Can ANY Foreign Tax-Advantaged Retirement Plan A Foreign Trust? | A Romp Through the Regulations

Описание: If you have a tax-advantaged foreign pension, like an. Australian Superannuation of a Swiss Pillar 2 or 3, you may be surprised that the US tax code may look at your retirement plan as a trust.

But curious thing - trusts don't exist in Switzerland. They are not a legally recognized entity. Rather, according to Swiss law, the Swiss pension scheme is merely an investment contract.

But again, the IRS considers some foreign tax-advantaged pension schemes to be foreign trusts, which may require Form 3520-A and/or Form 3520 reporting. This reporting is onerous and difficult as for instance, for a Swiss pension plan there can be no trustee, as again, trusts don't exist in Switzerland.

So the IRS has announced a proposed regulation to allow certain taxpayers relief from Form 3520-A or Form 3520 reporting. Thew problem? The proposed regulations do not apply to any tax-advantaged foreign pension that alllow for additional contributions – making very few, if any, tax-advantaged foreign pension eligible for such relief.

But are tax-advantaged foreign trusts actually trusts to begin with? Consider the regulations here: https://www.law.cornell.edu/cfr/text/...

§ 301.7701-4 Trusts.
(a) Ordinary trusts. In general, the term “trust” as used in the Internal Revenue Code refers to an arrangement created either by a will or by an inter vivos declaration whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts. Usually the beneficiaries of such a trust do no more than accept the benefits thereof and are not the voluntary planners or creators of the trust arrangement. However, the beneficiaries of such a trust may be the persons who create it and it will be recognized as a trust under the Internal Revenue Code if it was created for the purpose of protecting or conserving the trust property for beneficiaries who stand in the same relation to the trust as they would if the trust had been created by others for them. Generally speaking, an arrangement will be treated as a trust under the Internal Revenue Code if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and, therefore, are not associates in a joint enterprise for the conduct of business for profit.

But the problem for the IRS is no foreign pension is created for the purpose of protecting or conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts. The phrase "trust agreement" does not exist. There is no trust document.

And additionally, foreign pensions are not subject to the jurisdiction of any US probate court of Delaware court of Chancery. W

The other types of trusts are business trusts (which aren’t trusts) , an investment trust (which only seems to give an exemptions to certain trust) , a liquidating trust on an environmental remediation trust - thing tax-advantaged foreign pension are not.

Confusing the matter is this regulation https://www.law.cornell.edu/cfr/text/...

§ 301.7701-7 is the regulation that defines the distinction between domestic and foreign trust. But first, there must be a trust. Again § 301.7701-4 Trusts defines what trusts are. Foreign pensions don't appear to be actual trusts nor are subject to the jurisdiction of a probate or chancery court.

So what is going on?

Join host Anthony Parent as he wades through the law and regulations with fellow attorney John Richardson of citizenship solution.ca along with the Advocate for and consulate to the American overseas, Keith Redmond.