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-   -   Compounding Confusion: IRS form 8938 (https://britishexpats.com/forum/usa-57/compounding-confusion-irs-form-8938-a-753190/)

MMcD Mar 29th 2012 6:52 pm

Compounding Confusion: IRS form 8938
 
Have I perhaps been overly fastidious and only confused matters in filling out Form 8938?
Using Turbo Tax - I’ve just completed my 2011 taxes. Before printing out and mailing - I’d like reassurance that I’ve filled out form 8938 correctly:

My question relates to 3 different “Self-Employed Retirement Plans” which I hold in the UK at 2 different insurance companies.
In December of 2011 one of the 3 plans was transferred at the same company to an Annuity - at which time I received a 25% lump sum and my 1st annuity payment (both of which I reported on my Form 1040).
The policy changed its plan ID number when it became an annuity.
Therefore I reported it twice on form 8938 - once with its original policy number and highest fund value during 2011.
And then a second time (with its new ID number and reduced fund value).
Was this the correct thing to do?

My 2 other policies - both of which I reported separately on form 8938 - together with their policy numbers and highest fund values in 2011 - were just converted to annuities this year (2012).
Tho both are at one company - one of them retained its same policy number when converted - whilst the other got a new one.
Looking ahead to next year - would I therefore report these 2 policies as 3 separate entities?

I hope this hasn’t been confusing. Would appreciate any input.

theOAP Mar 29th 2012 8:01 pm

Re: Compounding Confusion: IRS form 8938
 

Originally Posted by MMcD (Post 9979051)
.....The policy changed its plan ID number when it became an annuity.
Therefore I reported it twice on form 8938 - once with its original policy number and highest fund value during 2011.
And then a second time (with its new ID number and reduced fund value).
Was this the correct thing to do?

I do not know the answer to your question. I'll go out on a limb and suggest that no one here will know for sure. I'll go further out on that limb and suggest that the IRS would offer differing opinions, depending who you talked to, assuming you would even get an answer.

If this were for FBAR, then I would say fine, report all. But 8938 is totally different.

May I ask, how did you handle any reporting in Part III of 8938 for either of these? Did you tick box 3d in Part II for either entry?

theOAP Mar 29th 2012 8:25 pm

Re: Compounding Confusion: IRS form 8938
 
If I were to go out on another limb, I would offer this guess (and it's only a guess). Since you took a lump sum and initiated payments from the first, they would be two different assets. On line 3b, the date that the original asset was closed (you took the lump sum and started annuity payments) would be noted. On line 3a for the second asset, the date it commenced would be noted.

MMcD Mar 29th 2012 9:56 pm

Re: Compounding Confusion: IRS form 8938
 

Originally Posted by theOAP (Post 9979171)
I do not know the answer to your question. I'll go out on a limb and suggest that no one here will know for sure. I'll go further out on that limb and suggest that the IRS would offer differing opinions, depending who you talked to, assuming you would even get an answer.
May I ask, how did you handle any reporting in Part III of 8938 for either of these? Did you tick box 3d in Part II for either entry?

I'm sure you're right about the IRS - best not even ask :thumbdown:
Re: Part II of 8938 - None of that should be applicable to me (I believe:confused:) - so it's left completely blank (like my brain)
Part III of 8938 - Since it's labeled as a "Summary....." - beneath "Asset Category" Part Id (Other Income) I entered the total amount received from the 25% lump sum plus the first annuity payment minus the % of my premium contributions - in the "Amount Reported Column".
And in the "Form and Line" column - I entered: 1040 16b

I didn't enter the dates when I closed one policy and opened the other - just indicated that I'd done so during 2011 without entering specific dates - since they don't request any.

Hope I've done the correct thing:fingerscrossed:

nun Mar 29th 2012 10:22 pm

Re: Compounding Confusion: IRS form 8938
 
Who knows when it comes to 8938, it's so vague.

I'd be interested to know how you are dealing with those annuities as far as UK tax goes. Are they tax free? How does the IRS look at the conversion to the annuity? was that a taxable event? I have no idea about this. UK pension plans are reasonably well covered in the US/UK tax treaty, but what is the situation for UK insurance policies. Do they comply with US regulations for taxation?

I read that qualifying UK endowment type insurance policies get tax taken out of them during the accumulation phase and are then free of tax at payout. So can you use the tax you paid in the Uk to reduce the basis of US taxation on the income.......they operate like a cross between a ROTH and an annuity so how does the US tax them?

MMcD Mar 29th 2012 10:51 pm

Re: Compounding Confusion: IRS form 8938
 

Originally Posted by nun (Post 9979387)
I'd be interested to know how you are dealing with those annuities as far as UK tax goes. Are they tax free? How does the IRS look at the conversion to the annuity? was that a taxable event? I have no idea about this. UK pension plans are reasonably well covered in the US/UK tax treaty, but what is the situation for UK insurance policies. Do they comply with US regulations for taxation?
I read that qualifying UK endowment type insurance policies get tax taken out of them during the accumulation phase and are then free of tax at payout. So can you use the tax you paid in the Uk to reduce the basis of US taxation on the income.......they operate like a cross between a ROTH and an annuity so how does the US tax them?

Unless I'm mistaken your concerns should not apply to me.
I'm a US citizen, resident in US as well. I moved back to this country permanently ages ago and currently am not subject to UK tax.
As far as the pension/annuity policies are concerned - I must pay US tax on everything received. In addition - to date - I fall below the threshold at which I'd be subject to any UK tax.
This will change next year with the conversion of my other 2 policies to annuities - at which time I'll have to pay US tax on the lump sum distributions - but since the annuities will both be paying me yearly in arrears - with my one annual payment for each not beginning until 2013 - I will be filing the required form with HMRC sometime after the middle of 2012 so that I am not double taxed once I start to receive the additional annuity payments which will put me over the tax reporting threshold in the UK.
When you refer to "UK insurance policies" I'm unsure how this might apply to me, if at all:
Altho' held at insurance companies - my policies are not insurance instruments - and I'm afraid I don't even know what endowment policies are.
Hope I'm not missing something important in my ( admittedly tenuous) grasp of the confusing situation.

nun Mar 29th 2012 11:15 pm

Re: Compounding Confusion: IRS form 8938
 
Ok sorry I saw "insurance company" and assumed your annuities were previously structured as insurance policies.

I'm not familiar with UK self employment retirement plans, but over and above the 8938 filing my concern would be how they are dealt with by the IRS.

nun Mar 30th 2012 2:02 am

Re: Compounding Confusion: IRS form 8938
 
Are your pensions any of these? and have you checked with a tax professional about them?

http://www.pensionsadvisoryservice.o...ivate-pensions

theOAP Mar 30th 2012 10:23 am

Re: Compounding Confusion: IRS form 8938
 

Originally Posted by MMcD (Post 9979352)
Re: Part II of 8938 - None of that should be applicable to me......

As you can tell, you're not alone in being confused by 8938. I'll start by making the assumption that you've listed all accounts in Part I of 8938. In my understanding, Part I only concerns "foreign deposit and custodial accounts". However you define your accounts (pension, insurance, etc.), they would seem not to be a deposit or custodial account. For this reason, Part II would seem more appropriate. Unfortunately, it is much more difficult to understand. The terminology (definitions) are suitable only for a tax attorney.

Part II allows a notable cessation to the account, as does Part I, and this is the most important notation. With FBAR, you simply say "I had this account during the year". If the account is closed, for the next year you say "I didn't have this account during the year" (by omission). FBAR also lists all types of accounts (debit cards, bank accounts, etc.) as the same.

With 8938, the IRS creates a 'timeline' or 'history' for each account. If an account is reported in year one, and no notation is made about it being closed, the IRS will expect to see the account listed the following year. If it's not, they'll want to know why. As I said, Part I accomplishes this. The only concern remains the appropriateness of Part I for these accounts. Unlike FBAR, 8938 goes out of its way to define different types of accounts.

It's your call, and your guess is as good as mine.

nun Mar 30th 2012 12:10 pm

Re: Compounding Confusion: IRS form 8938
 

Originally Posted by MMcD (Post 9979352)
Re: Part II of 8938 - None of that should be applicable to me (I believe:confused:) - so it's left completely blank (like my brain)

I also think that Part II would be where to enter these annuity payments.

I'm actually a bit embarrassed for the IRS. 8938 is so poorly thought out and written.

MMcD Mar 30th 2012 3:17 pm

Re: Compounding Confusion: IRS form 8938
 

Originally Posted by nun (Post 9979463)
I'm not familiar with UK self employment retirement plans

I'm not surprised - They are ancient - mine were taken out in 1976 (Neanderthal times :D ).....and.....(see cont. below....)


Originally Posted by nun (Post 9979643)

........they pre-date all of those plans referenced on the Pensions Advisory web site (above link).
In fact, they were not even called "Pension" plans at the time - even tho that's what they all were and how they were treated by HMRC. As I mentioned earlier - 2 were called "Self Employed Retirement Plans (the 3rd was named "Variable Annuity" - despite the fact that it was most definitely NOT an annuity at the time - and did not become one until being converted into one this year (2012).
Believe it or not - I spent almost a year diligently researching these policies (they'd been lost for 35 years and only came to light for me last year...both a nightmare and a windfall at the same time). And despite the complexity of the matter - I now feel quite confident that I understand what they are and what they are not.
It was how to report them on IRS form 8938 that confounded me


Originally Posted by theOAP (Post 9979997)
As you can tell, you're not alone in being confused by 8938. I'll start by making the assumption that you've listed all accounts in Part I of 8938. In my understanding, Part I only concerns "foreign deposit and custodial accounts". However you define your accounts (pension, insurance, etc.), they would seem not to be a deposit or custodial account. For this reason, Part II would seem more appropriate. Unfortunately, it is much more difficult to understand. The terminology (definitions) are suitable only for a tax attorney.
Part II allows a notable cessation to the account, as does Part I, and this is the most important notation.
With 8938, the IRS creates a 'timeline' or 'history' for each account. If an account is reported in year one, and no notation is made about it being closed, the IRS will expect to see the account listed the following year. If it's not, they'll want to know why. As I said, Part I accomplishes this. The only concern remains the appropriateness of Part I for these accounts..
It's your call, and your guess is as good as mine.

Well I'm going to opt for calling them "custodial accounts" and entering them in Part 1 - but thank you both for your thoughtful advice.
http://www.google.com/search?q=IRS+d...lient=firefox-
Bottom line - I'm reporting ALL INCOME - so the technical fine point nitty gritty re: where and on which line and in which section the info is entered makes absolutely no difference pragmatically:
The IRS will receive EVERYTHING ($$$$$s) due them - and when all's said 'n done - that's what matters to them, isn't it?
Plus...you've both concurred that I've (probably) done the correct thing by entering the plan which I've already converted - twice - and that was my original question. So thanks so much for your replies.


Originally Posted by nun (Post 9980089)
I also think that Part II would be where to enter these annuity payments.

Please.....visit me in jail if I've erred :o

nun Mar 30th 2012 5:08 pm

Re: Compounding Confusion: IRS form 8938
 

Originally Posted by MMcD (Post 9980374)
I'm not surprised - They are ancient - mine were taken out in 1976 (Neanderthal times :D ).....and.....(see cont. below....)

........they pre-date all of those plans referenced on the Pensions Advisory web site (above link).
In fact, they were not even called "Pension" plans at the time - even tho that's what they all were and how they were treated by HMRC. As I mentioned earlier - 2 were called "Self Employed Retirement Plans (the 3rd was named "Variable Annuity" - despite the fact that it was most definitely NOT an annuity at the time - and did not become one until being converted into one this year (2012).

Your plans sound as if they are RACs (Retirement Annuity Contracts). These were in place in 1976. Why do you say your plans were not annuities originally? The RACs were plans where you put in a monthly premium and the insurance company etc invests the money and at the time you want to retire they then take the money and pay it out at a monthly rate determined by your life expectancy and current interest rates. Were your plans arranged differently?

RACs may well be covered by the UK/US treaty, but I was just wondering if you had checked with an advisor or done the required research yourself.

MMcD Mar 31st 2012 8:53 pm

Re: Compounding Confusion: IRS form 8938
 

Originally Posted by nun (Post 9980089)
I also think that Part II would be where to enter these annuity payments.

Upon further reflection - decided you and OAP are correct:
I moved the entry to Part II - and DONE - it's off and e-filed- till next year:ohmy:


Originally Posted by nun (Post 9980588)
Your plans sound as if they are RACs (Retirement Annuity Contracts). Why do you say your plans were not annuities originally?***1 The RACs were plans where you put in a monthly premium and the insurance company etc invests the money and at the time you want to retire they then take the money and pay it out at a monthly rate determined by your life expectancy and current interest rates. Were your plans arranged differently?***2
I was just wondering if you had checked with an advisor or done the required research yourself. ***3

1. Because they weren't
2. Yes
3. Hours and hours and weeks and months - myself.
...To the extent that I came to understand the terms and conditions of these arcane and ancient plans better than the 2 insurance companies now administering them. I fiercely challenged their interpretation; eventually they relented in all 3 instances AND have even paid me extra for my "pain, suffering and inconvenience" :thumbsup: with appropriate letters of apology and big fat cheques :thumbsup:
Just goes to show: Sometimes the little guys determination can win against "Goliath" - but at a cost because it does require fierce perseverance.

nun Mar 31st 2012 11:33 pm

Re: Compounding Confusion: IRS form 8938
 

Originally Posted by MMcD (Post 9982382)
Upon further reflection - decided you and OAP are correct:
I moved the entry to Part II - and DONE - it's off and e-filed- till next year:ohmy:


1. Because they weren't

So what were your retirement plans? How were they invested?


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