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New Procedures to Establish Qualified Plan Distributions in the U.S. and Puerto Rico

The Puerto Rico Treasury Department recently issued Internal Revenue Circular Letter 21-20, which establishes procedures for a former resident of Puerto Rico to demonstrate that distributions received from a U.S. retirement plan qualified under the Code and whose trust was created in a U.S. state are not subject to tax under the Puerto Rico Internal Revenue Code of 2011, as amended (the “Puerto Rico Code”). In order to establish that distributions received from a U.S. retirement plan are not taxable under the Puerto Rico Code, an individual is required to submit IRS Form 8898 (Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Possession) to the employer who maintains the plan from which the distributions are made. If the individual does not submit a Form 8898, such individual must instead submit the following information to such employer to demonstrate the individual’s change of residence:

  1. An affidavit under penalty of perjury that contains all the personal circumstances of the individual, which must include the following information: name, postal address, and the date he or she became a resident of his or her current place of residence outside of Puerto Rico. In addition, such individual must detail the information of the plan, including a statement to the effect that the plan is qualified under the Code and include the U.S. state in which the trust for the plan was created;
  2. Evidence of any correspondence received at the current address that is addressed to the individual; and
  3. Copy of a valid identification card (license and/or voter ID card) issued by a governmental entity of the new place of residence. 

An individual who fails to provide the required information will be deemed to continue to be a resident of Puerto Rico who remains subject to any withholding and payment of income taxes applicable under the Puerto Rico Code.

The Internal Revenue Circular Letter 21-20 is available here.

The lawyers of our Employee Benefits and Executive Compensation Practice Group are readily able to assist companies on a nationwide basis with implementing sophisticated benefit plans and providing answers to their most challenging compensation issues. Additionally, our lawyers are well aware of the daily employee benefits challenges facing companies of all sizes and are capable of helping in-house lawyers and human resources personnel with the day-to-day advice and guidance necessary to properly administer employee benefits plans.

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September 2021