durham_lad

I see that now, didn't spot his later post that clarified it. I agree that DC plans should be reported on FBAR.

JAJ

It seems that there is a whole industry out there that sustains itself on this kind of scaremongering. And it is leading some people to renounce United States citizenship, which is unfortunate.

JAJ

As others have said, if it's with a financial institution, then it should generally be reported. This year's FBAR is due by June 30 (for 2012), and you have to file electronically.

Regarding prior year FBAR, as someone else has said if you omitted something, then technically the IRS would say (officially) that you should amend going back 6 years. But realistically, they would in general be fine with compliance on a go forward basis. Many others have done the same thing without filing or amending prior year FBAR.

The following link shows the kind of cases that attract FBAR prosecution:
http://www.irs.gov/uac/Offshore-Tax-...liance-Efforts


Since RRSP withdrawal would be taxed as income by Canada regardless, then I cannot easily see why anyone would want to make this election. However, sometimes it's difficult to understand the purpose of what government does and doesn't do.

If you did not make this election on prior years, then in theory the IRS could assess tax on the years that are open under the statute of limitations. For those who filed on time, it's generally 2010-12. However, there is no obligation on you to amend a tax return that you believed was correct at the time you signed it and the chances of the IRS seeking to audit you on this particular issue are probably less than minimal.

covtocan

Just checking in and wanted to say thanks for all the useful advice. Happy FBAR and tax filing, everyone!

kodokan

Hubby and I between us have 5 UK pensions:

- two defined benefit 'final salary' ones
- three defined contribution 'money purchase' ones

Some are held with the ex-employer still, some are with insurance companies (two of them arose from opting out of SERPS in the 90s, for example).

Our tax prep was done last year for 2012 by a Big Four firm, and they explicitly told us that they would not put any of the pensions on the FBAR. We queried this a lot, especially as we were also filing 8938 that year, so had already collated all the information about these accounts - it would have been no trouble at all to include them on the FBAR 'just in case', and we concernedly asked if we should do this.

But the tax prep firm were adamant the pensions shouldn't be there - 'are these clearly retirement accounts locked up until you hit a certain age; did you take any distributions from them during 2012?' were the relevant questions.

So the pensions all went on the 8938, but not on the FBAR.

This appears to tally with what the IRS have on their advice page, under exemptions to what's considered an FBAR-able foreign account:

'Participants in and beneficiaries of tax-qualified retirement plans;'

(http://www.irs.gov/Businesses/Small-...-Accounts-FBAR)

This helpful advice has appeared within quite recently - last year, when I was reading everything the IRS had about ever printed about FBAR, this list of exemptions wasn't there. They seem to have doing some general mopping up and clarifying about what's a financial account, and what signatory powers mean.

And here's the advice that KPMG are putting out about it:

'...but the scope of foreign assets in which an individual has a reportable interest for purposes of Form 8938 is broader in comparison to the FBAR rules (e.g., interests in a foreign pension plan or foreign deferred compensation plan may be reportable on Form 8938).' - i.e., foreign pension plans DO go on 8938, but DON'T go on FBAR.

(See the second page of their help guide: http://www.kpmg.com/US/en/IssuesAndI...-apr8-fbar.pdf)

And there was this thread on BE last year, in which a poster called helendha eventually phoned the Treasury and was told almost word for word what the Big Four firm told us last year, about them being locked retirement accounts from which you didn't receive a distribution in that given year:
http://britishexpats.com/forum/showt...pension&page=2

So... *shrug*. I'm concluding that the IRS is applying some common sense that it's not globally mobile workers that they're targeting, who might've happened to have set up a pension in their home country 20 years ago about which they can do nothing and can't even access anyway.

I'm therefore not reporting them on the FBAR. By leaving them off, we'll drop out of FBAR reporting after this year, having moved all the more mobile assets Stateside over the last year or so. It'll be nice not to have to remember to do this every year for the next couple of decades.

nun

Foreign defined benefit pensions don't need to go on FBAR, however, I would include defined contribution plans as you can directly control how the money is invested and they are not a tax qualified retirement plan under IRS rules.

kodokan

But a defined contribution plan is still a 'tax-qualified retirement plan', isn't it? And the item just above this in the IRS exemption list is 'IRA owners and beneficiaries' - this suggests an exemption scope beyond workplace final salary schemes and firmly into time-locked retirement accounts in general, regardless of how they got funded or whether you can pick the underlying investments or not.

I honestly went round and round with this last year - the US tax prep people even had their legal guys contact their UK equivalent guys to make sure they fully understood what a Stakeholder Pension was (our opted-out of SERPS/ personal pension ones). They already had all the details of the plans that we'd entered into their organizer thingie for 8938 reporting, and they had a concerned client bothering them repeatedly for written confirmation and asking whether the plans should just be included on the FBAR they were preparing, just in case...

They still said no (and by then 'oh, alright then, why not') would have been an easier response for them, to make me go away ). They were rock solid certain there was no ambiguity - I almost got the impression they'd been clearly told to stop cluttering up the form with flipping pointless tiny pensions that no one in the US govt cares about. 'Can you access it before retirement?' (ie, is it clearly deferred 'old person' money, like 401ks or IRAs) and 'Did you receive any distributions from it this year?' (so they could be taxed as income if so, I guess) were the only things of interest - they weren't remotely bothered who it was held with, what it was invested in, etc.

I think the view on foreign retirement accounts and reporting has moved on in the last year. I agree that when I was looking at this a year ago, it was unclear, and whole 'signatory authority' thing was especially muddy, but since then that 'we don't care about pensions' exemption has appeared on the IRS website. I know you spend a lot of time keeping abreast of all these financial issues and are ridiculously well-informed, but in this particular case are you basing your opinion on anything other than general internet chatter from a couple of years ago? Do you have a link that gives different advice, from a recent and reliable source?

nun

Only if it conforms to the rules set out in 401k, 403b etc.....so generally speaking a foreign defined contribution retirement plan is NOT a tax qualified plan as far as the IRS is concerned.

kodokan

But in the context of it being advice about an exemption for a form solely concerned with FOREIGN retirement accounts, none of which are ever crafted to comply with US-specific rules, a reasonable line of thought is: 'right, so my pension is an official tax-qualified retirement plan in the UK, exactly the sort of pension that the US-UK Tax Treaty recognizes and treats as such... so it's therefore meant to be exempt from FBAR reporting'.

Given this, and the crystal clear guidance from our Household Name tax firm - both their US and UK legal teams, and their UK team must come across this a LOT as they do tax prep for US citizens based in the UK by their multinational employers; and KPMG saying exactly the same thing about 'foreign pension plan' OR 'foreign deferred compensation plan' - ie, both sorts of pension types - I'm comfortable with my approach.

The alternative seems to be the blogosphere of 2011 talking in vague terms of 'it is generally believed' and basically guessing in a time when the instructions were a lot less clear. For example, the widely held 'understanding' that defined benefit plans don't need reporting - where's that exemption, in the otherwise comprehensive list of exemptions in the IRS guidance? What's that belief based on, exactly?

Edit: I have enormous respect, Nun, for your financial knowledge and expertise in these things, and I always read your posts across all the relevant forums with great interest, but much of what you say about reporting requirements appears to be based on conclusions you reached several years ago, when it was all very murky and vague, and everyone basically had to guess and err on the side of reporting their Oyster card to avoid being bankrupted. Do you have any recent sources of people being audited for not including their pensions, or people being told by IRS/ Treasury to definitely include them, or people being given advice from their tax preparers which differs from what the Big Four are telling all their wealthy, influential, multinational clients?

JAJ

I would tend to side with nun on this one, technically. HOWEVER, there are legitimate differences of opinion. And it is clear that this isn't exactly an enforcement priority for IRS/Treasury and no-one who takes a different view (regarding FBAR reporting) on foreign retirement accounts - at least, those acquired in the ordinary course of life - is likely to be prosecuted.

kodokan

You're another, JAJ, whose opinion I respect enormously (and I especially like your pragmatic 'in the long run, no one will really care' approach). But, like with nun, can I ask on what information you're basing your opinion? The major accounting firms are telling their clients not to include pensions on the FBAR, any type of pensions - 8938 yes, FBAR no - and the IRS exemptions don't differentiate between one sort of foreign retirement plan or another. So where does this pervasive internet belief about 'defined benefit can be skipped, but defined contribution should be listed' comes from originally, and what evidence is there that it's still valid now?

(Personally, I think the FBAR will be dumped by the wayside at some point in favor of the 8938; having the two almost-the-same forms, with different reporting thresholds and ever so slightly different rules, is clearly mad, even by US taxation standards.)

JAJ

I think the background to the thinking is that a deferred contribution plan is generally in the form of an account with a financial institution, which in turn technically falls within the FBAR requirements.

From an individual point of view, if you have advice in writing from a reputable practitioner to follow a course of action, and it appears to be a legitimate interpretation of the law, then just file a copy of the advice with your tax records for the year. Someone who self-files, may decide to report the pension on FBAR anyway. It's simple to do and there is no penalty for over-reporting.

Except that FBAR isn't an IRS form. It's managed by a different part of the U.S. Department of the Treasury. So any change would need co-ordination across two government agencies, each one with a slightly different agenda. That isn't to say that nothing will change in future, in terms of reporting threshold and specific requirements. But I would be surprised to see the FBAR reporting requirement disappear anytime soon.

kodokan

I see your point about defined contribution funds being held by a financial institution, but still think it's a subtlety beyond what most people reading 'tax-qualified foreign retirement plans are exempt from FBAR filing' will be considering.

Technically I know that, but the IRS seems to be going out of its way to make people believe it's just another IRS reporting requirement. The link I used above: http://www.irs.gov/Businesses/Small-...-Accounts-FBAR, is very much part of the IRS website; there, it states:
'...the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing electronically a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR).'

Perhaps the IRS are making an internal power grab...

kodokan

Plus the whole thing's going to get really messy now that UK employees (including any US citizens working there) are being compulsorily enrolled into NEST pensions, having tax relief claimed on their behalf and added to their named pot, along with employer contributions, etc. Wouldn't like to be doing THAT tax return...

nun

I'd treat NEST like any other UK define contribution pension plan.

1) Declare it on FBAR if necessary
2) Either claim a treaty exemption or pay tax on contributions and defray them with FTC.