Are Provident Funds Reportable?
Provident Funds (U.S. Tax & Reporting Rules): A common question we receive at Golding & Golding, is whether a Provident Fund is taxable and Reportable in the U.S.
In recent years, the IRS has taken an aggressive position on matters involving foreign accounts compliance.
If you have not reported in previous years, you may consider speaking with a Board-Certified Tax Law Specialist.
Are Provident Funds Taxable?
Whether or not the Provident Fund are taxable will vary based on various factors, such as whether:
A. The Provident Fund is employment-based or personal investment
B. The U.S. and foreign country entered into a Tax Treaty
C. The IRS (or courts) have issued any rulings or memoranda about the provident fund
First, Is the Provident Fund Personal or Employment?
Generally, a personal investment fund is taxed during the growth phases, unless otherwise exempted or excluded — such as a Canadian RRSP or RRIF.
Example of a Personal Provident Fund
The first part of the provident fund analysis is whether the provident fund is employment-based or personal investment. For example, in India, there is a “personal” investment referred to as a PPF. A PPF is a Public Provident Fund.
This type of provident fund is a personal investment provident fund. It is not employer based (unlike an Indian EPF, which is employment based). While the PPF accrued growth is tax-deferred in India, it is generally taxable in the U.S.
*There may be other PPF issues involving Form 3520-A and PFIC Form 8621.
If the Provident Fund is Employment Based, is there a Tax Treaty?
If the provident fund is employment based, the main question will be whether there was a Treaty or not.
Here are two examples:
Singapore CPF (Central Provident Fund) – NO TREATY
The CPF is a typical example. CPF is a Central Provident Fund retirement plan, which is “compulsory” for most employees in Singapore. The U.S. has not entered into a tax treaty with Singapore. Therefore, there is no “treaty” to refer to.
In 1996 the IRS issued memoranda stating that:
• Contributions made on behalf of the U.S. person employee are taxable; and
• Growth within the fund is taxable.
India EPF (Employees Provident Fund) – TREATY COUNTRY
For example, in India the EPF is employment-based. Since the U.S. has entered into a treaty with India, tax on the EPF growth or accruals within the fund (prior to distribution) can usually be avoided.
Other common types of Provident Funds are:
- Hong Kong Provident Fund (MPF)
- Malaysia Provident Fund (EPF)
- Nepal Provident Fund (EPF)
- South Africa Provident Fund
Taking an IRS Form 8833 Treaty Position
Despite the IRS memoranda or other rulings being issued by the court, some clients may want to consider taking a treaty position if there is a treaty with the country.
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Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
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Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Form 8938 Counsel?
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- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
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