Tax status for new LPR
Jan 4th 2016, 6:26 pm
#1
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Posts: 22
Tax status for new LPR
Hi all,
Now that my UKC spouse is an LPR, we've been researching IRS tax information, for tax year 2015. However, I'm a bit perplexed and was wondering if any forum folks, in a similar situation, have any thoughts.
UKC/LPR became a US resident on October 1, 2015 and received green card the following month. Does not have any U.S. source income. Was not in U.S. prior to Oct 2015. Does not own any property, nor is receiving a pension.
Does spouse need to file for the U.S tax year 2015 ??
I have been studying the IRS info pertaining to the Substantial Presence Test and Green Card test.
Last question: Spouse has two *untouched* UK pension pots. Does this need to be reported now (using Form 8938)?
Thanks, in advance, for any suggestions or helpful comments.
Now that my UKC spouse is an LPR, we've been researching IRS tax information, for tax year 2015. However, I'm a bit perplexed and was wondering if any forum folks, in a similar situation, have any thoughts.
UKC/LPR became a US resident on October 1, 2015 and received green card the following month. Does not have any U.S. source income. Was not in U.S. prior to Oct 2015. Does not own any property, nor is receiving a pension.
Does spouse need to file for the U.S tax year 2015 ??
I have been studying the IRS info pertaining to the Substantial Presence Test and Green Card test.
Last question: Spouse has two *untouched* UK pension pots. Does this need to be reported now (using Form 8938)?
Thanks, in advance, for any suggestions or helpful comments.
Jan 4th 2016, 8:20 pm
#2
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Joined: Aug 2004
Posts: 4,754
Re: Tax status for new LPR
Hi all,
Now that my UKC spouse is an LPR, we've been researching IRS tax information, for tax year 2015. However, I'm a bit perplexed and was wondering if any forum folks, in a similar situation, have any thoughts.
UKC/LPR became a US resident on October 1, 2015 and received green card the following month. Does not have any U.S. source income. Was not in U.S. prior to Oct 2015. Does not own any property, nor is receiving a pension.
Does spouse need to file for the U.S tax year 2015 ??
I have been studying the IRS info pertaining to the Substantial Presence Test and Green Card test.
Last question: Spouse has two *untouched* UK pension pots. Does this need to be reported now (using Form 8938)?
Thanks, in advance, for any suggestions or helpful comments.
Now that my UKC spouse is an LPR, we've been researching IRS tax information, for tax year 2015. However, I'm a bit perplexed and was wondering if any forum folks, in a similar situation, have any thoughts.
UKC/LPR became a US resident on October 1, 2015 and received green card the following month. Does not have any U.S. source income. Was not in U.S. prior to Oct 2015. Does not own any property, nor is receiving a pension.
Does spouse need to file for the U.S tax year 2015 ??
I have been studying the IRS info pertaining to the Substantial Presence Test and Green Card test.
Last question: Spouse has two *untouched* UK pension pots. Does this need to be reported now (using Form 8938)?
Thanks, in advance, for any suggestions or helpful comments.
If the UK pension pots exceed the 8938 threshold then they should be reported. FBAR might also be required.
Jan 5th 2016, 12:34 am
#3
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Joined: Jul 2010
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Re: Tax status for new LPR
Read IRS publication 519. He is dual-status for 2015 which means he files a pro-rated (essentially) 1040 for 2015 covering the months he was present.
He can elect to be resident for the whole year but that is unwise if he had income prior to moving to the US as the US will then tax it.
As far as the pensions go, that is a whole major topic in and of itself. Search on here and there are various threads. E.g. http://britishexpats.com/forum/usa-5...ically-785733/ They're not foreign accounts, they're foreign trusts usually if they're private pensions. Which means Form 3520 and even worse, Form 3520-A if the pension doesn't have a US agent (which it most likely doesn't). However... there are various tax treaty provisions that apply - which usually means you can use 8938 (but this is a matter of debate).
Ditto for an ISA, the ISA thing has been done to death on here also, long story very short, don't have an ISA if you're a US citizen or LPR. An ISA definitely doesn't benefit from any tax treaty provision and definitely is a foreign trust so the IRS taxes it, so pointless to keep it, in a nutshell. Unless you enjoy filling in 3520 and 3520-A.
He can elect to be resident for the whole year but that is unwise if he had income prior to moving to the US as the US will then tax it.
As far as the pensions go, that is a whole major topic in and of itself. Search on here and there are various threads. E.g. http://britishexpats.com/forum/usa-5...ically-785733/ They're not foreign accounts, they're foreign trusts usually if they're private pensions. Which means Form 3520 and even worse, Form 3520-A if the pension doesn't have a US agent (which it most likely doesn't). However... there are various tax treaty provisions that apply - which usually means you can use 8938 (but this is a matter of debate).
Ditto for an ISA, the ISA thing has been done to death on here also, long story very short, don't have an ISA if you're a US citizen or LPR. An ISA definitely doesn't benefit from any tax treaty provision and definitely is a foreign trust so the IRS taxes it, so pointless to keep it, in a nutshell. Unless you enjoy filling in 3520 and 3520-A.
Jan 5th 2016, 12:35 am
#4
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Re: Tax status for new LPR
BTW, in the 2011 edition of pub. 519 there is an example of how to do a dual-status return.
Jan 5th 2016, 2:05 am
#5
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Joined: Aug 2004
Posts: 4,754
Re: Tax status for new LPR
As far as the pensions go, that is a whole major topic in and of itself. Search on here and there are various threads. E.g. http://britishexpats.com/forum/usa-5...ically-785733/ They're not foreign accounts, they're foreign trusts usually if they're private pensions. Which means Form 3520 and even worse, Form 3520-A if the pension doesn't have a US agent (which it most likely doesn't). However... there are various tax treaty provisions that apply - which usually means you can use 8938 (but this is a matter of debate).
Ditto for an ISA, the ISA thing has been done to death on here also, long story very short, don't have an ISA if you're a US citizen or LPR. An ISA definitely doesn't benefit from any tax treaty provision and definitely is a foreign trust so the IRS taxes it, so pointless to keep it, in a nutshell. Unless you enjoy filling in 3520 and 3520-A.
Jan 5th 2016, 6:40 am
#6
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Re: Tax status for new LPR
It's not a PFIC, it's an account held in trust by an FFI.
A SIPP is also a foreign trust, the possible difference from a reporting standpoint is that it benefits from the tax treaty.
My personal view is that a SIPP also requires a 3520 and 3520-A be filed but I'm a bit more open-minded on the subject because I've seen it argued with the IRS other ways.
However, it is a foreign account held in trust. The now defunct Form 8891 for RRSPs (the Canadian equivalent of a SIPP) says specifically that it is a replacement for Form 3520, so that very strongly implies that a SIPP is subject to Form 3520 and 3520-A filing requirements.
A special exception was created for holders of RRSPs and RRIFs last year so they only have to report them on Form 8938 - but there is no equivalent exemption for SIPPs or any other foreign pension scheme for that matter.
I've seen it argued that you could file Form 8833 to get around that but is the IRS okay with merely that or do they want the full description? Part III of 8938 includes a box for listing things that you've put down on Form 3520.
I don't know how anyone argues that it is a PFIC, clearly it's not. And why would you want to anyway, because you can't claim it as a QEF obviously and as next to impossible as Form 3520-A is to fill out, I'd say Form 8621 is even more impossible.
At least the information for 3520-A is basic reporting information, it's just very hard to gather together to put on the form, trying to do mark-to-market is even harder, I would say. And that just makes the point that it can't be right to do it that way, because pensions are exempt under the treaty so how can you be paying tax using mark-to-market if it's exempt?
Jan 5th 2016, 12:31 pm
#8
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Re: Tax status for new LPR
A "wrapper" is a trust. It's an account held in trust by a foreign financial institution, ergo, it's a foreign trust. The FATCA agreement says an ISA is not a financial account, so what else can it be? Anyway I've had this conversation with the IRS directly, it definitely is a foreign trust, so 26 USC 6048(b) applies. This is not subjective, I specifically asked, they knew exactly what I was on about, that was their answer. Even a cash ISA is a foreign trust. It's not a PFIC, it's an account held in trust by an FFI. A SIPP is also a foreign trust, the possible difference from a reporting standpoint is that it benefits from the tax treaty. My personal view is that a SIPP also requires a 3520 and 3520-A be filed but I'm a bit more open-minded on the subject because I've seen it argued with the IRS other ways. However, it is a foreign account held in trust. The now defunct Form 8891 for RRSPs (the Canadian equivalent of a SIPP) says specifically that it is a replacement for Form 3520, so that very strongly implies that a SIPP is subject to Form 3520 and 3520-A filing requirements. A special exception was created for holders of RRSPs and RRIFs last year so they only have to report them on Form 8938 - but there is no equivalent exemption for SIPPs or any other foreign pension scheme for that matter. I've seen it argued that you could file Form 8833 to get around that but is the IRS okay with merely that or do they want the full description? Part III of 8938 includes a box for listing things that you've put down on Form 3520. I don't know how anyone argues that it is a PFIC, clearly it's not. And why would you want to anyway, because you can't claim it as a QEF obviously and as next to impossible as Form 3520-A is to fill out, I'd say Form 8621 is even more impossible. At least the information for 3520-A is basic reporting information, it's just very hard to gather together to put on the form, trying to do mark-to-market is even harder, I would say. And that just makes the point that it can't be right to do it that way, because pensions are exempt under the treaty so how can you be paying tax using mark-to-market if it's exempt?
An ISA is never a foreign trust. It is simply a foreign account, no different from - say - domestic US Merrill Lynch account.
A personal pension is probably a contract; not a trust.
A SIPP might be a trust.
The contents of any of these accounts might include PFICs.
Jan 5th 2016, 1:39 pm
#9
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Re: Tax status for new LPR
A "wrapper" is a trust. It's an account held in trust by a foreign financial institution, ergo, it's a foreign trust. The FATCA agreement says an ISA is not a financial account, so what else can it be? Anyway I've had this conversation with the IRS directly, it definitely is a foreign trust, so 26 USC 6048(b) applies. This is not subjective, I specifically asked, they knew exactly what I was on about, that was their answer. Even a cash ISA is a foreign trust.
Jan 5th 2016, 3:26 pm
#10
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Re: Tax status for new LPR
Ditto for an ISA, the ISA thing has been done to death on here also, long story very short, don't have an ISA if you're a US citizen or LPR. An ISA definitely doesn't benefit from any tax treaty provision and definitely is a foreign trust so the IRS taxes it, so pointless to keep it, in a nutshell. Unless you enjoy filling in 3520 and 3520-A.
Oh, I see that others have chimed in and contested this requirement.
Jan 5th 2016, 4:30 pm
#11
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Re: Tax status for new LPR
These views are entirely opposite of all US tax professionals in the UK other contributors to this forum and confused in places and can be mainly disregarded.
An ISA is never a foreign trust. It is simply a foreign account, no different from - say - domestic US Merrill Lynch account.
A personal pension is probably a contract; not a trust.
A SIPP might be a trust.
The contents of any of these accounts might include PFICs.
An ISA is never a foreign trust. It is simply a foreign account, no different from - say - domestic US Merrill Lynch account.
A personal pension is probably a contract; not a trust.
A SIPP might be a trust.
The contents of any of these accounts might include PFICs.
Sometimes things are quite simple and adding needless complications should be avoided. To be absolutely certain about how to treat the UK "pension pots"
the OP needs to provide more details......are the UK Government pensions, SIPPS, employer defined benefit pensions etc.
Last edited by nun; Jan 5th 2016 at 6:12 pm.
Jan 5th 2016, 7:16 pm
#12
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Re: Tax status for new LPR
My spouse's two UK pension pots are employer-based (not Government nor ISA's). Combined they amount to 160k (before taxes, etc)
Also, we will probably be filing separately for tax year 2015 because I have been filing my taxes as a 'Taxpayer Abroad' in the UK for many years. 2015 will be the last year I need to do this, as I am now back in the USA. I think filing jointly for 2015 will be too complicated and unnecessary.
Also, we will probably be filing separately for tax year 2015 because I have been filing my taxes as a 'Taxpayer Abroad' in the UK for many years. 2015 will be the last year I need to do this, as I am now back in the USA. I think filing jointly for 2015 will be too complicated and unnecessary.
Jan 5th 2016, 9:31 pm
#13
Grumpy Know-it-all
Joined: Jul 2010
Location: Calgary, Alberta
Posts: 8,928
Re: Tax status for new LPR
It is an account held in trust by a foreign financial institution. That is the dictionary definition of a foreign trust.
Ergo Form 3520 and 3520-A apply.
Er, right back at you.
Personally I think all the arguments I see trying to counter the blindingly obvious are just people trying to convince themselves they don't have to fill in forms.
This is not a theory - I asked the IRS. Call (267) 941-1000 and ask to speak to a specialist who knows what an ISA is.
I did, because a relative of mine who is a US citizen and lives in the UK has an ISA.
https://www.treasury.gov/resource-ce...-9-12-2012.pdf
III. Exempt Products.
The following categories of accounts and products established in the United Kingdom and maintained by a United Kingdom Financial Institution shall not be treated as Financial Accounts, and therefore shall not be U.S. Reportable Accounts, under the Agreement:
A. Certain Retirement Accounts or Products
Pension schemes registered with HMRC under Part 4 of the Finance Act
2004 and pension arrangements where the annual contributions are limited
to £50,000 and funds contributed cannot be accessed before the age of 55
except in circumstances of serious ill health.
Those that are UK-registered pension arrangements (including authorised
payments) as set out in the Finance Act 2004 that are excluded from the
definition of Financial Account pursuant to Article 1(s)(3) of the
Agreement.
B. Certain Other Tax-Favoured Accounts or Products
Individual Savings Accounts (ISAs) - as defined in the Individual Savings Account Regulations 1998 (SI 1998 No.1870) and subsequent Amendment Regulations
The following categories of accounts and products established in the United Kingdom and maintained by a United Kingdom Financial Institution shall not be treated as Financial Accounts, and therefore shall not be U.S. Reportable Accounts, under the Agreement:
A. Certain Retirement Accounts or Products
Pension schemes registered with HMRC under Part 4 of the Finance Act
2004 and pension arrangements where the annual contributions are limited
to £50,000 and funds contributed cannot be accessed before the age of 55
except in circumstances of serious ill health.
Those that are UK-registered pension arrangements (including authorised
payments) as set out in the Finance Act 2004 that are excluded from the
definition of Financial Account pursuant to Article 1(s)(3) of the
Agreement.
B. Certain Other Tax-Favoured Accounts or Products
Individual Savings Accounts (ISAs) - as defined in the Individual Savings Account Regulations 1998 (SI 1998 No.1870) and subsequent Amendment Regulations
There's nothing in the US legal lexicon for a "wrapper".
If an ISA were a foreign account and not a foreign trust, it would be subject to the 30% withholding as required by FATCA.
26 USC 1471(d)(2) defines a foreign financial account in FATCA as:
(2) Financial account
Except as otherwise provided by the Secretary, the term “financial account” means, with respect to any financial institution—
(A) any depository account maintained by such financial institution,
(B) any custodial account maintained by such financial institution, and
(C) any equity or debt interest in such financial institution (other than interests which are regularly traded on an established securities market).
Any equity or debt interest which constitutes a financial account under subparagraph (C) with respect to any financial institution shall be treated for purposes of this section as maintained by such financial institution.
Except as otherwise provided by the Secretary, the term “financial account” means, with respect to any financial institution—
(A) any depository account maintained by such financial institution,
(B) any custodial account maintained by such financial institution, and
(C) any equity or debt interest in such financial institution (other than interests which are regularly traded on an established securities market).
Any equity or debt interest which constitutes a financial account under subparagraph (C) with respect to any financial institution shall be treated for purposes of this section as maintained by such financial institution.
You have entrusted your money into an artifice governed by the rules of the Individual Savings Account Regulations held by a UK financial institution.
Don't know how much clearer it gets really.
Note the same logic applies to a SIPP.
Jan 5th 2016, 9:34 pm
#14
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Re: Tax status for new LPR
How can it possibly be a PFIC, it can't be a QEF by definition because it's not registered with the IRS and moreover you can't by definition use the mark-to-market rules because a SIPP is covered by the tax treaty and thus there is no tax to pay. Does not meet the legal definition of a PFIC.
Oh you mean like the very expensive ones from a company that you will have heard of that were hired by my relative in the UK at great cost, whom the IRS pointedly disagreed with?
These views are entirely opposite of all US tax professionals in the UK
Last edited by Steve_; Jan 5th 2016 at 9:37 pm.
Jan 5th 2016, 9:40 pm
#15
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Re: Tax status for new LPR
Well all I can say is, if you're living in the US then you shouldn't have an ISA anyway as it is a benefit for a UK tax resident - it doesn't sound as though you are. My relative has this problem because she is resident in the UK for tax purposes but is a US citizen.