Rev. Rul. 56-571

Advice has been requested regarding the taxability of pension payments made to a resident citizen beneficiary under an employees' qualified pension plan for services rendered as a bona fide resident of a foreign country, in view of the words "attributable to such period" added to section 116(a)(1) of the Internal Revenue Code of 1939 by section 321(a) of the Revenue Act of 1951, 65 Stat. 452.

Revenue Ruling 56-125, C. B. 1956-1, 627, holds that, for taxable years beginning after December 31, 1950, and subject to the Internal Revenue Code of 1939, annuity payments made to a resident citizen beneficiary, under an employees' funded pension or annuity plan which meets the requirements of section 165(a) of the 1939 Code, to the extent they represent the employer's contribution under the plan on account of the employee's services during an uninterrupted period (which includes an entire taxable year) of bona fide residence in a foreign country or countries, may be considered as earned income attributable to such period within the meaning of section 116(a)(1) of the Code and, as such, may be excluded from gross income as "consideration paid" for the annuity under section 22(b)(2)(B) of the Code.

However, the exclusion from gross income provided by section 116(a)(1) of the Code of amounts constituting earned income, received from sources without the United States by an individual citizen of the United States, who was a bona fide nonresident of the United States for more than six months during the taxable year, was first made effective on January 1, 1925, by section 213(b)(14) of the Revenue Act of 1926, 44 Stat. 9.

Accordingly, it is held that, for taxable years beginning after December, 1950, the amounts of annuity payments made to a resident citizen beneficiary under an employees' qualified pension or annuity plan, which may be considered as earned income attributable to the employer's contributions under the plan on account of the employee's services outside the United States during a period within the meaning of section 116(a)(1) of the Code, or a corresponding provision of prior revenue laws, and which may be excluded from gross income as "consideration paid" for the annuities, will be limited to such employer's contributions made on and after January 1, 1925, with respect to services rendered outside the United States by the employee during a period beginning on or after that date when the employee was entitled to the earned income exclusion provided by either section 213(b)(14) of the Revenue Act of 1926, or a corresponding provision of subsequent law.