global Tax IRS Provides Reporting Relief for Certain Foreign Trusts March 09, 2020 If you have a foreign plan set up for retirement, medical, disability or educational purposes, you’re in luck…the IRS has announced reduced reporting requirements for you. Are you a US citizen or Green Card Holder or non-US person based in the US? Do you have a Foreign Plan set up for retirement, medical, disability or educational purposes? Do you want to want greater clarity on the reporting requirements for your Foreign Plan? If yes, then there is good news from the IRS for you. Some background Until now, there has an element of uncertainty and as to how you should meet your obligations for your Foreign Plan. This IRS announcement has provided some much needed guidance on the required reporting. As you may be aware, you need to report your Foreign Plan as part of your annual tax filings. To date, subject to certain thresholds, you have been reporting your Foreign Plan on: your FinCEN Form 114, “Report of Foreign Bank and Financial Accounts” (“FBAR”); andyour Form 8938 “Statement of Specified Foreign Financial Assets”.There has been a degree of ambiguity regarding the need to file Form 3520-A “Annual Information Return of Foreign Trust With a U.S. Owner” and Form 3520 “Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts”. In certain situations, but not all, the IRS treats Foreign Plans as Foreign Trusts and this drove the Form 3520-A and Form 3520 reporting. Presumably in acknowledgement of the level of duplication and the redundancy of information collated, the IRS has now clarified their reporting requirements. What has changed? From 2019 onwards, and for any open prior tax years, you may not need to submit a Form 3520-A nor a Form 3520. That is to say, you will only need to report the maximum values of your Foreign Plan on your FBAR and Form 8938 along with any taxable income. Plus, if you have paid any assessed penalties for not filing Form 3520-A and/or Form 3520, you may be able to get these penalties back. The IRS has provided highly sought after certainty on the reporting requirements for your Foreign Plan. So what are the conditions that need to be met? To qualify for this reduced reporting, you must be up to date with your US tax filings, or be getting up to date, and you must have been appropriately reporting the Foreign Plan and any income to date. Your Foreign Plan needs to meet certain requirements which depend on the type of benefits delivered by your Foreign Plan. Each of your Foreign Plans will need to be reviewed to see whether or not they meet these requirements. The table below summarizes the requirements. Retirement Plans Medical, Disability or Educational Benefit Plans Tax Efficient Must have a tax efficient treatment in the Foreign Country Must have a tax efficient treatment in the Foreign Country Annual Reporting Information must be provided or available to Foreign Tax Authorities Information must be provided or available to Foreign Tax Authorities Source of Contributions Employment Income / Self Employment Income Only Contribution Limits $50,000 per annum with $1m lifetime limit $10,000 per annum with $200,000 lifetime limit Withdrawals Only allowed at retirement, disability or death or penalties will apply. Loans in certain circumstances allowed. Only allowed for provision of medical, disability or educational benefits or penalties will apply. Non-discriminatory Plan Available to wide range of employees and actually provide significant benefits to substantial majority of eligible employees Rollover / Intra-Fund Transfers Allowed Allowed Penalty Abatement or Refund If you have been assessed a penalty for not meeting your Form 3520 or Form 3520-A reporting requirements, you may be able to get these penalties stopped or, if you have already paid them, refunded. How we can help Wondering if this reduced reporting applies to you? Contact any member of our International Tax Services Team. We can help determine whether or not you or your Foreign Plan meet these requirements, abate or claim a refund for penalties levied, and bring the US tax reporting for your Foreign Plan up to date.
