US Taxation of French Plan Epargne Logement (PEL) Account
In order to assist Taxpayers with saving, many foreign countries have developed specific investment accounts designed to facilitate taxpayers with helping save for retirement, purchase a home, and/or paying down a mortgage. For example, in Australia, the Government created mortgage offset accounts to assist with “offsetting” mortgage interest – with the benefit increasing with the more money saved in the account. In France, the Government developed the Plan Epargne Logement (PEL) Account to assist with saving. With a PEL account, Taxpayers in France submit steady payments into their PEL (there is a minimum and maximum investment time period and amounts that can be invested). While the income is taxed (income and social tax), the interest rate tends to be higher than other similarly situation savings accounts. The PEL account generates income at a set rate and provides for a mortgage subsidy. But, when a person is a US Person, the United States Tax Treatment is different.
How is a PEL Taxed?
The benefit of the PEL account is that it motivates French taxpayers to save towards homeownership — and generates interest income at an interest rate that is generally higher than the other interest rates offered by French banks and savings accounts. Even in France, the purpose of the PEL is not to avoid tax — and the income is subject to both income tax and social tax. If the person earning PEL interest is a US person, then the income would presumably be taxable in the U.S. as well.
FBAR, FATCA & PFIC Reporting for PEL Plan Epargne Logement
Since technically the PEL is a foreign financial account, it is reportable on one or more international information reporting forms, such as the FBAR (FinCEN Form 114) and FATCA (Form 8938). The FBAR and Form 8938 or not mutually exclusive from each other — and therefore taxpayers may be required to file the PEL on both forms. If the foreign investment also contains items such as mutual funds, ETFs, or SICAVs, then the investment may become subject to Passive Foreign Investment Company reporting on form 8621. There are some potential exceptions and exclusions from reporting on 8621, but they are limited. In addition, the Internal Revenue Service does not require duplicative reporting of the same asset on Form 8938 and Form Form 8621— although if the taxpayer has multiple types of investments and categories of investments — both forms may still be required.
While the failure to report these accounts may result in significant fines and penalties, the Internal Revenue Service has developed various amnesty programs to assist taxpayers with safely getting into compliance with a reduced penalty, or even a complete penalty waiver.
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