Page 3 - Reporting Foreign Retirement Plans on Required Information Returns

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COLUMNS I Tax Practice & Procedure

states that RRSPs—as well as similar for- which is used to report investments in a for- this reporting requirement. Part III of
eign retirement accounts, such as the eign mutual fund or passive foreign invest- Schedule B also requires the taxpayer to
Canadian Tax-Free Savings Account ment company (PFIC), and Form 3520-A, check a box to report whether they received
(TFSA), Mexican individual retirement which must be filed by foreign trusts with a “a distribution from, or were the grantor of,
accounts (Fondos para el Retiro), and U.S. owner—a foreign retirement plan may or transferor to, a foreign trust.” Many foreign
Mexican Administradoras de Fondos para also trigger a requirement to file Schedule B retirement plans will trigger this reporting
el Retiro (AFORE)—are “foreign financial with a Form 1040 income tax return. Part requirement, even if there is no obligation to
accounts reportable on the FBAR.” III of Schedule B requires the taxpayer to file a Form 3520 because of an applicable
check a box to report an interest in or sig- exemption to that form. When such foreign
Schedule B Requirements nature authority over any financial account assets exist, the failure to check “Yes” on
In addition to the forms detailed above— located in a foreign country; a segregated Part III of Schedule B—or even worse,
and possibly others, such as Form 8621, foreign retirement account arguably triggers checking “No”—is often viewed in a neg-
ative light by the IRS, and may be asserted
as evidence that the taxpayer is attempting
to evade taxation.

ax Se
Ta eason n Is s Better Failure Carries Consequences
The Government Accountability Office
the NNYSSSCPA
With A (GAO) released a report in January 2018
(GAO-18-19) that discussed foreign
retirement plans and noted that complying
with U.S. information reporting require-
STA T YOUR DAY Y OFF WITH H ments for such plans often results in “high
ART
T MEMBER BENEFITS
GREAT tax preparation fees,” but that the failure
to properly report such plans “may bring
significant financial penalties.” The report
also noted that “IRS officials expressed
concern that unless U.S. individuals are
required to report foreign retirement
Members-Only W olters Kluwer accounts via Form 8938, they will seek
echnical Hotline
Te Ta ware Center to avoid proper reporting on their tax
axAw
returns when distributions are made.” In
other words, the IRS views information
return reporting with respect to foreign
retirement plans as a vital tool in its tax
compliance arsenal.
ax &
Ta Te Ta
echnical
axStringer,
Committees monthly e-newsletter r While an argument can be made that a
foreign retirement plan is not the sort of
vehicle used to evade taxes, such plans
are nonetheless looked at closely by the
IRS, and there are significant monetary
Exchange consequences for failing to properly report
Members-Only Forum such plans on U.S. information reporting
forms such as the FBAR, Form 8938, and
Form 3520. U.S. persons who are bene-
ficiaries of foreign retirement plans should
consult their tax professionals in order to
properly report those assets. q
nysscpa.or g/benefits Usman Mohammad, JD, is of counsel at
fi
/b
fit
Kostelanetz & Fink LLP, New York, N.Y.

74 FEBRUARY 2020 / THE CPA JOURNAL