- 1 Pillar 2 Foreign Retirement for US Tax, FBAR & FATCA
- 2 Foreign Pensions Reporting in General (Worldwide)
- 3 FBAR for Pillar 2
- 4 FATCA Form 8938 for Pillar 2
- 5 Form 3520/3520-A For Pillar 2
- 6 Form 8621 for Pillar 2
- 7 Amnesty for FBAR, FATCA & More
- 8 Can I Just Start Reporting Pillar 2 This Year Instead?
- 9 Our International Tax Lawyers Represent Clients Worldwide
Pillar 2 Foreign Retirement for US Tax, FBAR & FATCA
Many foreign countries utilize a pillar pension and retirement system that follows either a three-pillar or five-pillar retirement/social security system. The pillar foreign pension system does not necessarily bode with IRS tax and reporting rules — which can end up causing unnecessary duplicative reporting and taxation — especially when there is no tax treaty with the United States. Generally, the different pension pillars represent different aspects of an overall pension, such as old age, employment, and personal savings. When a foreign country utilizes the three-pillar system (most common), the three main pillars are:
- Pillar One: similar to US Social Security;
- Pillar Two: employment/occupation pension, similar to a 401(k) equivalent type of pension, and
- Pillar Three: individual pension not necessarily related to any employment – similar to an IRA.
For US persons who still have ownership or interest of a pillar two overseas employment pension — a common question is how is that type of account reported for US purposes? Let’s go to the basics of reporting a pillar two foreign pension plan.
Foreign Pensions Reporting in General (Worldwide)
In general, foreign pension plans and foreign retirement plans are considered foreign accounts/assets and reportable to the US government for international information reporting purposes. This is true, even if the taxpayer does not have any income distributions or contributions to their foreign pension plan. The following are some of the more common IRS foreign account reporting forms a taxpayer may have to file to report their foreign retirement/pension plans to the US Government:
FBAR for Pillar 2
FBAR refers to Foreign Bank and Financial Account Reporting (aka FinCEN Form 114). Each year, taxpayers have to report the total value of their foreign bank and financial accounts to the US government when they meet the threshold for reporting. A pillar two type of account would be the type of foreign pension account that would have to be disclosed on the annual FBAR.
FATCA Form 8938 for Pillar 2
Similar to the FBAR is Form 8938 — which was developed in accordance with FATCA (Foreign Account Tax Compliance Act). A pillar two retirement plan/account would be reported for Form 8938 purposes as well. There is additional reporting for form 8938 beyond what the FBAR requires — depending on whether or not any income was generated from the foreign pension plan.
Form 3520/3520-A For Pillar 2
Form 3520 is used to report foreign trusts. In general, a foreign pension plan can be considered a foreign employment trust — and typically not the type of foreign pension plan that is qualified under the US tax code. While there is no specific exception to reporting for an employment trust on Form 3520 as there are for certain form types of pension plans such as a Registered Retirement Savings Plan from Canada, there is a recent Revenue Procedure 2020-17, that eliminate the duplicative reporting for certain tax-deferred retirement and non-retirement foreign pension — and something you should consider discussing with an experienced Board-Certified Tax Law Specialist.
Form 8621 for Pillar 2
Form 8621 is used to report Passive Foreign Investment Companies (PFIC). Many Pillar 2 investments include assets such as mutual funds, ETFs, and SICAVs as part of their underlying asset base. As a result, some taxpayers may want to consider reporting the individual funds supporting pillar 2 investment on Form 8621 –, but this is also something you should discuss with a specialist before making any proactive representation to the IRS.
Amnesty for FBAR, FATCA & More
The Form 8938/FATCA Amnesty Programs are programs developed by the Internal Revenue Service to assist Taxpayers who are already out of compliance for non-reporting. Some of the more common programs include:
Can I Just Start Reporting Pillar 2 This Year Instead?
No, unless the current year is the first year you had a Form 8938 Reporting requirement. If you had a prior year reporting requirement, but only begin to start filing in the current year (Filing Forward) it is illegal. In the world of offshore disclosure, this is referred to as a Quiet Disclosure. The IRS has warned taxpayers that if they get caught in a Quiet Disclosure situation, it may lead to willful penalties and even a criminal investigation by the IRS Special Agents.
Our International Tax Lawyers Represent Clients Worldwide
Our International Tax Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure. Contact our firm today for assistance.