IRS Permits Puerto Rico-Qualified Plans to Participate in U.S. Group and Master Trusts for Transition Period, Extends Deadline for Puerto Rico Spin-Offs

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The U.S. Internal Revenue Service (IRS) announced tax-qualified retirement plans in Puerto Rico may continue to pool assets with U.S.-qualified plans in group and master trusts described in Revenue Ruling 81-100 until further guidance is issued. The IRS also extended the deadline to December 31, 2011, for sponsors of retirement plans qualified in both the United States and Puerto Rico to make a tax-free transfer of benefits for Puerto Rico employees to a Puerto Rico-only qualified plan.

On December 16, 2010, the U.S. Internal Revenue Service (IRS) issued Revenue Ruling 2011-1, which permits employers sponsoring employee retirement plans that are tax-qualified only in Puerto Rico to continue to pool assets with U.S.-qualified plans in group and master trusts described in Revenue Ruling 81-100 until further notice. Revenue Ruling 2011-1 also extends the deadline previously provided in Revenue Ruling 2008-40 from December 31, 2010, to December 31, 2011, for sponsors of retirement plans qualified in both the United States and Puerto Rico to spin off and transfer assets attributable to Puerto Rico employees to Puerto Rico-only qualified plans. The ruling provides Puerto Rico plan sponsors, institutional investors and trustees with certainty that plans qualified only in Puerto Rico can continue to participate in U.S. group and master trusts until further notice without facing potential disqualification of the participating U.S. plans and trusts. However, the ruling only provides transition relief. Permanent relief is needed to allow Puerto Rico-only plans to continue to pool assets with U.S. plans in group and master trusts.

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Published In: Finance & Banking Updates, Professional Practice Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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