# UK pensions - form 3520 required?



## RHalley

Hello there,

I am a dual US/UK citizen and have only ever been employed in the UK. I recently discovered I have tax return/FBAR filing obligations in the US despite not being US resident or earning enough income to owe any US tax, and am currently applying to rectify this via the streamlined process.

In addition to the historic tax return and FBAR filing, I have been told I may need to file forms 3520/3520-A for my employer pensions. (For background, during the last ten years, I have had workplace pensions with each of my UK employers, typically where I have contributed 50 or 60% of the total, and the employer contributed the rest. I now have a pension with my current employer which I actively contribute to, and also a couple of dormant pensions which were started at previous employers and which I ceased contributing to once I changed jobs.) I have done some research and my understanding is that whether I need to file these forms depends on whether my UK pensions qualify as trusts. I have read in some places that they will qualify as a trust if I have contributed more than 50% of the money paid into the pension, with my employer contributing less than 50%. 

However, this is not entirely clear to me. I spoke to an accountant in the US who took a fairly relaxed view and indicated I shouldn't worry about filing the form 3520 in addition to the FBAR until I withdraw money from a pension, which I can't do before retirement. However, I have also sought tax advice abroad and been told I should file the forms if my contribution to any of my employer pensions was more than 50% of the total.

I wondered if anyone here might have any insight into this? My total pensions have more than $10,000 in them, so I will be accounting for them on an FBAR regardless. I'm just confused about whether the forms 3520/3520-A are also strictly necessary. I appreciate there have been a few threads on this in the past, but I couldn't find any definitive answers, and would be really grateful for any practical advice anyone could offer. Many thanks in advance.


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## Nononymous

My comment will probably be less than helpful. Unless you have US assets or plans on moving to the US, why are you planning to come into US tax compliance? Surely it's not worth all that trouble just to collect the stimulus benefit?

Given the problems it has created for people, I would not touch Form 3520/3520-A with a ten foot pole. Either report the pensions on FBARs only, don't report them at all or, best of all, save yourself a lot of time and money by remaining outside the US tax system.

The non-compliance rate for US citizens such as yourself is around 90 percent. The IRS has no resources to look for ordinary taxpayers abroad, nor does it have any means to penalize them. You may encounter banking problems if you have a US birthplace, thanks to FATCA. But even being subject to FATCA reporting does not compel you to begin filing US tax returns.


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## RHalley

Hi there, thank you very much for your reply. The truth is I have been mulling over what to do for a little while, especially knowing I don't earn enough actually to owe any U.S. tax. However, I grew up in the U.S. and increasingly like the idea of moving back in the next several years to be nearer my family. It seemed like it would make sense to get everything taken care of in advance so I know I won't have any difficulty if I do move back. Additionally, I got married recently and would like to be able to apply for a green card for my partner. I had thought it would make sense to get everything straightened out well in advance of this. I'll also admit I initially had no idea I would be required to file tax returns in the U.S., and it makes me uncomfortable not being compliant now that I am aware of it. If I were never going to move back I don't suppose it would bother me, but given I may like to do so, it seems to be smartest to bite the bullet sooner rather than later.

Thank you for your comment on Forms 3520/3520-A; that is helpful. I am new to all this and hadn't heard of these before - normally in these forums people discuss the streamlined amnesty process and FBAR reporting, but I hadn't heard of the forms 3520/3520-A until the accountant I'm using told me I probably have a requirement to file them. Is this technically correct that I should need to file them, as the accountant has intimated? And if so, could it cause me trouble to include the pensions on an FBAR but not to submit the other forms? (Also, what kind of trouble has submitting them caused people? I hadn't had much luck finding more information on them doing a search for them, but I will do a little more digging on the forums to try to find out.)

Many thanks for your help and apologies for my ignorance about all of this.


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## Nononymous

If you are planning to sponsor a spouse for a green card, there's no choice in the matter: you will need to demonstrate 5 years' US tax compliance. Otherwise it's perfectly safe not to bother, though of course it can be a little uncomfortable adjusting to this idea at first. Have you been required to identify yourself as a US person to any banks or financial institutions. If so, you may be subject to FATCA reporting? Again, this isn't always a compelling reason to begin filing US tax returns.

I don't fully understand the complexities of the 3520 situation, because I don't file myself. The gist of it is, tax preparers have been calling certain foreign investments or pensions "trusts" and filing this form. Partly they do this to cover their own arses, partly because it's a long, complex form so it adds to their fees. Alas, there was some sort of bizarre glitch a few years back and a bunch of folks were hit with $10,000 fines for "late" 3520 submissions. This created a big mess that is likely still being resolved. See this old thread for an example.

What you do is up to you. If you can find an accountant who's willing to not go the 3520 route, that would be cheaper and safer. Remember that with the exception of some very limited FATCA data, the IRS only knows what you tell it. But it's obviously a different risk calculation if you plan to eventually live in the US.


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## RHalley

Thank you so much for that information - that is extremely helpful and I feel really lucky to have posted here. It seems as though people generally don't have much trouble with submitting the streamlined amnesty/FBAR filings, so I was feeling fairly sanguine about getting caught up. But it sounds like there have been some horrendous penalties issued for the form 3520. I am so grateful I asked, and that you took the time to reply. Thank you. It's frustrating as I don't know for sure I will return to the U.S. - my partner is British, our jobs are here - but I miss the U.S., and my family there, and like the idea of being free to return without having to worry about my tax position. And if 5 years of tax filings are required to apply for a green card, I would do better to get on it sooner rather than later. 

As far as FATCA, I have been acknowledging myself as a U.S. citizen to banks. This is another reason I expect it makes sense to get compliant, as though I doubt I have enough money in my accounts to be a concern to the IRS, they must surely be aware of my UK bank accounts.

The thread you shared was very helpful. Someone in it posted a link to this article: Forms 3520 and 3520-A and the Grantor Trust Rules

The author, a tax lawyer, notes a broadly analogous case to mine - ie, the question of whether a work place pension which is only accessible upon retirement qualifies as a grantor trust and therefore requires the submission of the form 3520 - where 'The couple’s U.K. pension accounts were created not by the couple but by their U.K. employers. Therefore, the U.K. pension accounts were grantor trusts if at all only if the clients have the power to vest title in trust property in themselves, under IRC Section 678(a)(1). We asked the clients whether they can make withdrawals from their U.K. retirement accounts, and they said that they cannot make withdrawals from the accounts until they reach age 55. The clients are both 40 years of age....on our recommendation, the clients filed their delinquent U.S. income tax returns without the Forms 3520 or 3520-A.' His conclusion in light of harsh penalties which might be levelled is, 'Clearly taxpayers should not gratuitously file international information returns.' This echoes your own (clearly wise) words.

I post that for the reference of anyone else who is in a similar position. There is more information in the article, but the perspective of the author is that such foreign pension accounts which cannot be accessed before retirement age should not be treated as grantor trusts, and that filing forms 3520 or 3520-A late may well result in massive fines. I for one pay enough tax in the UK and wouldn't be able to afford a fine half the amount of the $10k they seem to levy by default. It seems more prudent to argue to my accountant that they not file the forms and tell them I will look into it separately. Hopefully they will accept that.

I am sure there are two sides to every story, and there is doubtless a case to be made that if one is getting compliant one should file everything that might potentially be applicable to be safe. I wonder if anyone else has any experience of this? To those who have filed under the streamlined amnesty programme and had UK or other foreign work place pensions, did you file a form 3520/3520-A?


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## Jca1

There is an exception to filling out forms 3520 and 3520-A for trusts that qualify as 402(b) nonexempt employees' trusts. This can include foreign pensions. You can see the reasoning IRS counsel has used in this private letter ruling:



https://www.irs.gov/pub/irs-wd/201749007.pdf



If that doesn't work for you, Revenue Procedure 2020-17 might:



https://www.irs.gov/pub/irs-drop/rp-20-17.pdf



I've never heard of a case where the IRS looked through someone's foreign pension contribution history to determine whether elective employee contributions were greater than employer contributions and then penalized them for not filing forms 3520 and 3520-A based on that. The IRS isn't really in a position to look into each case to figure out whether a foreign pension is really a trust and if so whether it qualifies for one of the numerous 3520/3520-A reporting exemptions.

The problem with submitting these forms for cases where it's not completely clear they're required is that they're very complex penalty magnets, and filling out the forms can make the penalties more likely. The penalties get assessed due to being completed incorrectly (they're very complex and not really designed for reporting on pensions), lateness (3520-A has a different due date and method for extending the due date than tax returns), or sometimes for unclear reasons:


__
https://www.reddit.com/r/taxpros/comments/lojcax/_/go6uyy5

See also:


__ https://twitter.com/i/web/status/1167130957138321409
$10k is just the start and penalties can run into 6 or 7 figures. Once you get these penalties it can be very difficult to get rid of them.


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