Form 8938 - Yet Another Question

[JohnH]

The chart which was posted on another thread is valuable in working through the maze of who must report what using the form 8938 and FBAR. (thanks veritas and dtlee)

http://www.irs.gov/businesses/article/0,,id=255986,00.html

But my head is still spinning over some details.

For example, a client who is a German citizen has funds in his German retirement system, to which he contributed before coming to the US and also while working for his German employer in the US under the "totalization" agreement. Now he has left the German employer and is paying into the US Social Security system. His balance in the German system is over the reporting limit, but the IRS chart appears to give him an "out" where it says reporting is not required for funds held as " ‘Social Security’- type program benefits provided by a foreign government."

His only other foreign account is well below any of the threshholds. So we are almost ready to file the return and then we discover a couple of web sites (apparently reliable), which advice filing the 8938 anyhow, even if your only foreign accounts are of this type. I assume they are just recommending this as a CYA, but then I wake up hearing the $10K penalty creeping up behind me and saying "Boo!"

Does anyone know if this client really needs to include the 8938?

[FEDUKE404]

Dealing with 8938

I can't help you on this specific topic, but I can add a separate issue I faced with a client with Form 1040 and Form 8938 issues.

Person has dual citizenship (US/UK) and for 2011 filed a "simple" US return reporting worldwide income. Client had to file the fbar form as well as the Form 8938.

While (previously) working/living in the UK, client established a retirement account known as an "ISA" (I believe individual savings account ?). As much as any comparison is possible, it functions more or less like a Roth IRA account, i.e. no tax reduction with funds going in, no taxation of generated income, and no taxation of withdrawals.

After much research, checking with his foreign accountants, etc. it was determined there was NO allowable exclusion by the IRS of the 2011 earnings in the ISA account from the US income tax return. (Fortunately, client made no 2011 withdrawals...) Including those "tax free" earnings bumped his overall taxes by several thousand dollars.

My cursory knowledge of somewhat similar foreign "government/Soc Sec" taxation is severely limited, but I think there are exit points if you can jump through the hoops. I seem to recall a US citizen who was a former resident of Canada faced some similar issues.

Good luck on this one....remember you can be at great risk by NOT reporting relevant Form 8938 issues. Better to be safe than sorry?

FE

[JohnH]

You do realize of course that you just tightened that knot in my stomach...

[Gretel]

Well, I did not look closer at whatever guidance is out there for the retirement account reporting but here is what my common (German) sense tells me:

German Social Security is working very similar to US Social Security (notice the word "Security" in there although it is anything but secure in either country). This security and non-control is exactly my point. As you do not have any control over your funds here you don't in Germany either. Neither do you have control if the government might be bankrupt in the future and that nice amount showing on your statements just evaporated.

IRS does not require us to report our SS balance anywhere, why should they require to report any foreign balance? They are trying to catch the hidden money that people have control over. I am not going to find out and report my German SS.

[JohnH]

Gretel: Thank you for that breath of fresh air. I'm leaning in the direction of not reporting it, notwithstanding some of the CYA articles I've read on the subject in recent days. Can't believe how much time and mental energy I've put into this simple question.

Not sure if I have this all correct, but it seems that a major determining factor is "who is actually holding the money?". If it's an investment company of any type, then it's reportable on the 8938, even if it is an equivalent of a 401(k) or IRA in the other country - qualified money, penalties & tax for early withdrawal, etc. This would explain why FE's client has to report his ISA, for example.

But if it's under the control of a governmental entity then it isn't reportable on the 8938 until such time as it comes under the control of the individual upon retirement.. In the case of the German retirement system (rentenversicherung - did I get that right?) it is "retirement insurance" and pretty much a Social Security equivalent.

My client did suggest that I call Angela Merkel and ask if we could get it released to him, as he would love to have what he paid into the system and then would gladly report it on the 8938. Seems like a reasonable compromise, but I told him I think she's too busy trying to figure out how to jettison Greece without torpedoing the Euro, and probably won't take my call.

So we seem to be left with:
1) Held by the German government
2) No access or control of any type until retirement age
3) Therefore, not reportable on the 8938.

[FEDUKE404]

Looking for info

You do realize of course that you just tightened that knot in my stomach...

I have a good friend, from Army days, who is fluent in German and has many former business acquaintances who still live "across the pond." I've asked via email if he/they have any first-hand knowledge of this specific issue. Any relevant information will be passed to you.

FE

[Gretel]

John

Ja, Rentenversicherung is the perfect word.

If your client is successful getting the funds out of the government please let me know. I will do the same then and gladly report.

[JohnH]

Thank you so much. Between you and Gretel, the knot is slowly loosening.

What the heck - I may just go ahead and place that call to Angela Merkel before this is all over.

[mactoolsix]

New link

[QUOTE=JohnH;142664]The chart which was posted on another thread is valuable in working through the maze of who must report what using the form 8938 and FBAR. (thanks veritas and dtlee)

http://www.irs.gov/businesses/article/0,,id=255986,00.html

With irs.gov redesign, John's link does not work. I believe this link leads to the same chart

http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements

[JohnH]

Thanks for updating the link.
At first glance I like the new layout of the IRS web site.
Sure hope they've improved the search function.