US tax laws notoriously fail to treat foreign pensions as qualified plans. Instead, the IRS treats these plans as foreign trusts for US tax purposes and requires their US plan participants to meet the related reporting rules.
Failure to timely comply with these obligations can result in substantial penalties. For example, foreign pensions treated as grantor trusts—which is the most common reporting position—must be reported annually by the US plan participant via Forms 3520 and 3520-A. Failure to timely file these forms could result in penalties as low as $10,000 or as high as 5% of the pension value and 35% of the pension contribution or distribution amount.
Thankfully, the IRS recently released Notice 2022-36, which provides a complete exemption from the Form 3520 and Form 3520-A late filing penalties that may otherwise apply for the 2019 and 2020 tax years. The catch is that these late forms must be filed by Sept. 30, 2022. This provides taxpayers with a very short period to come into compliance without penalty exposure.
This article provides a brief summary of the US tax classification and reporting obligations with which US persons must comply in connection with their interest in a foreign pension, retirement account, and in some cases,...
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