IRVINE, Calif., March 7, 2019 /PRNewswire/ -- If you are either (1) a U.S. citizen retiring abroad, or (2) a U.S. tax resident that has a foreign pension plan, you will likely be required to report the income accruing in your offshore retirement plan on an annual basis and your current or future retirement distributions to the IRS as taxable income, unless certain exceptions apply, relating to employees' trusts, "highly compensated employees," or under the provisions of various tax treaties. In short, the annual income that accrues within a foreign pension or annuity and the subsequent distributions at retirement are generally taxable except in a few specific cases, making it essential for taxpayers with foreign pensions to consult with a knowledgeable international tax law attorney for guidance.
The income that accrues within the offshore pension plan on the invested plan assets may be taxable for federal and State purposes on an annual basis if not exempted by treaty, exempt because the plan meets the terms of ERISA or some other grounds for not treating the offshore pension plan as an offshore trust with a U.S. beneficiary, exists.
In addition, taxpayers may also need to file several additional IRS offshore informational forms, depending on their individual facts and circumstances. These forms may include one or more of the following:
Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts)
Form 8938 (Statement of Specified Foreign Financial Assets)
Certain tax treaties with the United States may contain their own, unique provisions that take precedence over the normally-applicable IRS filing requirements. Make sure you choose a CPA or Tax Attorney who has ample international tax planning and compliance experience.
Several programs exist, for taxpayers that have purposely or inadvertently omitted offshore taxable income or required foreign information returns, to get back into compliance. The options include: