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Tax status for new LPR

Tax status for new LPR

Old Jan 4th 2016, 6:26 pm
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Default 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.
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Old Jan 4th 2016, 8:20 pm
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Default Re: Tax status for new LPR

Originally Posted by Pump62kin View Post
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.
It is usually best to file "married jointly" if you can. If your spouse files "married separately" a tax return is required if their income is over $4k.

If the UK pension pots exceed the 8938 threshold then they should be reported. FBAR might also be required.
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Old Jan 5th 2016, 12:34 am
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Default 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.
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Old Jan 5th 2016, 12:35 am
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Default 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.
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Old Jan 5th 2016, 2:05 am
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Default Re: Tax status for new LPR

Originally Posted by Steve_ View Post
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).
The need to file 3250 for a UK pension plan is highly debatable...professionals might do it, but self filers mostly don't and IRS agents have told me that no filing other than informational is required.

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.
The ISA wrapper is transparent to IRS so the status of the underlying investment is what matters, there are no foreign trust issues with ISAs themselves. PFIC could be an issue.
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Old Jan 5th 2016, 6:40 am
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Default Re: Tax status for new LPR

Originally Posted by nun View Post
The ISA wrapper is transparent to IRS so the status of the underlying investment is what matters, there are no foreign trust issues with ISAs themselves.
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?
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Old Jan 5th 2016, 11:42 am
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Default Re: Tax status for new LPR

Originally Posted by Steve_ View Post
Even a cash ISA is a foreign trust.
No way.. it is a bank/savings account paying interest. The UK doesn't tax the interest, the US does.
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Old Jan 5th 2016, 12:31 pm
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Default Re: Tax status for new LPR

Originally Posted by Steve_ View Post
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?
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.
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Old Jan 5th 2016, 1:39 pm
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Default Re: Tax status for new LPR

Originally Posted by Steve_ View Post
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.
Please stop peddling this crap. Thanks.
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Old Jan 5th 2016, 3:26 pm
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Default Re: Tax status for new LPR

Originally Posted by Steve_ View Post
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.
You have to complete those forms for ISAs? I've never done that. I just declared the interest income on scheduled B of my 1040.

Oh, I see that others have chimed in and contested this requirement.
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Old Jan 5th 2016, 4:30 pm
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Default Re: Tax status for new LPR

Originally Posted by Cook_County View Post
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.
+1. An ISA is simply a tax wrapper around some financial account that might be a simple savings account or an investment fund (PFIC).

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.
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Old Jan 5th 2016, 7:16 pm
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Default 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.
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Old Jan 5th 2016, 9:31 pm
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Default Re: Tax status for new LPR

Originally Posted by MidAtlantic View Post
No way.. it is a bank/savings account paying interest. The UK doesn't tax the interest, the US does.
It's not a foreign account, by definition it can't be, if it were it would be covered by FATCA. The FATCA agreement between the US and the UK specifically excludes ISAs.

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.

Originally Posted by Owen778 View Post
Please stop peddling this crap. Thanks.
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
Why are they exempt? Because they don't meet the legal definition of a financial account... because they're accounts held in trust.

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.
So if an ISA is not a depository or custodial account, what is it? It's a trust.

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.
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Old Jan 5th 2016, 9:34 pm
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Default Re: Tax status for new LPR

Originally Posted by Cook_County View Post
The contents of any of these accounts might include PFICs.
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.

These views are entirely opposite of all US tax professionals in the UK
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?

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Old Jan 5th 2016, 9:40 pm
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Default Re: Tax status for new LPR

Originally Posted by hungryhorace View Post
You have to complete those forms for ISAs? I've never done that. I just declared the interest income on scheduled B of my 1040.

Oh, I see that others have chimed in and contested this requirement.
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.
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