adamas

Do you know if life insurances are considered PFICs?

Anyway., I am arranging some free consultations with CPAs dealing with expats, then most probably will liquidate the PFICs and reinvest in the USA. On the upside, it looks like the historical returns for many US brokers have been better than the performance of my funds in Europe. I hope the trend continues and I can compensate for the losses.

EdgeAA

Just jumping in on this thread as I have a similar question regarding investments/interest earned from abroad so I don't think it's worth it's own thread.

I'll be moving over to the US in the next few weeks if all goes to plan. At the moment I have some savings with my bank in ISAs and similar savings products. I intend to move the money out of these before I move over and become a LPR. However my current (checking) account where I will move the money to does give me a small amount of interest per month. I intend to move the vast majority of the money over to the US once I'm there but I will always have a few hundred pounds in my bank just to keep it open and also use when I'm back home. This will mean I will probably earn some very small interest on this account, probably in the pence rather than pounds. Would this be any issue or create any extra reporting hassle or is it worth trying to find a non interest bearing current account?

I also have a pension plan through my employer, they and myself contribute into the pension fund which is through Fidelity. There will be no further contributions when I leave my job but the fund itself will stay invested for at least 30 years until I hit retirement. I have over $10,000 in this fund so would it just need reporting on the FBAR or will I have other issues with this as I can't move it to the US or take any money out until I'm 59.

durham_lad

Glasgow Girl

I have no knowledge on that one. Maybe others can help?

durham_lad

EdgeAA

Thanks. I should be ok then I think, I just want to make things as uncomplicated as possible and not end up paying any unnecessary extra tax but looks like I should be ok. It's not a huge pension fund (less than $20k) so looking at the reporting requirements of form 8938 I think I should be alright not using that one and just sticking to FBAR.

Glasgow Girl

The reporting issues are tied to the balance of the account, although you have to report all income whether you need to report on an FBAR and/or Form 8938 or not. So if the aggregate value of your checking account plus all other accounts has less than the equivalent of $10,000 then no FBAR or Form 8938 required. But you still have to report the interest which is easy enough to do, so I would not let the minimal interest sway you one way or the other.

On the personal pension you may need to declare on Form 8938 if more than $75,000 (single) or $150,000 (married). I say may because I have never figured out if personal pensions are reportable on the FBAR and Form 8938 or not. I report them on both because there are no consequences for doing so. Whereas if reporting is required and I don't then I could be subject to draconian fines. So, I play it safe.

Since the value of your pension exceeds $10,000 my advice is report the checking and pension on the FBAR, and on Form 8938 if the balance is high enough.

And, of course, sell all your other investments BEFORE you arrive.

adamas

I am starting to dig more into the PFICs mess. I have owned some of these funds for 5 years or more, but I don't have anymore all the documents tracking the history of the funds, i.e. distributions during the past years, initial capital invested, exact acquisition dates etc.. Besides, the funds passed into the hands of three different banks and/or asset management companies throughout this period. For instance I changed asset management company in February 2018, so the current company reports February 2018 as the acquisition date of the funds! And I became a US tax resident only in July 2018.

To what extent the data on the Form 8621 must be 100% precise? And to what extent the IRS performs checks on foreign assets and gets info from foreign institution dating back years and years?

Seahorse1234

Hello, please let me know if any one has found a good CPA. I have spoken to a few here in St Petersburg, Fl where I live, but weren't knowledgeable about these things. My situation is similar but not as complex. I inherited 200,000 pounds five years ago, I have made 50,000 pounds interest since then, and realize that is considered income, but what about the original 200,000 pounds? Would I be taxed on that if I bring it over? Not necessarily all at once. The funds I inherited in dollars was not considered taxable income when I inherited it.

theOAP

As you point out, generally, it's unlikely the original funds (£200k) inherited in the UK would be taxable in the US, whether retained in the UK or sent to the US. Those funds are now yours, and if you wish to send them to the US in separate transfers or all at once, the original amount remains a non-taxable asset as an inheritance. If you do transfer them, you will likely be required to attest as to the origin of the funds. IF you were a US Person (taxable by the US) during any point in those last 5 years since you inherited them, as you point out, any gain (income) on the original funds during years you were subject to US taxation were/are taxable by the US, and, there may have also been additional reporting requirements (FBAR, 8938, etc.) which carry substantial penalties for non-compliance.

Cook_County

If the money you inherited was outside the United States, you would have filed IRS Form 3520 for the year you received the money. The account would have been reported by you each year on your FBAR & Form 8938 and the income on your US tax returns. Has this all happened?

Seahorse1234

Thank you for the replies, and I am thankful my situation isn't as complex as others. Since inheriting the money the only thing I have done is file what was originally called the FBAR. I will have to look into the other forms.
To clarify my situation, I have not filed a US tax return in several years as I have not been employeyed and my only income would have been the 8 to 9 thousand pounds interest I had earned per year from the funds in the UK and was never provided what ever the UK equivelant of a year end report for tax purposes from Lloyds Bank where the funds are.

Cook_County

As you have not filed a US income tax return, if your income exceeded the applicable US filing threshold for any US tax year, the lowest risk way of addressing the non-compliance is by using the IRS streamlined domestic procedures. The penalty is just 5% of the undeclared financial assets.

theOAP

Even if your only income (all, worldwide combined - including a spouses income if MFJ) was £9,000, exchange rates over the last 5 years would have brought you close to the filing threshold for MFJ. If you were MFS or Single, you would have been well over the threshold for US filing.

You have identified this as interest. I'm familiar with interest rates payable in the UK for normal current and savings/term accounts over the last 5 years. I don't mean to pry (but would welcome a tip!) as to how you achieved that amount on £200,000, even if in a multiyear term cash ISA. Any other account (such as a stocks and shares ISA) would be PFICs (bad). I've not achieved that level of return on interest on a larger amount invested, but as a US Person, we're severely restricted as to the type of foreign accounts we may have. Interest bearing accounts other than a standard bank/building society savings account or a cash ISA will likely be a PFIC, including those accounts combining a cash ISA and a mutual fund (S&S ISA).

£200,000, at exchange rates for the last 5 years, would be well over the threshold for 8938 reporting, but only if you were a US Person and required to file a tax return. If you were a US Person at the time of the inheritance, and as Cook County has pointed out, a 3520 would have been required.

That cuts no ice with the IRS.

Seahorse1234

When I inherited the money five years ago. I put it in the equivalent of a US 5 year CD and was making 4.3 percent interest. It is now in a holding account with Lloyds making nothing and was not told that was because they no longer offer ex pat accounts.