Hi,

I moved to California in Sept and am puzzling through my first US tax return. I have some savings in the UK to declare but spoke to a CPA who made a big play about the complexity of getting my pension declaration right - implying fines of up to 35% value if incorrect!

I'm hoping someone on here might have been through the process and can advise - it's a UK Civil Service defined benefit pension, that I can't claim for many years in any case. Really appreciate any pointers, any links to expat tax 'how to' guides, or any referrals to trustworthy CPAs.

Thanks in advance

Form 8938. You’ll just need to give the name and address of the pension provider, and your membership or account number, if I remember correctly.

And the FBAR via FinCEN Form 114, which is not technically a tax form, but you need to file it.
https://www.irs.gov/businesses/small...-accounts-fbar

Neither of these forms are complicated, so don't worry.

Things only get complex and costly if you get involved in PFICs, you can read on these in other threads and online. Your pension is not a PFIC. TLDR is do not buy any EFTs/mutual funds outside of the US and you'll be fine.

For a defined benefit pension plan you must declare it on Form 8938 (if you meet the thresholds for that form) but can put down $0 value if you have no knowledge of an equivalent cash value. If you ever had a transfer valuation or notification of the equivalent amount needed to buy a private pension of a similar value then you need to work off that. You don’t have to declare a defined benefit pension plan on an FBAR if you have no knowledge of its value but you might as well, again with the $0 valuation, because no one was ever penalized for over reporting, whereas if the IRS decide that you under reported they will apply hefty fines.

Any other kind of pension, defined contribution, SIPP, private pension, etc. must be reported on FBAR and Form 8938 with an up to date valuation which would likely be received on an annual statement. Your CPA is correct to be insistent that you report correctly. There are very large fines and penalties for not doing so. Not sure where 35% came from, but if caught by the IRS and determined to be willful then the fines for failing to report correctly on an FBAR can run up to 50% of the unreported account value, for each one of the prior 6 years which would wipe out the accounts and then some. Fines don’t usually go anywhere near that high, but are substantial. If determined to be non willful they have recently changed the law to fine $16,536 per form, per unreported year, still a substantial loss. Non willful means the reporting omission was not intentional, but note that being ignorant of the laws, not understanding them, whatever, is not a defense to being non willful. The tax payer is expected to become familiar with all relevant tax law and seek advice if unsure. Additional substantial fines are also applied if Form 8938 is applicable and not included in your annual tax return.

All other foreign savings and investments except for property, art work and collectibles must be reported on an FBAR and Form 8938. If any investment includes any kind of mutual fund like an Index Fund, ETF, Unit Trust, OEIC, Investment Trust, etc then they are PFICs and must be declared on Form 8621. That is a nasty form to complete, with punitive taxation and of course large penalties for non compliance. If you have any such investments make sure your CPA is aware and declares them appropriately, and consider liquidating them as soon as possible. The longer you hold them the worse the taxation becomes, and can easily exceed 50% of any profits once you have held them for some length of time.

If you comply with the reporting requirements and pay tax on all foreign income then you have little to be concerned about even if minor mistakes are made on the reporting side. On the other hand, not reporting, under reporting, and not paying US tax on all foreign income can end up with a substantial loss in your savings. Absent PFIC reporting, once you have done it once it’s not too bad, but you do have to keep up with the ever changing laws regarding foreign accounts.

California is not a party to the tax treaty, so California will want to charge tax on undistributed income & gains within the plan.

??? Really...?

Wow!

I had a run in with California tax authorities a few years ago. Vanguard allows you to have a UK street address as your residence and a US street address for correspondence. Since moving back to England in 2016 I had been using my son’s address in Texas for the correspondence address but when he moved to England I switched that address to our daughter in California. I did an IRA to Roth conversion that year and California came after me for income tax so I had to go through the pain of proving to them that I was not a resident of California (never have been) and that Vanguard is not based in California. They came after my son as well that year because he had given the local Texas bank he worked for his sister’s address to send his W2 to.

To report a UK pension income (my first year) and using TurboTax, do I create a 1099R, and if so what Payers TIN do I use for overseas payers?

I’ve always created a fake TIN such as 11-1234567. Been doing this for 15 years.

Thanks.... strange that the IRS don't pick up on a fake TIN :-)

Another alternative is to add it in “Other” income but using the substitute 1099 means it shows up as retirement income on the correct line of the 1040.