IRS recently released the draft Form 8621 to reflect changes made by FATCA effective March 18, 2010.
The new Part I of the Form suggests that the IRS generally intends to require annual filing of Form 8621—
- Without regard to whether an election under the PFIC rules is being made in that year, or whether the PFIC rules would alter otherwise generally applicable U.S. income tax rules for the year under section 1291, and
- Without regard to whether an income inclusion would be required under section 1293 or section 1296 for that tax year.
The information in this new Part I would require the taxpayers to provide IRS with information also generally required on new Form 8938 (Statement of Specified Foreign Investment Assets), and would enable the IRS to waive reporting on Form 8938 of foreign assets reported on Form 8621 without sacrificing the ability of the IRS to obtain desired information.
The IRS did not release draft instructions. Guidance is still awaited on issues such as whether it will retain current exceptions from filing of Form 8621 by tax-exempt U.S. entities that would not be subject to U.S. taxation under subchapter F on actual dividends from a PFIC.
To remind our readers, generally any investment by a US person in a foreign mutual fund is considered a PFIC and subject to be reported on Form 8621.
IRS yesterday released a draft version of Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding, to accommodate the FATCA provisions of the Code’s Chapter 4. Instructions to the draft, which would expand the form from two to eight pages, haven’t been released yet.
Generally effective for payments made after Dec. 31, 2012, the HIRE Act established rules for withholdable payments to foreign financial institutions (FFIs) and for withholdable payments to other foreign entities by adding new Chapter 4 to the Code (Code Sec. 1471 through Code Sec. 1474). The rules provide for withholding taxes to enforce new reporting requirements on specified foreign accounts owned by specified U.S. persons or by U.S.-owned foreign entities.
Under Code Sec. 1471(a), a withholding agent must withhold 30% of any withholdable payment to an FFI that does not meet the requirements of Code Sec. 1471(b). A withholdable payment is, subject to certain exceptions:
- Any payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income (FDAP income), if such payment is from sources within the US; and
- Any gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the US (Code Sec. 1473(1))
An FFI satisfies Code Sec. 1471(b), if it either enters into an agreement (an FFI agreement) with IRS to perform certain obligations or meets requirements prescribed by IRS to be deemed to comply with Code Sec. 1471(b).
This question has been asked several times in our practice. A recent IRS Chief Counsel Advice discusses the issue and provides the answer.
Facts.The taxpayer, a UK resident, was a university professor who contributed to UK pensions scheme, qualified under UK law, over the course of his working life. The UK pension scheme was a qualified scheme for UK tax purposes.
Taxpayer accepted a position at a U.S. university where he taught from Date 1 through Date 3. After Date 3, the taxpayer permanently moved back to the UK.
Upon returning to the UK, the taxpayer sought to rollover his US pension contributions to his UK. scheme. To that end, the US pension plan issued a lump-sum check in the amount of his US pension contributions payable to the taxpayer’s UK plan. The following year, the taxpayer received a Form 1099-R (Distribution from Pension, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.)
Issue. The question presented in the memo is whether the taxpayer could rely on the parenthetical language in Article 18(1) to make a tax-deferred rollover distribution from a U.S. pension scheme to a UK pension scheme that is not an “eligible retirement plan” under IRC 402. The memo also addressed whether the lump-sum transfer from a US pension scheme to a U.K. pension scheme is taxable as a distribution in the US under Article 17(2).
Rollover did not satisfy US Internal Revenue Code Sec. 402 requirements. Chief Counsel said that the parenthetical language referenced by the taxpayer in Article 18(1), provided that a transfer of earnings from one pension scheme to another would not be treated as a distribution if the transfer qualified as a rollover. The language, however, did not create an independent basis for treating a transfer as tax deferred rollover distribution. To qualify as a tax-deferred rollover, the rollover would have to satisfy the requirements under the domestic laws of both the transferor and transferee pension scheme.
In this case, the memo found that the rollover did not satisfy US requirements because the UK pensions scheme is not an eligible plan as described under IRC 402. The failure to satisfy the IRC 402 requirements rendered Article 18 inapplicable making the distribution taxable under Article 17(2).