Assurance Vie U.S. Tax Compliance: Offshore Reporting

Assurance Vie U.S. Tax Compliance: Offshore Reporting

Assurance Vie U.S. Tax Compliance

Assurance Vie US Tax Compliance: The IRS tax treatment of an assurance vie for U.S persons is complicated. Like the SICAV or UK investment ISA, the assurance vie has many tax-deferred components to it, which do not receive tax-deferred status under U.S. tax law. Outside of the United States, the hybrid life insurance policy/unit-linked investment vehicle is a very common type of investment  — sometimes referred to as Unit-Linked Insurance Policy.

With an assurance vie, the life insurance serves as a wrapper for various different types of investments. It is a common type of foreign investment held by French/U.S. dual-citizens or residents.

The primary benefit of the assurance vie is that the income grows tax-free within the wrapper.  

France is the primary country that offers the assurance vie, although the investment may also be available in other countries as well.

Let’s reviews Assurance Vie U.S. Tax Compliance and Offshore Reporting (FBAR, FATCA, PFIC)

How does an Assurance Vie Work?

The Assurance Vie U.S. tax compliance analysis is complicated, because the U.S. does not have an exact comparable investment vehicle. 

The assurance vie is technically an insurance policy, but it also accumulates annual investment income — and grows tax-free.

Therefore, the income earned on the assets within the assurance vie is not taxed until distribution.

Sidestep French Estate Laws

In general, the French estate laws are complex and strict.

One primary benefit of the assurance vie is that it helps to put the owner in control of beneficiary distributions.

With the assurance vie, the owner of the policy/investments can select the beneficiaries for distributions.

U.S. Tax of Assurance Vie

For U.S. persons with French assurance vie, the major hiccup will be the U.S. tax ramifications. Namely, the assurance vie does not receive the same tax deferred treatment as it does in France.

Therefore, the growth within the assurance vie is taxable as it grows.

The key issue for U.S. tax of an assurance vie is when does the income become taxable. The answer hinges on whether the assurance vie qualifies as a PFIC or not.

If it is a PFIC, then tax may be deferred until distribution, at which time the Taxpayer may get walloped pretty hard with an excess distribution PFIC tax.

If the assurance vie is not a PFIC, then the growth is taxable during each year that the income accrues.

Assurance Vie and FBAR

Whether the assurance vie most closely resembles a life insurance policy or an investment account, it is reportable on the FBAR.

Assurance Vie and FATCA

An assurance vie is the type of investment that is also reportable on FATCA Form 8938.

Assurance Vie and PFIC

Analyzing the assurance vie under PFIC (Passive Foreign Investment Company) rules is complicated.

At its core, if the assurance vie satisfies the elements of PFIC, then reporting is required on Form 8621 – and the tax becomes subject to the PFIC excess distribution calculation rules.

Golding & Golding: About our International Tax Law Firm

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