Source: https://www.federalregister.gov/documents/2013/11/15/2013-27331/treatment-of-income-from-indian-fishing-rights-related-activity-as-compensation
Timestamp: 2017-11-19 01:25:56
Document Index: 686640431

Matched Legal Cases: ['§\u20091', '§\u20091', '§\u20091', '§\u20091', '§\u20091', '§\u20091', '§\u20091', '§\u20091', '§\u20091', '§\u20091', '§\u20091', '§\u20091', '§\u20091', '§\u20091', '§\u20091', '§\u20091']

Federal Register :: Treatment of Income From Indian Fishing Rights-Related Activity as Compensation
68780-68782 (3 pages)
https://www.federalregister.gov/d/2013-27331 https://www.federalregister.gov/d/2013-27331
Congress added section 7873 to the Internal Revenue Code as part of the Technical and Miscellaneous Revenue Act of 1988 (Pub. L. 100-647). Section 7873(a)(1) provides that no income tax shall be imposed on income derived from a fishing rights-related activity of an Indian tribe by (A) a member of the tribe directly or through a qualified Indian entity, or (B) a qualified Indian entity. Section 7873(a)(2) provides that no employment tax shall be imposed on remuneration paid for services performed in a fishing rights-related activity of an Indian tribe by a member of such tribe for another member of such tribe or for a qualified Indian entity. Thus, section 7873(a) exempts income derived from a fishing rights-related activity (“fishing rights-related income”) from both income and employment taxes.
Section 415(c)(1) provides that contributions and other additions with respect to a participant exceed the annual limitation for defined contribution plans if, when expressed as an annual addition (within the meaning of section 415(c)(2)) to the participant's account, the participant's annual addition is greater than the lesser of $40,000 (as adjusted in accordance with section 415(d)(1)) or 100 percent of the participant's compensation. Section 415(c)(3) provides that the term “participant's compensation” means the compensation of the participant from the employer for the year. Section 1.415(c)-2(a) of the Income Tax Regulations generally provides that compensation from the employer within the meaning of section 415(c)(3) includes all items of remuneration described in § 1.415(c)-2(b), but excludes the items of remuneration described in § 1.415(c)-2(c).
Section 1.415(c)-2(b) generally provides that, for purposes of applying the limitations of section 415, the term compensation means remuneration for services. Specifically, under § 1.415(c)-2(b)(1), compensation includes Start Printed Page 68781employee wages, salaries, fees for professional services, and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the employer maintaining the plan, to the extent that the amounts are includible in gross income. In addition, § 1.415(c)-2(b)(2) provides that in the case of an employee within the meaning of section 401(c)(1) (a self-employed employee), compensation includes the employee's earned income (as described in section 401(c)(2)) plus amounts deferred at the election of the employee that would be includible in gross income but for the rules of section 402(e)(3), 402(h)(1)(B), 402(k), or 457(b).
Section 1.415(c)-2(c) excludes certain items from the definition of compensation under section 415(c)(3). Specifically, § 1.415(c)-2(c)(1) excludes contributions (other than certain elective contributions) made by the employer to a plan of deferred compensation to the extent that the contributions are not includible in the gross income of the employee for the taxable year in which contributed. Likewise, distributions from plans (whether qualified or not) are generally not considered to be compensation for section 415 purposes. Section 1.415(c)-2(c)(2) excludes from compensation amounts realized from the exercise of nonstatutory options and amounts realized when restricted stock or other property held by an employee becomes freely transferable or is no longer subject to a substantial risk of forfeiture. Section 1.415(c)-2(c)(3) excludes from compensation amounts realized from the sale, exchange, or other disposition of stock acquired under a statutory stock option (as defined in § 1.421-1(b)). Finally, § 1.415(c)-2(c)(4) excludes from compensation other amounts that receive special tax benefits, such as certain premiums for group-term life insurance.
Section 1.415(c)-2(d) provides safe harbor definitions that a plan is permitted to use to define compensation in a manner that satisfies section 415(c)(3). Section 1.415(c)-2(d)(2) provides a safe harbor definition of compensation that includes only those items listed in § 1.415(c)-2(b)(1) or (b)(2) and excludes all the items listed in § 1.415(c)-2(c). Section 415(c)-2(d)(3) provides a separate safe harbor definition of compensation that includes wages within the meaning of section 3401(a), plus amounts that would be included in wages but for an election under section 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(b), 402(k), or 457(b).
Because fishing rights-related income is not subject to income tax, an issue has been raised as to whether such income is included as compensation for purposes of section 415(c)(3) and § 1.415(c)-2(b). The proposed regulations would clarify that certain fishing rights-related income is included in the definition of compensation. Specifically, these regulations would provide that amounts paid to a member of an Indian tribe as remuneration for services performed in a fishing rights-related activity (as defined in section 7873(b)(1)) do not fail to be treated as compensation under § 1.415(c)-2(b)(1) and (b)(2) (and are not excluded from the definition of compensation pursuant to § 1.415(c)-2(c)(4)) merely because those amounts are not subject to income tax as a result of section 7873(a)(1). Thus, the determination of whether an amount constitutes wages, salaries, or earned income for purposes of § 1.415(c)-2(b)(1) or (b)(2) is made without regard to the exemption from taxation under section 7873(b)(1) and (b)(2). In addition, by permitting fishing rights-related income to be treated as wages, salaries, or earned income under § 1.415(c)-2(b)(1) and (b)(2), plans that accept contributions of fishing rights-related income would not be precluded from utilizing the safe harbor definitions of compensation under § 1.415(c)-2(d)(2) and (d)(3) of the regulations.
These proposed regulations take into account comments provided through a number of general consultation sessions held with the Indian tribal community in recent years. Consistent with Executive Order 13175, the Treasury Department and the IRS expect to hold a telephone consultation on a date between November 15, 2013 and February 13, 2014. This telephone consultation session will focus principally on the contribution of section 7873 income to qualified retirement plans and the taxation of qualified plan distributions that are attributable to this income. Information relating to the consultation, including the date, time, registration requirements, and procedures for submitting written and oral comments, will be available on the IRS Web site relating to Indian tribal governments at: http://www.irs.gov/​Government-Entities/​Indian-Tribal-Governments.Start Printed Page 68782
§ 1.415(c)-2