Swiss Pension Accounts & PFIC Form 8621
Do I Report Swiss Pension Accounts as PFIC? The complexity of the Swiss Pension Account does not end with the tax issues, FBAR or FATCA Form 8938 reporting. Oftentimes, there is another issue lurking beneath the surface, which generally takes the Form of a Foreign Mutual Fund – otherwise known as a PFIC or Passive Foreign Investment Company.
A PFIC is reported on Form 8621.
In additional to Foreign Accounts Compliance and Unreported Foreign Income, the PFIC is a heavily enforced IRS reporting requirement.
Swiss Pension & PFIC Form 8621
The Swiss Pension has three main components to it: the 1st Pillar is the State Mandated (OASI) which is social security, the 2nd Pillar is employment based, and the 3rd Pillar is an elective supplement.
Swiss Pension Pillar 1 PFIC Reporting
As to the 1st Pillar, and in accordance with the World Bank 5 Pillar framework, the 1st pillar is equivalent to U.S. social security.
The funds are not segregated, and there is no “identifiable” balance amount allocated per person.
Thus, the 1st Pillar is generally not reported for FBAR, FATCA or PFIC purposes.
Swiss Pension Pillar 2 PFIC Reporting
Pillar 2 is mandated employment pension.
Employees have their own account information and segregated amounts allocable to their investment. The Pillar 2 is equivalent to a 401k. They are not “identical,” because the Pillar 2 is mandatory (if the employee earns sufficient income) and the 401K is not mandatory – but they are similar.
Generally, if the retirement fund is still accruing and not being distributed, some clients will opt to report Mutual Funds as PFIC (if they can obtain the information), but some clients will not. Rather, these clients prefer to report the PFIC once distributions are being taken.
The thought on the latter is that it is an employment-based pension that is still in the growth phase.
And, because it is growing tax-deferred, and funds may be switched in and out, it results in an unfair tax liability, when the person cannot even take distributions. As a result, they wait until they start taking distributions (aka “actively participating”) before reporting as PFIC.
Swiss Pension Pillar 3 PFIC Reporting
The 3rd Pillar is entirely voluntary, and somewhat similar to an IRA — but there are less strict rules in taking withdrawals pre-retirement age than the other Pillars.
If the investment has PFIC funds in it – even during the growth phase – it is typically reportable as a PFIC on Form 8621.
Unreported Swiss Pension PFIC Form 8621 Penalties
If a person has not timely reported Form 8621 timely to the Internal Revenue Service, they may become subject to FBAR penalties, and other offshore fines.
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.
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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
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- Dually Licensed as an EA (Enrolled Agent) or CPA
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