# Italian life policy



## alepuppy (Aug 18, 2015)

Good morning,
I am writing on behalf of my husband a dual citizen italian/american.

His past 6 tax returns, were handled by a consultant (Italy) who retired last year. 

Last year, using TurboTax free file software and the previous tax return I prepared my husband return and since I am a NRA Italian and DON'T have a SSN I sent the report by mail (I still don't know if this is better or would be better to be able to e-file it). 

This year it came to my attention an article I found on the web about how a "plague" can be signing a life insurance policy for US person.

Since my husband has been living in Italy since the early '70, he had invested with me (Italian) our savings in Italian mutual funds, the most common way to invest money in Italy...

But last year. reading IRS Instructions and US tax forum, I realized that, even if the consultant we had before wrote to us we didn't need to file for 8621, we should have filed those investment on form 8621 and not only 8939.

This was one of the reason why last May 2018, we sold those investment and used the money we collected, to sign a life policy that I found out, still invest money in "Italian and foreign fondi comuni".
But after reading the article I mentioned before, I feel like I moved ourselves from the pan directly into the fire (meaning creating even a worse situation).

To make it worst I already file the Fbar info and fed the new investment as other "life insurance policy". 
I don't know what to do right now: should I correct the Fbar report and declare as a bank custodial account??? 

As regards the Italian mutual funds we sold, I reported on forum 8938 that we closed them and the gains and losses have been reported on form 1040D and 8949

I need help and good advices. 
I thank you in advance for any help you can give. 

Alepuppy

P. S. Sorry for my English


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## Bevdeforges (Nov 16, 2007)

Yes, this is precisely the reason why the US "Citizenship based taxation" is such a nightmare for those of us living overseas.

OK - first the easy question: it may very well not be possible to e-file your husband's returns. Many of the filing software systems will disallow e-filing if someone filing as "married, filing separately" doesn't include both the name and US SSN (or ITIN) for their NRA spouse. But you can always mail in your forms on paper. (Don't waste money on overnight or other courier services. You can send them via regular postal mail - just keep a copy of what you filed.)

Unfortunately, you've found out (the hard way) that any sort of investments outside the US cause about the same amount of problems - whether mutual funds or "life insurance" of the sort that is used here in Europe for investing. (Certainly when the US taxpayer's total financial account holdings exceeds the $200,000 level, when those additional forms kick in.)

Depending on your husband's financial situation (i.e. whether he has financial assets in the US, whether he actually pays taxes to the US currently or is likely to have to at some time in the future, etc.) your options range from complete non-compliance to partial compliance to trying to do things completely "by the book." As you've already noticed, nothing has been raised regarding the last 6 tax returns filed by the consultant - proof again that enforcement for overseas taxpayers is pretty negligible unless the IRS has reason to believe the taxpayer is evading large amounts of taxation.

What I've seen some folks do is to report "life insurance" investments as though they were simple bank accounts. Declare the earnings as though they were bank interest - and IIRC, Italy taxes all those sorts of earnings by withholding taxes at the source. 

I'm sure we'll have someone along soon who has a better comprehension of these "advanced" tax issues than I do, and I'll let them guide you on this. (There is also the US-Italian tax treaty, which may state something about the interest and investment earnings.)


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## alepuppy (Aug 18, 2015)

Thanks Bevdeforges, your suggestions opened up more questions:
1) we talked to our bank consultant in order to understand how the bank is going to report the insurance considering that my husband signed it more like an investment. In fact there is no Monthly payment we just invest the money we had selling the other MUTUAL FUNDS. The bank consultant told us it is UNIT LINKED POLICY whith a deposit account covered by the insurance that only state that in case my husband dies the money of that deposit account will go to the beneficiary (me - italian). With that said, do you think that if we decide to be fully compliant we have to report it on form 8621?? To make it worse, do you think we owe to IRS the EXCISE TAX (read another articole where the write said that even if he thinks no report is due on form 8621 the EXCISE TAX should be paid unless it can be exonerate by the Italian/USA TREATY which I read, it actually includes the EXCISE TAX but didn't find a point saying if US living abroud are exonerate;

2) if we report it just like a bank account, considering that we have already sent the on line FBAR report and reported it like LIFE INSURANCE, do you think it would be better to amend the FBAR report chanking it from LIFE INSURANCE to bank account, or maybe this would raise a red flag and I might change it next year?

3) following my previous US TAX REPORT consultants and its 6 years reports I was reporting the selling of the MUTUAL FONDS we had as GAINS AND LOSSES (as in some of the prevoious tax reports) and doing this we actually have to name te MUTUAL FONDS so whoever will read this reports will see that they were ITALIAN MUTUAL FONDS. Since I still don't really understand what are FPIC'S and if the MUTUAL FONDS we had our money invested are considered FPIC'S, will this way of reporting the GAINS AND LOSSES raise another red flag? Shoul I report as interests and don't use the LOSSES to CUT OFF part of the GAINS??? 

4)regarding how to sent the TAX REPORT: since I am a NRA, do you think it is better to mail it or to request a TIN NUMBER for myself and therefore being able to send it elettronically?? I have read articles that are saying that the reports sent by mail are checked by persons instead of computers and this may increase the chances of being audited...

5) as regards my husband situation: he has only a bank account in USA with only 1,000 $ in it. Usually we do not own taxes to US because the taxes in Italy are much HIGHER than those in USA, and right now my husband has no stable job. Unfortunately, due to other italian reason, after the marriage he had the signature on all my assets and that why he exceeds the limit for reporting.

6) last point if someone may help me to understand how things shoud work: if MUTUAL FONDS OR LIFE INSURANCE have to be reported under form 8621 which, if I am not wrong, requires to report the MARKET TO MARKET value of the investments, the situation may change because in Italy taxes on investments are paid only when an investment is sold (and I think it is the same also for american mutual fonds) and therefore I cannot understand why foreign MUTUAL FONDS have to be reported differentle expecially nowadays where with a pc we can invest money everywhere..

Here is an example:
Lets say that we have $ 10000 4 invested and after 10 years we sell it and the selling price is $12,000. The taxes paid in Italy on the gains of $ 2,000 is about $ 400,00. Then we report the gain on the 1040 report and use the taxex we paid in Italy to offset the taxes own to USA and probablys till have extra italian taxes as a credit.

If I have to report the investment on form 8621 and report the MARKET TO MARKET valute, lets say, to keep it simòe, that the value increase every year of $ 200,00. At his point, when we report the gain of $ 200,00 not having taxes paid in Italy (remember that we will pay it at the end of the investment) we owe USA TAXES let's sy about $ 20,00. At the end of 10 years I have paid to US $200,00 in taxes and finally $ 400 in Italy. Considering that the USA/ITALIAN Treaty has been signed to avoid double taxation, and the taxes paid in Itally how do we get our money back from USA???

Hope that someone will help me... or if you know someone here in Italy, I can refer to for my husband next report...

thanks alot.

Alepuppy


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## Bevdeforges (Nov 16, 2007)

I'm really hoping that someone here has more experience with these sorts of investments, because I'm pretty much out of my depth here.

Doing a little quick research online, I'm finding that most financial and tax advisers seem to warn "US persons" off of mutual funds and assurance vie that could be considered potentially PFICs. I suspect you're not subject to the excise tax, simply because what is called "assurance vie" (literally "life insurance") in much of Europe is not really life insurance in the US sense, but rather a taxable financial account. 

On most of the other questions, I'm not really in a position to advise you - largely because I have never held any foreign investments, due to the added complications on the tax forms. 

If the amounts involved are substantial, it may well be worthwhile to find a tax adviser/tax preparer for your husband's US returns. The US Consulate in Rome has lists of US tax consultants https://it.usembassy.gov/u-s-citize...es-of-u-s-citizens/local-u-s-tax-consultants/ (use the list on the right side of the page to find the lists by consular district in Italy)


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## alepuppy (Aug 18, 2015)

Thanks Bev... It's funny because the tax consultant who did our previous tax reports and didn't mention a word about our investments and form 8621 is listed on that site. How can I trust now so. Eine else from that list? I am starting panicking because I don't see an easy way out... And it seems I am the only e oat in this sitiuation... Thanks for your reply


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