Rev. Rul. 70-493

Advice has been requested whether, under the circumstances described below, a profit-sharing plan that provides benefits for owner-employees may qualify under section 401 of the Internal Revenue Code of 1954.

A domestic partnership maintains offices in the United States and in several foreign countries. Offices outside the United States are staffed by employees who are nationals of the foreign countries in which they are employed and are, therefore, nonresident aliens of the United States.

The partnership established a profit-sharing plan that covers common-law employees and self-employed individuals, including owner-employees. However, the plan specifically excludes nonresident-alien employees.

Section 401(d)(3) of the Code states that a plan that provides contributions or benefits for employees, some or all of whom are owner-employees, shall not constitute a qualified plan, unless the plan benefits each employee having a period of employment of three years or more.

Section 1.401-12(e)(1) of the Income Tax Regulations provides that a plan that covers an owner-employee must benefit each employee of the trade or business (other than any owner-employee who does not consent to be covered under the plan) whose customary period of employment has been for more than twenty hours a week for more than five months during each of three consecutive periods of twelve calendar months.

These provisions of the Code and regulations do not distinguish between employees who are residents or citizens of the United States and those who are not. Accordingly, it is held that the plan in this case does not qualify under section 401 of the Code since it does not benefit each employee as required by subsection (d)(3) thereof and section 1.401-12(e)(1) of the regulations.