Tax

Lift Reporting Requirements On US Expats' Foreign Pensions – ACA

Tom Burroughes Group Editor July 10, 2024

Lift Reporting Requirements On US Expats' Foreign Pensions – ACA

This story is another example of how the worldwide nature of US taxation means that expats are caught up in the net, often in ways that can add considerably to bureaucracy and reporting requirements.

An advocacy group for expat US citizens argues that lawmakers should adjust regulations so that foreign pension plans are exempted from what it says are onerous reporting requirements. 

American Citizens Abroad said in a statement that all foreign pensions and retirement plans should be “afforded beneficial treatment under income tax treaties and should be exempt from reporting.”

“These are savings plans that most US citizens overseas need to manage their day-to-day finances and should be viewed in the same light as US domestic pensions plans,” the organization said. 

Under existing rules, US citizens living and working overseas may find that their foreign pension plans qualify for reporting as a Foreign Trust (form 3520/3520A). These same foreign pensions plans may also be reportable for the Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank Account Report (FBAR).

At stake is that expats often struggle to access financial services – a situation that became more difficult after the FATCA legislation was enacted more than a decade ago under the Obama administration. The root of the problem is that the US, unlike most countries, taxes citizens regardless of where in the world they live. In practice, however, the risks of being taxed twice are mitigated by tax treaties that the US has with countries such as the UK, Germany and Singapore. 

The ACA said reporting rules for US citizens living and working overseas are “incredibly complicated.”

“The proposed regulation in question deals with trusts and foreign trusts, which can be difficult for average taxpayers overseas to understand without the help of a professional tax preparer. The proposed regulation potentially creates a foreign trust reporting obligation for a foreign pension,” it said.

“Once again, regulations intended to address tax compliance for individuals with sophisticated financial structures, are negatively impacting US citizens who simply are trying to understand how to remain compliant and file what should be a straightforward, simple tax return,” Marylouise Serrato, ACA executive director, said.

For years, ACA has pushed for the US to adopt residence-based taxation, alongside other nations’ practices.

“It is time for Congress to take up the issue of tax reform for US citizens overseas. The call from the community is getting stronger every day, evidenced by submissions on these regulations and others by those living overseas,” Charles Bruce, ACA legal counsel, said. 

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