Tax Bytes

Danger - Foreign Retirement Plans Can Create Annually Taxable U.S. and State Income...

… Even in the absence of a current pay-out or distribution

An advisory from the tax law offices of David W. Klasing, PC, Connect via e-mail: [email protected]

Mar 07, 2019 –IRVINE, Calif., March 7, 2019 /PRNewswire/ — If you are either (1) a U.S. citizen retiring abroad, or (2) a U.S. tax resident that has a foreign pension plan, you will likely be required to report the income accruing in your offshore retirement plan on an annual basis and your current or future retirement distributions to the IRS as taxable income, unless certain exceptions apply, relating to employees’ trusts, “highly compensated employees,” or under the provisions of various tax treaties. In short, the annual income that accrues within a foreign pension or annuity and the subsequent distributions at retirement are generally taxable except in a few specific cases, making it essential for taxpayers with foreign pensions to consult with a knowledgeable international tax law attorney for guidance.

The income that accrues within the offshore pension plan on the invested plan assets may be taxable for federal and State purposes on an annual basis if not exempted by treaty, exempt because the plan meets the terms of ERISA or some other grounds for not treating the offshore pension plan as an offshore trust with a U.S. beneficiary, exists.

IRS Offshore Forms

In addition, taxpayers may also need to file several additional IRS offshore informational forms, depending on their individual facts and circumstances. These forms may include one or more of the following:

  • FBAR (FinCEN Form 114)
  • Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts)
  • Form 8938 (Statement of Specified Foreign Financial Assets)

Tax Treaties

Certain tax treaties with the United States may contain their own, unique provisions that take precedence over the normally-applicable IRS filing requirements. Make sure you choose a CPA or Tax Attorney who has ample international tax planning and compliance experience.

Several programs exist, for taxpayers that have purposely or inadvertently omitted offshore taxable income or required foreign information returns, to get back into compliance. The options include:

In short, the annual income that accrues within a foreign pension or annuity and the subsequent distributions at retirement are generally taxable except in a few specific cases...

  • Delinquent Foreign Information Return Submission Procedures
  • Citizens Living Outside of the U.S. (Expat) Streamlined Voluntary Disclosure Program
  • Domestic Streamlined Offshore Voluntary Disclosure Program
  • Replacement Program for the Offshore Voluntary Disclosure Program that ended in September of 2018.

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SOURCE Tax Law Offices of David W. Klasing, PC