Application of basis rules to nonresident aliens
(1) In general
(1)In general#
Notwithstanding any other provision of this section, for purposes of determining the portion of any distribution which is includible in gross income of a distributee who is a citizen or resident of the United States, the investment in the contract shall not include any applicable nontaxable contributions or applicable nontaxable earnings.
(2)Applicable nontaxable contribution#
For purposes of this subsection, the term “applicable nontaxable contribution” means any employer or employee contribution—
(A) which was made with respect to compensation— (i) for labor or personal services performed by an employee who, at the time the labor or services were performed, was a nonresident alien for purposes of the laws of the United States in effect at such time, and (ii) which is treated as from sources without the United States, and
(B) which was not subject to income tax (and would have been subject to income tax if paid as cash compensation when the services were rendered) under the laws of the United States or any foreign country.
(2)(A)#
which was made with respect to compensation—
(i) for labor or personal services performed by an employee who, at the time the labor or services were performed, was a nonresident alien for purposes of the laws of the United States in effect at such time, and
(ii) which is treated as from sources without the United States, and
(2)(A)(i)#
for labor or personal services performed by an employee who, at the time the labor or services were performed, was a nonresident alien for purposes of the laws of the United States in effect at such time, and
(3)Applicable nontaxable earnings#
For purposes of this subsection, the term “applicable nontaxable earnings” means earnings—
(A) which are paid or accrued with respect to any employer or employee contribution which was made with respect to compensation for labor or personal services performed by an employee,
(B) with respect to which the employee was at the time the earnings were paid or accrued a nonresident alien for purposes of the laws of the United States, and
(C) which were not subject to income tax under the laws of the United States or any foreign country.
(3)(A)#
which are paid or accrued with respect to any employer or employee contribution which was made with respect to compensation for labor or personal services performed by an employee,
(3)(B)#
with respect to which the employee was at the time the earnings were paid or accrued a nonresident alien for purposes of the laws of the United States, and
(3)(C)#
(4)Regulations#
The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this subsection, including regulations treating contributions and earnings as not subject to tax under the laws of any foreign country where appropriate to carry out the purposes of this subsection.