Swiss Pension Foreign Trust Reporting: 3520 & 2020-17

Swiss Pension Foreign Trust Reporting: 3520 & 2020-17

Swiss Pension Form 3520 Foreign Trust Reporting

Swiss Pension Foreign Trust Reporting 3520/3520A: One of the most complicated aspects of IRS tax law for overseas pensions is reporting of the foreign pension for U.S. tax purposes

Owners and beneficiaries of foreign pensions may technically have a requirement to report the trust on Form 3520 and Form 3520-A, although there are some exceptions which may negate the filing requirement.

And with Foreign Accounts Compliance enforcement at an all-time high, coupled with the Form 3520-A penalties – Taxpayers are understandably concerned.

We will summarize the Swiss Pension Foreign Trust Reporting Rules.

*We have several other articles detailing Swiss Pension and U.S. Tax available to assist you.

Is Swiss Pension a Foreign Trust?

Yes, a Swiss Pension is a Foreign Trust. Whether or not it is “reportable” is up for debate.

A trust is an arrangement where a person creates a trust (Trustor), which is generally administered by a 3rd Party (Administrator) and on behalf of a Beneficiary (Employee).

With a Swiss Pension the Trustor is either the:

  • 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 Swiss Pension is a Trust.

Form 3520/3520-A & Swiss Pension Reporting

Do you report the Swiss Pension on Forms 3520?

 It depends on how you evaluate the rules.

Swiss Pillar 1: 3520-A

Pillar 1 is State mandated (Swiss 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.

Swiss Pillar 2: 3520-A

As to Pillar 2, it is also mandated through the Swiss 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.

*The U.S. to CHF exchange rate is typically 1:1 (or very close), which may impact Rev. Proc. 2020-17 reporting requirements.

Swiss Pillar 3: 3520-A

Swiss Pillar 3 is completely optional and it is funded by the employee only.

Therefore, chances are this is a foreign trust which would be subject to Form 3520-A Reporting.

But, in accordance with Rev. Proc. 2020-17, it may qualify for an exemption if it meets the requirements set forth in the revenue procedure.

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.

The main issue is that may defeat this position is that if it is a 3(b) vs. 3(a), the lack of restrictions and overall access to the investment may make it harder to show it is an “employment trust.”

Unreported Swiss Foreign Pension

If you have not properly reported your Swiss 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.

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