robin1234

I've used form 4852 for the British state pension also. I file manually, paper and snail mail method. The 4852 takes five minutes to fill out, and has the advantage of me documenting the exchange rate used, and gives me a full paper trail to make the next year's filing easy. Not really my problem if the IRS do or don't think it is appropriate or necessary.

JAJ

It's implicit. You don't file a form 4852 for non-U.S. employment income (no W-2). I doubt the IRS will reject your tax return, but I thought there were complications with including an unnecessary 4852, including a. a foreign payer will not usually have a U.S. tax number, and b. I also has heard the IRS did not accept an e-file with 4852 attached, although I could be wrong.

nun

Tax is so often a grey area. I like the idea of a 4852 just to document the foreign pension for my own records rather than for the IRS.

efiling is very convenient, but it sure does multiply the size of a tax return and generates lots of mostly trivial forms. When I did my taxes by hand they were 10 pages at the most.....last year I was up to almost 100.

theOAP

To reiterate what JAJ said in a previous post, IIRC, the instructions for 4852 state the purpose of the form is to notify the IRS that a W2 or 1099 was to have been filed by an employer (or other), but wasn't filed, either due to a mishap or negligence on the part of the issuer. The point being a W2 or 1099 was originally required. Most foreign sources for income do not have a requirement to file a W2 or 1099.

If you want to have a copy for your records, or TurboTax requires you create one so the software can work properly, there's nothing preventing that from happening; but it's not required for foreign source income on a 1040 return.

durham_lad

I've just tried again with the current version of TurboTax and I can't see how to enter a pension on line 16 without creating a 1099-R. Creating a substitute 1099-R and corresponding 4852 explaining how the exchange rate is calculated is very easy and it allows e-filing.

I'm sure you guys are correct that it is not needed but for you folks that don't do this, how do you document where the pension is coming from?

theOAP

Until several years ago (2011 return) you weren't required to identify the pension. You simply took the amount, converted it to US$, and entered it on line 16 or line 21. If you use line 21, you simply mark it "foreign pension(s)". That includes both private (company) and State pensions.

The IRS took your word for it since they had no authority to force a foreign pension scheme to declare the amount you were given. Under the regulations in the Code, the figure from a US scheme, as it is for a US employer, is reported on a 1099(R) and becomes the official figure. If there is disagreement the IRS comes back to question you. If you can prove the mistake is with the scheme or employer (or whoever) then it is corrected.

Since foreign schemes and employers (or banks, building societies, or whatever) do not fall under US regulations, Congress and Treasury introduced FATCA and form 8938. FATCA still does not capture employers (yet!), but it will force reporting from the banks, etc., and in some cases, the taxpayer on form 8938. It's interesting to note the Type 1 IGA's negotiated all exempt qualified pension schemes from reporting. The Treasury/IRS must not be too worried about the total of our piddly pensions!

durham_lad

Thanks, that is extremely useful information.

TurboTax does bring up a form to complete for 1040 line 21 (other income) and line 17 of that form simply allows you to enter any income. I guess that since it is a pension, I was convinced it had to be reported on line 16.

With a tax code longer than the bible one would think that they would have an obvious place for the many filers that need to report foreign pensions.

I am only talking about a pension of 2,500 GBP but I don't want to trigger the dreaded audit.

For the interest on my UK bank savings I create a 1099-INT. Is this also the wrong place to report interest from a foreign bank?

JAJ

But the problem is that the 4852 then has to contain a fictitious or non-existent Federal Employer ID Number (since a foreign payer usually doesn't have one).

This has been an identified issue with TurboTax for some years and they haven't fixed it yet. TaxACT has a section set aside to enter foreign pension income, without generating a form 4852.

You don't. You self-report and in the unlikely event of the IRS asking for more information, you show them the pension documentation.

No. Within tax software, this is just an input form that happens to be in the same format as a 1099. It doesn't generate a real 1099 or sent anything to the IRS. All it does is feed data to the relevant line on form 1040 and, if necessary, Schedule B.

theOAP

Simple answer, foreign interest must be listed on Schedule B (there may be some disagreement with the "must" if the amount is insignificant. Pragmatic may be a better word.)

Full answer: For interest from foreign banks and building societies, start with Schedule B, part I. List the bank, and for the amount list the interest converted to $US. If there is more than one account with that bank, combine all the interest and give the aggregate amount. Do the same for any other bank, etc., from the US and other countries. You don't have to list each individual account even if it's a foreign account; just the total from that bank.

Then proceed to part III and complete it. Disregard the Note after line 4 about having to be over $1,500. If you have a foreign account, you must complete part III. Take the the amount on line 4 of Schedule B, and use it on line 8a of the 1040.

durham_lad

Thanks JAJ and OAP, I'll try these other ways this tax year for both the pension and the bank interest reporting.

(When doing the 4852 with TT I had always just put in a string of "1"s for the employer ID, figuring it would be obvious to anyone reading the form that this is a foreign pension.)

theOAP

JAJ can correct me if I'm wrong on this, but I don't believe there is anywhere on any US tax form that has the wording "foreign" pension.

EDIT: the form for the Exit tax, maybe?

theOAP

The instructions say to place "foreign" pensions on line 16. When questioned, an IRS agent has expressed "don't do that, put them on line 21". Who knows?

theOAP

A totally unrelated, but somewhat similar, question for JAJ.

I received a rebate from HMRC for the overpayment of taxes in 2014. It was an accumulation of several different UK tax years.

I could file a 1040X for the relevant US tax years, but it will not change the amount of tax due, $0, so that seems a pointless exercise. It would change carryover/carry back credits available for future years slightly.

I could list the rebate as income, but do I put it on line 10, or on line 21? Or, I could alter my records for carryover/carry back available for future reference, and do nothing. Any thoughts?

JAJ

Great question. Probably belongs on its own thread, since others may also wish to comment.

Presumably, Foreign Tax Credit (FTC) has been claimed in prior years?

The amount should not be on line 10 of form 1040. As far as I am aware, that is for a taxable refund of U.S. state and local taxes that were taken in prior years as an itemized deduction.

The official answer is in the instructions to form 1116. The rebate is not income (which makes sense) but they say should be corrected through an amended tax return.
Instructions for Form 1116 (2013)

However, do the IRS really want an amended tax return for trivial amounts? Pragmatically, I would think that most people claiming a foreign tax credit on an ongoing basis would simply correct the issue by reducing current year foreign tax credit by the relevant amount.

theOAP

Thanks for the reply, JAJ.

Yes, FTC has been claimed for all years involved, and many, many years in the past, even before retiring. FTC credits available for carryover/carry back are significant and go back much further than the last 10 years allowed to be used.

When I retired, I had to use several years worth of carryback credits. That involved creating several charts to submit with the return as required by the instructions for 1116. On the charts, (for both general and passive), I submitted the allowance for each year used (for the last 10 years allowed), and displayed where the credits being used came from, and the resulting balances for the past years used for the credits.

One thought was if the IRS depend on those charts submitted by the taxpayer, my figures for credits available would be smaller than what is recorded on past 1116's. No where does 1116 list credits available resulting from the calculations, so I assume the IRS simply checks that at least that amount of credit is available (total credits available for the year minus maximum credits allowed for the year, which has always been the case, except for the year I retired).

There seems to be no loss to the IRS if I adjust my figures for those years, and if I were questioned, there would be nothing to gain for the IRS by my listing the "new" smaller amounts as credits. As you point out, the only complaint the IRS may have is no 1040X was filed. Penalty? There's no additional tax due as a result, either for the past years or the year the credits were to be used, so perhaps a pointless exercise on their part.

I'll consider your comments, and will decide how to proceed. Again, thanks for your thoughts.