# cashing in a PFIC



## sueinwales (Oct 4, 2017)

Many moons ago I retired from Social Services and received a lump sum payment, which naturally i used to purchase a number of ISAs over several years (usuing my annual allowance). In blissful ignorance I bought 4 of them over 4 years, 2012-2015. At this point in time i had not filed a US tax return for many years.

Fast forward a few years to 2017 when i discovered i needed to file US tax returns (I used streamlined and all went well) but at this point i learned that my ISAs were considered PFICs. 

As we are now retired it is time to consider cashing in some of these ISAs to fund some trips we would like to make before we get too creaky for the travel insurance people to continue insuring us!

I know it will probably be fiendishly complex, but can anyone advise how on earth to enter proceeds from an ISA sale onto the US tax return. Capital gains, or something else?


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## Bevdeforges (Nov 16, 2007)

Did you report your ISAs as PFICs when you did your streamlined filings? If so, I gather that you declared the gains/income on the funds at the time (and paid whatever tax was due). If that's the case, then theoretically, you're just withdrawing funds from an account and you shouldn't have any reportable income.

If you haven't declared the gains/income on the funds, then the withdrawals probably need to be reported to the extent that the balance in the fund exceeds what you originally put into the fund.

But that's just an educated guess on my part based on the overall "logic" of the US tax system. With luck, maybe we can flag down someone here who has some experience with this type of investment.


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## Nononymous (Jul 12, 2011)

The answer depends on how "seriously" you take your compliance. If it has to be completely by the book, and the things were declared as PFICs when you entered streamlined, then it might be complex.

If the ISAs were not reported as PFICs when you started filing, and they are not subject to FATCA reporting, then you could take a "partial compliance" approach and just leave them off, on the assumption that the IRS has no way of learning of the their existence other than your declaring them.


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## sueinwales (Oct 4, 2017)

Sadly I fell into the trap of filing streamlined with a knowledge base of zero. People at the (Amercian) bank who were sending us some funds informed me they would be sending out a K-1. Of course I had no idea what this was, but the Trustee made very loud noises about my coming back into US Tax Compliance. So, I panicked and hired someone here in the UK. they naturally included the PFICs in the returns so i am kind of stuck.

Later on I learned that these funds were in fact not FATCA reportable, and I was fuming. The tax person never mentioned this to me. I now do my own returns and so far they have been accepted and i have owed virtually no tax. 

So I am seeking the least painful method of dealing with the sale of at least one ISA and reporting it on the IRS return. To date I have filed a form (8621?) for each holding.


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## Nononymous (Jul 12, 2011)

It's a trifle ballsy but if you have no US assets in the US, and no plans to return except for occasional visits, you could simply "go dark" and cease filing now that the trust and inheritance business has been settled.

Also give the tax person a piece of your mind, if you haven't already.


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## sueinwales (Oct 4, 2017)

I continue to receive distributions from a family trust located in Rhode Island and they continue to send me K-1 forms each year. It was set up by my parents as a generation skipping trust, so upon my death the trust will be dissolved and the capital distributed to my (dual national) children. Haven't even begun to consider the tax implications of all that.

I don't own the assets in the trust but it is for the 'benefit' of primarily me (and in extremis my children at the Trustee's discretion). Does this count as having no assets in the USA? I certainly plan to have very very few visits at this point. Still considering renouncing.

If I were to report the ISA sale to the IRS, how is it done? Capital gain on the asset? or something else?


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## Nononymous (Jul 12, 2011)

Since I refuse to file US returns myself I have no idea how one goes about filling out those forms.

I would consider having a frank discussion with the Trustees now that you know a little more about the situation. I've no idea what a K-1 is but possibly your compliance status matters not one bit.

If you are thinking about renouncing, you could delay the sale of any ISAs until after you've done so (you would not need to wait until you'd done the exit tax business, only the date of renunciation, and you wouldn't even need to wait until then as long as you didn't declare the sale on your final returns). 

You could continue filing without declaring the sale but that might be complicated by past reporting, for all I know. 

Lots of options, anyway.


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## Bevdeforges (Nov 16, 2007)

The K-1 forms are forms for reporting results in a trust to the beneficiaries. It has been ages since I've seen one of those forms, but the idea is that it's supposed to give you all the information you need for filing your US tax returns (though not which lines or forms to report the information on).

The one caution I'd give you on this is that, if you renounce at this point and inform the various financial institutions, you may find yourself subject to the 30% withholding rate applied to non-resident taxpayers. Not all financial institutions apply this, but many do. 

Unfortunately I can't advise you on how to report (or not) the ISAs - but take a good hard look at the tax treaty to see if you can find anything that might justify just leaving them off your returns altogether.


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## Jca1 (Aug 7, 2019)

Does this answer the original question? Basically, form 8621 and the 'other income' line on the 1040. It's a few years old so maybe something has changed.

It's true that the UK FATCA IGA exempts banks & HMRC from reporting to the IRS on ISAs but unfortunately this exemption doesn't apply to individuals on their FBAR, 8938, 8621, or 1040. Also since we don't know what info HMRC is sending the IRS, it doesn't mean these accounts actually aren't reported, just that they don't have to be.

You could make a strained argument that the new Lifetime ISA should be considered a pension under the US-UK treaty and therefore exempt from some requirements, but this wouldn't apply to a Stocks & Shares ISA. A Cash ISA on the other hand is just a savings account that is taxable by the US but not the UK. I know of one case where someone in the OVDP tried to argue that his ISA should be considered a pension and therefore not taxable and exempt from PFIC rules. He and his lawyer didn't think the IRS would buy it, and they didn't, which led to a large number of forms 8621 being filled out.


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