# Foreign Pension Valuation for FBAR and Form 8938



## USExpat777

Hi there,

I work and live in the UK. If I am not yet retired so not yet receiving any pension payments (not drawing on them yet), do I just state value of foreign pensions as 0 on my FBAR and form 8938? I'm confused as I do receive a statement for value of my pension account for my various current and former UK employer pension accounts and have always used the 31 Dec values to report on FBAR and 8938 in the past. This year I noticed that the 8938 directions say to value 0 if you received no distributions so am worried I may have over reported in the past since I've not yet received any actual pension distributions/payments. However, the pension accounts normally grow due to employer and my own contributions so do have values.

Knowledgable advice appreciated, thanks!!


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## Bevdeforges

Don't worry about possible "over reporting" in prior years. There is no evidence that they bother to compare one year's FBARs to the next. (And, there is no law against "over reporting" anyhow. I always used to add $5K to 10K to whatever I thought the high balance for the year might have been.)

And, if the 8938 instructions say not to report pension accounts if you haven't taken distributions, I'd follow those instructions to the letter. (What gets reported on the 8938 is very different from what is reported on the FBARs.)

https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements

Without your pension funds, you may not even have a 8938 filing requirement. (The thresholds for taxpayers living abroad are considerably higher than those for taxpayers resident in the US.)


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## USExpat777

Thanks, Bev. No, form 8938 does say to report foreign pension accounts but to report value of 0 if no distributions received. I just wasn't sure what was the definition of distribution, if that's retirement payments or just contributions from one's employer to the fund? I'm also still trying to find out about the FBAR if that is the same principle? I've also read on third party tax advice websites that foreign pensions should be reported on Schedule B. Do you or anyone know anything about that? Perhaps it's only if one is receiving distributions?


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## Bevdeforges

USExpat777 said:


> Thanks, Bev. No, form 8938 does say to report foreign pension accounts but to report value of 0 if no distributions received. I just wasn't sure what was the definition of distribution, if that's retirement payments or just contributions from one's employer to the fund? I'm also still trying to find out about the FBAR if that is the same principle? I've also read on third party tax advice websites that foreign pensions should be reported on Schedule B. Do you or anyone know anything about that? Perhaps it's only if one is receiving distributions?


Distributions are withdrawals from a retirement fund that serve as pension benefit payments. Nothing to do with what the employer (or employee) contributes.

Foreign pensions are NOT reported on Schedule B unless they are self-directed funds (i.e. defined contribution funds) where you are receiving interest or dividends - and thus are "supposed" to be paying US tax on the earnings on those accounts. However, check the UK tax treaty, which can change things quite a bit depending how they treat "pension funds." 

When receiving pension benefits ("distributions") those are reported on the line for "Pensions" or "Other Pensions" (i.e. other than US Social Security, which gets its own line on the US tax forms).

Don't know about the UK tax treaty with the US, but the French treaty specifically indicates that IRAs 401Ks and other pension funds that are qualified by the US government should be treated the same as government pension plans (i.e. same as US Social Security). See what the treaty says with regard to pensions.


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## USExpat777

Thanks, Bev! It's so confusing, and the IRS helpline said they couldn't answer questions related to Form 8938. 

Anyone with idea how to value foreign pensions on FBARs? Would it be same as the form 8938 with 0 if not retired or drawing pensions yet?


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## JustLurking

USExpat777 said:


> It's so confusing, and the IRS helpline said they couldn't answer questions related to Form 8938.


Of course not. From the IRS's own "basic" Q&A document, which they apparently could not find when asked:


> In general, the value of your interest in the foreign pension plan or deferred compensation plan is the fair market value of your beneficial interest in the plan on the last day of the year. However, if you do not know or have reason to know based on readily accessible information the fair market value of your beneficial interest in the pension or deferred compensation plan on the last day of the year, the maximum value is the value of the cash and/or other property distributed to you during the year. This same value is used in determining whether you have met your reporting threshold.
> 
> If you do not know or have reason to know based on readily accessible information the fair market value of your beneficial interest in the pension plan or deferred compensation plan on the last day of the year and you did not receive any distributions from the plan, the value of your interest in the plan is zero. In this circumstance, you should also use a value of zero for the plan in determining whether you have met your reporting threshold. If you have met the reporting threshold and are required to file Form 8938, you should report the plan and indicate that its maximum is zero.


The best and most conventional approach seems to be to provide the balance of any defined contribution pensions, and use zero for any defined benefit ones. 



USExpat777 said:


> Anyone with idea how to value foreign pensions on FBARs? Would it be same as the form 8938 with 0 if not retired or drawing pensions yet?


Defined contributions pensions have a value that you can put on the FBAR, but defined benefits ones do not. However, since the latter are not accounts over which you have signature authority, and are held by your employer rather than you, the general view is to omit them entirely from the FBAR.


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## Bevdeforges

USExpat777 said:


> Anyone with idea how to value foreign pensions on FBARs? Would it be same as the form 8938 with 0 if not retired or drawing pensions yet?


If you get a statement with a valuation on it, use that valuation for FBAR. If you don't get a valuation statement regarding the pension, just don't bother reporting it.


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## USExpat777

Thank you Lurking and Bev, but now I think I'm more confused. I saw the explanation from IRS which is why I asked about reporting 0 if I'm not yet retired. But what if you do receive statements from your pension holders, and what do they mean by fair value? Can we just assume fair value is the same as whatever value is on the pension statement? If I get a statement with value of my pension account but am not yet retired or drawing on my pension, should I then report the value on my statement on both 8938 and FBAR as I'd already been doing in the past? I believe my pension is defined contribution type- my employer and I both contribute, but the amount in retirement isn't guaranteed.


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## JustLurking

USExpat777 said:


> Can we just assume fair value is the same as whatever value is on the pension statement? If I get a statement with value of my pension account but am not yet retired or drawing on my pension, should I then report the value on my statement on both 8938 and FBAR as I'd already been doing in the past?


Yes, and yes.

The IRS's inability to answer the simplest of questions on this, and their capacity for turning something relatively straightforward into a major investigative exercise for people trying their utmost to comply, is quite breathtaking, isn't it?


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## USExpat777

Thank you, Lurking. Yes, it is super frustrating and gets me so stressed each year. What is just as frustrating is that when I try to ask an accountant, they don't want to give you a straight answer unless you agree to be their client so they can charge you hundreds or thousands of £'s.


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## Moulard

I wouldn't get too hung up about the valuation of the pensions... 

As has been highlighted above, if it is a simple accumulation type fund, then the simplest approach is to report the balance accumulated as reported on a statement. 

As you note, you can report the balance as 0 if you have do not know what that max balance was during the year.

There are a lot of "outs" that allow you to validly report the maximum balance as zero (i.e. not know) even if you receive statements. Some of those include:

The statements are not regular (I believed defined as at least quarterly)

The statements have a little asterisk on them that states that this is the balance if you happened to be eligible for a distribution on the statement date (common if there is a statutory requirement that must be met before you can draw down on it)

You just "happen" to file before the last statement of the year arrives.. 

You can use those to your advantage to report as zero an accumulation type fund even when you have a pretty good idea of what the balance actually is.

As was mentioned before, defined benefit scheme are more complicated. There are likely to be actuarial tables that define the value based on your life expectancy. 

In all cases it is worth noting that it isn't reportable until the amount is vested and constructively received by you. So a employer defined benefit scheme, or indeed a defined contribution scheme which was simply a promise to pay, would not have a reportable amount.

If it is a company scheme, and there is a risk of forfeiture (for example if the company was to go bust and not be able to meet the obligation) ; if it it a nominal allocation


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## USExpat777

Thanks, Moulard. I don't receive any pension distributions at all as I haven't retired yet. But I receive statements from the employer and former employer pensions and can try to find out values on 31 Dec every year. Some of the employer pensions have fairly high balances as they've accumulated, so I'm worried about reporting them incorrectly on forms then IRS coming back and saying I owe tax on monies I haven't yet received. On the other hand, I'm worried about reporting 0 and them coming back and saying I underreported. I suppose I'll just keep reporting the values on my statements if I have them on both FBARs and 8938, but it makes me look a lot richer than I am.


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## Jca1

I read the 8938 instructions and I'm pretty sure they're saying that if you don't know the valuation *and* haven't received any distributions, use a valuation of 0. But you do know the valuation, so I would use that instead. Some of the pension providers such as Scottish Widows have tools on their sites that will give you a valuation as of any given date.

If you're worried the IRS will wonder what the source of funds is, maybe list the account as 'other' and write in 'UK employer pension'. I've never heard of anyone receiving an inquiry about that.


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## Bevdeforges

This is all good advice you're getting here. The primary thing is to make a "good faith" attempt - which is where those statements come in. IF you're ever challenged (and it's a big "if") you can always point to the figure on the statement as the basis for what you reported. 

To be entirely honest, the IRS seems to care very little about "the correct" figures - the key thing is that you make a good faith effort to report the account. Period. They don't give any more detailed instructions because honestly they have no idea about foreign pension plans, how they work or which numbers are "relevant." So just give them a number you can justify (ideally, by pointing to the figure on a statement and noting what exchange rate you used to convert it to US $) and your work is done.


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## USExpat777

Thanks, JCA1 and Bev. Yes, I've always reported foreign pensions as 'other' and described them as current or former employer pensions. I think now I'll also add 'undistributed' to the description. 

I just hope they don't decide to audit and tax/penalise me on the pension figures since I'm not yet receiving any pensions yet. Thanks, all!


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## Nononymous

USExpat777 said:


> I just hope they don't decide to audit and tax/penalise me on the pension figures since I'm not yet receiving any pensions yet. Thanks, all!


Just a reminder to those who also worry about such things, despite nobody at the IRS apparently caring what goes on these forms, that no tax or penalties would be collectible from a US citizen in the UK, provided of course they had no assets or income sources. 

Still best to avoid the whole mess by not filing anything, for those who don't have financial ties to the US.


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## Nononymous

PS to above: no US assets or income sources, I should have said.


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## USExpat777

Really? I should think that if the Treasury/IRS have your bank details for all your accounts, and due to banks all around the world having to follow FATCA or be penalised in the US, the IRS could force governments and blackmail banks to freeze or hand over anyone's overseas assets if they really wanted to, like they already do for those they deem criminals or political undesirables no?


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## Nononymous

No, not at all. One of the amusing ironies here is that despite all the fear, the IRS is remarkably impotent beyond US borders. It relies on voluntary compliance.

In terms of penalties and taxes owing, the US has "assistance in collection" agreements with only five countries: Canada, Denmark, France, Netherlands, Sweden. These agreements exclude collection from a country's own citizens, so dual citizens are completely safe. In any other country, there is no possibility of collection unless it's a serious criminal matter. To our knowledge the IRS has used a collection agreement precisely once, against a US citizen in Canada who did some very stupid things.

In terms of information, FATCA supplies only year-end balance and interest/dividend income data. Many account types are supposedly excluded from reporting - including ISAs in the UK - and we know that overall compliance rates may still be very low in many countries, in addition to data being supplied without social security numbers given that many dual citizens would never have obtained them. 

In short, the IRS knows a great deal less than people think it knows, and has much less ability to do evil than people think it has. Not surprisingly, overall global compliance rates are probably well under 10 percent.

PS on edit: more on the near-impossibility of US collection.

One sanction available to the US government, due to a recent law, is passport revocation for anyone owing a tax debt in excess of $51k. This may be irrelevant for dual citizens, but extremely bad for anyone without a second citizenship.


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## Bevdeforges

USExpat777 said:


> Really? I should think that if the Treasury/IRS have your bank details for all your accounts, and due to banks all around the world having to follow FATCA or be penalised in the US, the IRS could force governments and blackmail banks to freeze or hand over anyone's overseas assets if they really wanted to, like they already do for those they deem criminals or political undesirables no?


Actually, they don't seem to bother on actual collection (or even much in the way of auditing) for "overseas taxpayers." 

One big factor, no doubt, is that the US is great on making big threats, but they simply do not fork over information on US based bank or financial accounts in return. The foreign banks definitely want to preserve their rights to transact in the US, so they send in whatever they send in. But the governments (who would have to enforce any seizure of accounts or other hostile action requested by the US government) aren't really bothered to cooperate. (And as Nononymous mentioned, they do tend to protect their own citizens.)

To take your passport (or refuse to renew it) they would first have had to have audited your returns and determined that you had failed to pay something. And honestly, their access to information on things like foreign salary or benefits is practically non-existent. 

The IRS is also severely underfunded and understaffed for the job they are supposed to be doing as it is.


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## USExpat777

Interesting, that's very good to know. I'm a dual citizen, so perhaps all this time I shouldn't have filed any US tax returns at all like you suggest. But then again, the UK is such a poodle of the US, they will likely cave to almost anything the US asks with a bit of arm twisting and bullying. Unlike Canada, I don't think the UK knows or cares much about US tax overreach problems against overseas US citizens or would hotly defend their dual citizens against illegal asset seizures like Canada since the UK banks are already complying with FATCA and it wouldn't take much to intimidate UK banks given all their US interests.


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## Nononymous

If you don't have any money tied up in the US from past work then you could easily ignore these silly obligations - 90 percent or more do just that. At very least, if you do continue filing you can worry less about being somehow penalized. 

Point about UK lapdog status taken, but it's worth remembering that the IRS can't simply order a foreign bank to hand over cash, and the legal process involved is time-consuming and expensive, so unless there's a lot of money at stake, it's not worth their while.

The bigger problem for US citizens is being denied certain banking or investment services due to their US person status, after FATCA. If that hasn't happened to you, all the better. That's really what seems to drive renunciation.

The Canadian government hasn't done much to defend citizens, since it opposed the lawsuit to overturn the FATCA IGA. But the treaty is pretty clear on not allowing collection against its own citizens.


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