Tobyjacket

Any help would be appreciated, going crazy trying to understand the the rules on this. I am a US citizen.
Does pension income from a UK final salary/defined benefit plan have to be reported as a trust distribution on IRS form 3520? and further does it need to be reported in some way on form 8938.

Thanks in advance

Tobyjacket

JAJ

The most important thing is to make sure your form 1040 correctly reports the income.

Defined benefit pension plans do need to be reported on form 8938. If you don't have any better information, you should take the expected value of future pension payments as a basis for valuation.

Concerning form 3520, there is no verifiable evidence out there that this is required on foreign pensions (as distinct from trusts in the standard understanding of the term). You may wish to research further in this respect, but you will probably find that a. there is no specific announcement from the IRS, and b. the number of form 3520s filed is small, and most are concerned with family trusts or other issues that are definitely within its scope.

There has not been one single reported case (of which I am aware) where someone who had filed taxable income correctly incurred a penalty for not correctly filing an information return.

Tobyjacket

Thanks for the response JAJ.
So it looks like I can ignore form 3520, my concern was that the DB plan would be treated as a trust.
With regard to valuing my defined benefit pension, it's value is currently about $24k per year and my wife will receive 2/3 of my benefit after my death. Using US life expectancy estimates it would mean that I and my wife will receive 10/8 years of benefits respectively or approximately $475k assuming a annual increase of say 3%. Would that be a reasonable way to value?
I assume the pension income (which has always been correctly included in my 1040 tax filing) would then need to be reported in part 3 as other income.
I must have been living in a bubble last year as I completely overlooked this form. So I guess I am going to have to file an amended return for 2011 and attach form 8938 to it.
Also will presumably need to file for the foreseeable future, what a pain!

JAJ

Possibly - but you should also discount for the time value of money. It would be recommended to work through this with a competent professional.

Form 8938 doesn't replace your reporting of income on your 1040. It does cross-reference what you have reported on 1040 to specified foreign financial assets.

You're not going to be the only one in this situation. As long as you reported the income correctly on your 1040 it's unlikely you'll have any problems.

The impact of not filing form 8938 can lead to a. penalties and b. an extended statute of limitations. See the instructions for form 8938 on the IRS website. However, if the income was all reported on the 1040 there's no sign this will cause any specific concerns.

You have the option to file an amended 2011 return which incorporates form 8938. However, if you amend, you must include any other information that has changed since you filed.

Longer term, it's not clear what should be the course of action for someone who in 2016 or 2020 (for example) finds out that he or she should have been filing form 8938 since tax year 2011. Assuming all income was correctly reported, it would appear to be excessive to file 5 or 10 amended returns just to incorporate a form 8938. Although by then it should be much clearer what the processing culture in the IRS is regarding late compliance.


Now you know about the requirement, you must file correctly for tax year 2012 and onwards. But adding a form 8938 to your return shouldn't be as difficult as it sounds and the details shouldn't change much from year to year.