When first learning of FBARs and FATCA, most taxpayers immediately think about whether their foreign bank account is reportable. The definitions in those laws, however, include many offshore financial assets including certain foreign retirement plans.
For those new to the world of offshore reporting, FATCA is the acronym for the Foreign Account Tax Compliance Act. Passed by Congress in 2010, the law hopes to increase revenues, cut back on tax evasion and drastically improve foreign account reporting. The law works by forcing foreign financial institutions (called FFIs) to examine their customer base and report this customers with ties to the IRS. In essence, the IRS is forcing these foreign institutions to be come their eyes and ears.
Long before FATCA, the IRS has required taxpayers to report foreign accounts if the aggregate balance of those accounts exceeds $10,000. Included in the reporting requirement are CD’s, brokerage accounts, bank accounts, certain life insurance products, annuities and precious metal accounts.
In compliance with the new FATCA law, some 70,000 FFIs from 70 countries have registered with the IRS in recent months. One of the hot button issues, however, is whether foreign retirement plans must comply with FATCA.
Three months ago, the IRS issued a revised form W8-BEN-E, also known by its formal name, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities). The new IRS form exempts retirement plans if qualified in a country specific treaty, 401(a)-type plans and investment vehicles designed to operate like a retirement plans.
The exemption language in the new form is quite broad which would ordinarily be helpful to taxpayers. Unfortunately, the IRS has yet to publish final instructions which creates more confusion.
The IRS has said that it will be soft in compliance efforts against financial institutions over the next couple years provided they make a good faith effort to comply with FATCA.
As with any new law, there is bound to be many issues that arise. One of those issues has become retirement plans. Many countries have long standing tax treaties with the United States that govern how foreign retirement plans are to be taxed. (See our post on Canadian RRSPs.) More recently, as part of FATCA several dozen countries have entered into “intergovernmental agreements” with the U.S. Treasury. These also may be a good source of foreign retirement plan taxability information.
The important takeaway is that until the dust fully settles, those with foreign retirement plans should consult with a good tax lawyer or CPA well versed in offshore reporting issues. For now, know that if you have a foreign retirement plan, speak with tax lawyer to insure you are in compliance. This is particularly important with non-governmental retirement plans and private savings plan that mimic American IRA’s or 401 plans.
Need more information? The FBAR lawyers at Mahany & Ertl can assist with a wide range of tax issues including offshore reporting. FBARs, FATCA, taxation of foreign real estate and partnership interests are just a few of the services we offer. In many cases, our services can be offered on a flat fee basis. For more information, contact attorney Bethany Canfield at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in confidence.
Mahany & Ertl – America’s Offshore Reporting Lawyers.