The lack of clear guidance in the IRS's treatment of foreign pensions held by U.S. taxpayers has presented tax advisers with significant challenges in meeting compliance duties. Even the Government Accounting Office (GAO) issued a report in Jan. 2018, requesting the Service to provide more clarity on how taxpayers need to report interests in these accounts.
Most foreign retirement account plans are not considered "qualified plans" under IRC 401(a), which means the accounts generally do not qualify for tax-deferral treatment but are instead governed by Section 402(b) as a foreign trust. Depending on how the IRS applies 402(b) to a particular situation, employees holding foreign retirement accounts (and their beneficiaries) may receive harsher tax treatment than that of other non-tax-favored deferred compensation arrangements. This is particularly true in cases where the Service treats a foreign retirement account as a grantor trust.
Tax advisers must have a thorough understanding of the IRS rules on reporting foreign retirement accounts and how the Service may approach compliance examinations. With penalties for failure to file Form 3520-A set at a minimum of $10,000 per year, the consequences of a missed or incorrect filing are costly.
Listen as Sean O'Connor, Esq., Robert Hanson, Esq. and Anthony E. Parent, Esq. of Parent & Parent LLP offer practice pointers of how the IRS approaches foreign pensions in an examination situation.
- Classifications of foreign pensions, annuities and social security
- Differentiation between most foreign plans and U.S. "qualified plans"
- Section 402(b) provisions and treatment
- Informational reporting
- Form 3520-A
- Form 3520
- Form 8938
- Grantor trust treatment
- Identifying and remedying misreporting
The panel will discuss these and other important tactical issues:
- Grantor vs. employee trusts: understanding the IRS's test and the arguments against it
- The IRS's new 402(b) focus and when bifurcation is appropriate
- Foreign pensions of highly compensated employees
- Form 3520-A: when is it required along with 3520, FBAR and Form 8938; penalty mitigation strategies
- What happens with PFICs inside a foreign pension
- How to use tax treaties
- Whether or not to use a disclosure program to clean up past misreporting
The program will be availble on replay as well for those who are unable to make the live event.