninterrupted period which includes an entire taxable year by a United States citizen who is a bona fide resident of a foreign country shall be excludable from gross income.

Section 862(a)(3) of the Code provides that compensation for labor or personal services performed without the United States shall be treated as income from sources without the United States.

Employer contributions to an annuity or pension plan represent compensation for personal services. See Revenue Ruling 56-82, C.B. 1956-1, 59.

Section 72(f) of the Code provides, in effect, that in computing the aggregate amount of premiums or other consideration paid for an annuity contract by an employee, amounts contributed by an employer after 1962 and attributable to services performed after 1962 shall not be included if such amounts would not have been includible in the gross income of the employee by reason of section 911 of the Code if paid directly to the employee at the time of contribution.

Section 911(c)(5)(A) of the Code provides, in effect, that no amount received as a pension or annuity may be excluded from gross income as earned income attributable to services performed during a period when the recipient satisfies the residence or the physical presence test of section 911(a) of the Code.

Accordingly, the employer's contribution to the pension plan with respect to wages earned abroad by the taxpayer constitutes compensation for labor or personal services performed without the United States and is treated as derived from sources without the United States. In addition, while such amounts received by the taxpayer as a pension will have the same source as the wages earned abroad, they may not be treated as earned income from sources without the United States by virtue of section 911(c)(5)(A) of the Code and, thus, these amounts cannot be excluded from the gross income of the taxpayer.