Page 1 - Reporting Foreign Retirement Plans on Required Information Returns

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COLUMNS I Tax Practice & Procedure

Reporting Foreign Retirement Plans on

Required Information Returns

By Usman Mohammad

oreign asset reporting—including the reporting of foreign ferent types of foreign retirement plans. The four basic types of
retirement plans—is a high priority for the IRS, which in foreign retirement plans are 1) a retirement plan involving a seg-
F2019 listed the “failure to report offshore funds” as one of regated foreign retirement account for the employee, which is
its “Dirty Dozen Tax Scams,” and has done so for several years created by the employer and funded by the employer, the employ-
running. Individuals with assets in foreign retirement plans, as well ee, or both (i.e., a defined contribution plan); 2) a retirement plan
as their tax advisors, should become familiar with the various U.S. created by the employer that does not result in a segregated retire-
information reporting forms that may need to be filed to report ment account for the employee, but instead consists solely of an
those plans. This article provides information about different types agreement to pay the employee certain periodic payments upon
of foreign retirement plans, the Department of Treasury forms used retirement, such as an employer-created pension (i.e., a defined
to report them, and the consequences of failing to do so. benefit plan); 3) a personal pension plan created and funded by
the individual; and 4) a government-sponsored retirement plan,
Foreign Retirement Plan Basics such as a foreign equivalent of Social Security.
There are various reasons why a U.S. person may have a foreign
retirement plan. For example, a U.S. citizen living abroad may Forms, Requirements, and Penalties
work for a foreign company and have a workplace retirement A U.S. person may need to report a foreign retirement plan on
plan provided by that company. Alternatively, a citizen and resident one or more information reporting forms. The United States has
of a foreign country working for a foreign company may be several different information reporting forms relating to foreign
assigned to work in the United States while continuing to be the assets, including the Report of Foreign Bank and Financial
Accounts (FBAR), Form 8938 for reporting various “specified for-
eign assets” (e.g., foreign accounts, contracts with foreign coun-
terparties, interests in foreign entities), and Form 3520 for reporting
interests in foreign trusts, gifts, and estates.
The monetary thresholds that must be met before an individual
is required to submit one of these forms differ depending upon
the form and, in certain cases, the individual’s status. For example,
the obligation to file an FBAR is triggered when an individual
has foreign bank accounts with an aggregate high balance of
$10,000 at any point during the tax year. The obligation to file
Form 8938, however, depends on the filing status of the individual
(because Form 8938 is attached to, and part of, a Form 1040
income tax return) and whether the individual resides in the United
States or abroad. An unmarried individual living in the United
States will have an obligation to file Form 8938 if her total spec-
ified foreign assets exceed $50,000 on the last day of the tax year
or $75,000 at any point during the tax year, while a married indi-
vidual filing jointly and living abroad will only have to file Form
8938 if his total specified foreign assets exceed $400,000 on the
beneficiary of the foreign company’s retirement plan. Another last day of the tax year or $600,000 at any time during the tax
common situation is that of a U.S. resident alien working for a year. Within this range are additional reporting thresholds for
U.S. employer who came to the United States with an existing single taxpayers residing abroad and married taxpayers residing
retirement plan from a former employer in a foreign country. in the United States. Finally, Form 3520 has different reporting
Just as there are many different situations in which a U.S. per- triggers depending on the nature of the foreign asset. A U.S. person
son may have a foreign retirement plan, there are also many dif- must file Form 3520 to report a foreign gift or distribution from

72 FEBRUARY 2020 / THE CPA JOURNAL