Do I Report my Spain Pension in US?

Do I Report my Spain Pension in US?

Reporting Spain Pension in the U.S.

Is Spain Pension Reportable in US: It is very common for U.S. persons who previously worked for a Spanish Company to have accrued benefits in a Spanish Pension. The IRS reporting of a pension from Spain is different than the taxation rules.

Common foreign pension reporting forms include:

• FBAR
• FATCA Form 8938
• Form 3520/3520A 
• Form 8833

Since the US and Spain have entered into several tax treaties such as the Double Tax Treaty, FATCA Agreement, and Totalization Agreement there are complex rules involving which country can tax the pension – usually based on residency and which Pillar is at play.

With the IRS taking an aggressive position on matters involving foreign accounts compliance and unreported offshore income — it is important to stay compliant with the Internal Revenue Service rules and requirements.

We will summarize whether Spain Pension is Reportable and which form you may have to file: FBAR, 8938, 3520 & 8833.

Spain Pension & FBAR

The FBAR Is used to report foreign bank and financial accounts.

While the Pillar 1 (Social Security) may not be considered FBAR reportable since it is equivalent to U.S. Social Security and not technically an account, the same cannot be said for other pillars.

Whether, it is a Pillar 2 (Occupation) or Pillar 3 (Private), these are generally reported on the FBAR.

Why?

Because these are segregated accounts for each person who contributes, and the accounts have a separate identifier and value based on the contribution amounts.

FATCA Form 8938 & Spain Pension

FATCA Form 8938 is the form U.S. Taxpayers use to report certain specified foreign financial assets.

FATCA is the Foreign Account Tax Compliance Act.

Foreign Pension & Retirement is considered a foreign asset for FATCA purposes and therefore would be reportable on a Form 8938.

Generally, the same rules would apply as for the FBAR, insofar as Pillar 1 may escape reporting, but Pillars 2 and 3 are reportable.

Form 3520/3520-A & Spain Pension Reporting

Form 3520-A/3520 is used to report Foreign Trusts. At its most basic, a pension such as a Spain Pension is foreign trust:

• Government Trustor (Pillar 1),
• Employer Trustor (Pillar 2)
• Investor/Employee (Pillar 3)

And, each trust has an Administrator, along with the employee beneficiary.

Thus, technically, the Spain Pensions are a Trust.

Pillar 1: 3520-A

Pillar 1 is State mandated (Spanish Government) which most resembles U.S. social security. It has no identifiable segregated balance, and the beneficiary (employee) is not the owner of the trust.

Presumably, the trust would not be reportable on Forms 3520/3520-A.

Pillar 2: 3520-A

As to Pillar 2, it is also mandated through the Spanish Government, but functions through the employer for employees who earn sufficient income.

Generally, unless the employee has contributed more to the pension plan than the employer has, it is not reported on Forms 3520, since the beneficiary is not the owner of the trust during the years the beneficiary is employed and funding the pension.

In addition, it may qualify for a Revenue Procedure exception under Rev. Proc. 2020-17, depending on the person’s salary, age (determines percentage contributions), voluntary vs. mandatory, and employed vs. self-employed.

Pillar 3: 3520-A

Spain Pillar 3 is completely optional and voluntary.

Therefore, chances are this is a foreign trust which would be subject to Form 3520-A Reporting (Rev. Proc. 2020-17 may exempt reporting)

In addition, some clients will take the position that it is still a form of pension vs. pure investment, and therefore while it is in the growth phase, and deductions are not being taken, it is can escape reporting.

Form 8833

Form 8833 is used by Taxpayers who want to take a Treaty Position on issues involving the applicability of tax rules when it involves the pension (and other tax related matters).

Form 8621

Form 8621 is used to report PFIC (Passive Foreign Investment Companies). It also includes Foreign Mutual Funds. Generally, Pillar 1 is not reportable, but Pillars 2 and 3 would be. 

With PFIC, the main question will become whether the PFIC requirement (presuming the investments have funds in them), are reportable during the growth period (pre-distribution), or only once the pension becomes active/accessible.

That is a strategy issue each person should discuss with their counsel.

Unreported Spain Foreign Pension

If you have not properly reported your Spanish Foreign Pension in the U.S. for tax, FBAR, FATCA, PFIC (8621) or other reporting, you may be out of compliance and possibly subject to fines and penalties.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.

Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.

• Golding & Golding’s Case Accomplishments
• Golding & Golding Testimonials from prior clients

*Please beware of copycat tax and law firms misleading the public about their credentials and experience.

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 Offshore Counsel?

Generally, experienced attorneys in this field will have the following credentials/experience:

• Board Certified Tax Law Specialist credential
• Master’s of Tax Law (LL.M.)
• 20-years experience as a practicing attorney
• Extensive litigation, high-stakes audit and trial experience
• Dually Licensed as an EA (Enrolled Agent) or CPA

Interested in Learning More about Golding & Golding?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant.

Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.