# Treatment of French life insurance product



## Serphone

Hi everyone, 

I'm a dual citizen (US/French) who always lived in France (born in the US but moved back to France as a baby). I recently found out that i was supposed to file and pay taxes in the US too. 

I didn't have a lot of income for the past few years (under the threshold required for filing), so i should be fine for now. 

However, i have a passive income product that my parents opened for me a few years ago and i don't know what to do with it. It is called an "assurance vie" in France, it translates as "life insurance" but is somewhat different from the US definition of it. 

Basically here, it is a tax-favored investment vehicle. It usually consists of two types of investments: 
_ a "Fonds euros" (Euros fund): The money put here is guaranteed and there is a minimal rate guaranteed for each year - it usually ends up to be more (around 2/3%). So it is a very low risk and common investment here. 
_ and then if you want more returns, you can add some "Unités de compte": which are simply shares in funds, stocks, etfs, etc..

And i'm really not sure about how i should treat this "assurance vie" regarding to the IRS. 

I've read a bit about PFIC, is that it? 
And if yes, should i consider the whole "assurance vie" wrapper as a PFIC? Or only the shares in funds (called "unités de compte")? What about the Euro fund then? 

It seems like a very complex issue, and i hope i can find someone here who has been in the same situation before or who knows the answer. 

Thanks in advance for your help, 
Thomas


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## Bevdeforges

The French (or European) style Assurance Vie seem to be part of a huge black hole when it comes to trying to get any information out of the IRS about how they expect you to deal with them for US tax reporting.

The best I can tell is that people seem to treat them as either an investment account (where you would report the gains and losses on them annually, and then nothing to report when you start taking your money out of the account) or as a retirement account, where you'd report the income as you withdraw it (and then offset the French taxes paid against whatever US tax liability you ran up).

For FATCA purposes, though, things are even less clear. The expat group AARO has done an analysis of the agreement between the US and France on reporting of financial accounts by the banks and investment companies and they claim that it is still unclear how Assurance Vie is to be treated: FATCA Update and French Inheritance Law - AARO - Association of Americans Resident Overseas and roll down to the bottom of the article under the heading "What is unresolved?"

This is where the idea of making a "good faith" attempt at reporting based on your understanding of the nature of the account comes in. I'd be tempted to report it like a regular brokerage/investment account (which, unfortunately, means you'll wind up paying US tax on the gains each year) and then reporting the account on your FBARs. At some point we can hope that the IRS decides to address the issue (though my guess is that they'll continue to basically ignore it). But at least they can't accuse you of "hiding" your account.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> For FATCA purposes, though, things are even less clear.


Bev, that's an AARO article about the Inter-Governmental Agreement (IGA). It's not responsive to Serphone's questions. Serphone is not a party to somebody else's agreement.

I don't think Serphone was even asking about the financial reporting requirements. Nonetheless, for the record, FATCA (and FBAR) are extremely clear with assurance vie accounts: they're reportable. If you meet the filing thresholds, you have to report them on FinCEN Form 114 and/or IRS Form 8938, as applicable. (And possibly also IRS Form 3520 or 3520-A.) Not complicated.

But I think Serphone is mainly or entirely asking about the income tax consequences (IRS Form 1040 and its various sub-forms and attachments) rather than the financial reporting requirements, which are very clear. Are assurance vie accounts PFICs?

Short answer, based on my research: Yes. From what I can determine the correct way to treat them is to treat the whole account as a PFIC ("wrapper" level), not individual elements within it, given how it's structured and the IRS definition of PFIC.


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## Bevdeforges

I think it depends on the amounts involved - and how "aggressive" a tax stance you're willing to take. There are quite a few folks out there who are basing what they report on what the financial institutions are going to report. We'll have to see how it all works out.
Cheers,
Bev


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## Nononymous

This seems like a perfect case for figuring out whether the bank will report anything via FATCA, and if not, then doing absolutely nothing. If you're not on the US radar, stay off the US radar.


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## Serphone

Thanks to all of you for your help and your insights!

It seems like a tricky situation: 3 people and 3 different answers.. 

From what i understood, i have 3 options:
_ Option 1: Treat it like a regular investment account and report gains/losses every year. But Bev, where should i put these gains/losses on my income tax form? Do i have to add additionnal forms then (like 8938 or 8621)?
And what if one year i have losses - can i keep them for the following year? 

_ Option 2: Treat the whole package like a PFIC. This is form 8621, right? Do i have to file this form every year or only when i withdraw from the account? What if my profits/losses don't exceed the filing requirements? (that was the case in 2012, i made some profits with this product but it did not exceed 9,750$, and that was my only income this year). Should i file back for 2012 only? For every year since 2012? Only from now on?

_ Option 3: Do nothing and wait to see if the IRS ask me about this portfolio. But what if i already send a FBAR including this account/portfolio? 

Thanks again so much, you are so helpful, i've spent days already trying to figure out what to do or not. 

Cheers,
Thomas


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## Nononymous

Serphone said:


> It seems like a tricky situation: 3 people and 3 different answers..
> 
> _ Option 3: Do nothing and wait to see if the IRS ask me about this portfolio. But what if i already send a FBAR including this account/portfolio?


I'm the voice of do nothing. If you've never lived in the US as an adult, have no connection to the US beyond your birthplace, no US income or assets, and no interest in living in the US, I would do everything in my power to stay off the US radar - ignore it completely. 

That's my personal approach, but FATCA makes it a little trickier if banks are aware of your birthplace.

Have you already submitted an FBAR? If so, the above advice might not apply. You could wait and see if the IRS contacts you - who knows, maybe that will never happen.


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## Bevdeforges

To be real honest about it, I tend to side with Nononymous. If you've already sent the FBAR, I'd just continue to treat it like a "bank account" and see what happens. There are lots of folks who report accounts on their FBAR but don't have enough income to bother with filing.

They most likely won't pursue it unless they determine that you are worth some serious back taxes.
Cheers,
Bev
PS Full disclosure: this is probably NOT the way you're supposed to do this.


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## BBCWatcher

The correct way to do it is (more or less) Option 2. (I didn't quite follow what you wrote, but it looks at least pretty close.)

Now here's where I'm going to disagree. Not only would it be violating tax regulations to do something else, it would be in your financial interest to do the right thing. As you say, your unrealized gains are minimal. When you make QEF elections you also reset the cost basis on those assets. Ergo, no tax! So the IRS has nothing to collect, because you've spread the gains over years instead of lumped them together into a taxable event (at penalty sort of rates). PFICs cut both ways.

Before you get to even thinking about violating tax regulations and laws, at least check what you owe. Zero looks very likely here, you're quite right.


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## Nononymous

The point I typically make is that you're not violating tax laws to save money - most everyone who turns up with questions here would owe zero - you're violating tax laws to stay off the radar and to avoid having to fill out a pile of forms every year. Privately flipping Uncle Sam the bird is a nice bonus, of course, but not the primary motivation.


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## BBCWatcher

Well OK, but failure to report that account could result in a very easy penalty for the U.S. to levy and collect. (Hello, FATCA.)

Ah, but doesn't the IGA say that data on these accounts won't be shared? No, not exactly. It only says data doesn't _have_ to be shared for that type of account, not that it won't.

Many people rationally prefer the certainty of zero with paperwork versus the uncertainty of possible fines and penalties.

Note that Serphone wasn't asking for any of this political side trip.


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## Nononymous

The political angle was offered as an extra bonus - purely an optional pleasure.

On a more serious note, what is the French attitude towards assisting the US with collection? Canada has been very clear on this issue - no bloody way. The US currently has no ability to collect either FBAR fines or taxes owed (by Canadian citizens, including duals) in Canada.


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## BBCWatcher

I think we'd have to ask the French tax office, though I take note of the fact France shared the HSBC Swiss account data with many countries, including the U.S.


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## Bevdeforges

Nononymous said:


> On a more serious note, what is the French attitude towards assisting the US with collection? Canada has been very clear on this issue - no bloody way. The US currently has no ability to collect either FBAR fines or taxes owed (by Canadian citizens, including duals) in Canada.


The French tax folks can and do "share information" with the IRS - mostly (at least to this point) on inheritance tax issues involving large estates where the decedent has large accounts unreported in the US. (In France we are supposed to report foreign bank accounts and assurance vie contracts each year as part of our tax declarations.)

As far as actually collecting taxes or fines, there appears to be no history of this being done cross-border on individual accounts (and LOTS of French banks get in trouble with the US authorities more or less all the time).
Cheers,
Bev


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## 801697

Let's say I have invested 125kEUR in an "Assurance Vie" and its current value is 150kEUR. I just became a US resident. Should I elect mark to market or QEF? I don't understand how the PFIC thing works and I cant afford to pay a tax lawyer 250 USD/hour to prepare the form (which would take him about 10 to 20 hours). What should I do?


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## BBCWatcher

I'm assuming you are not a U.S. citizen.

First of all you'd file forms FinCEN Form 114 ("FBAR") and IRS Form 8938 ("FATCA") to report the account (and any other applicable non-U.S. accounts). The first one is a separate form unrelated to your tax return that is filed electronically. The 2014 report is due by June 30, 2015. IRS Form 8938 is a form you file with your tax return. If you "just" became a U.S. resident, in 2015, then you won't file either one of these forms until next year (2016, for tax year 2015).

Yes, that Assurance Vie account is almost surely something the IRS views as a PFIC. So yes, _unless the tax treaty says otherwise_, you'd have to use IRS Form 8621 (and follow its instructions). Your initial cost basis is the value of the account the day you entered the U.S. So let's suppose that you entered the U.S. on January 20, 2015. When you file your 2015 tax return (in 2016) you'd calculate the value of the account on December 31, 2015, and then your gain would be the difference in the values on December 31 and January 20. Of course tax preparation software, even the free ones like TaxAct and TaxSlayer, can be very helpful in filling out the forms for you as you answer interview-style questions.


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## Serphone

Hi everyone, 

First, i'd like to thank you all for your answers! It helped me a lot in making a decision. 

So, i've decided to close the life insurance before it becomes too much of a burden. I will simply declare the capital gain next year (and only if it makes me exceed the filing thresholds), and from now on, i'll only use basic brokerage accounts (PEA and "Compte titres") to hold stocks.

And for those who are interested in keeping their Assurance Vie anyway, AARO (the expat group) recently held a tax seminar, and this is what they say about assurance vie:
"Assurance Vie
Report the cash surrender value. The account must be reported on the FBAR and 8938, if the thresholds are met, and the income is reported as interest on Schedule B."

I cannot post the link but if you go on AARO website, look for "Tax Seminar 202 -- 2015", and then scroll down to Q&A.

I don't know if we should take this for granted, but it's the best answer i've found out there by people who deal with this regularly. 
Hope it helps  

Cheers, 
Serphone


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## Bevdeforges

I'll post the link for you: https://aaro.org/taxation/510-tax-seminar-202-2015

Those AARO tax seminars are generally pretty good. Thanks for mentioning that the summary was available online.
Cheers,
Bev


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## gregj

does anyone have any update regarding the treatment of French Assurance-Vie as PFICs please ? 

It seems to me that such mutual funds are not directly owned by the insured who merely receives a corresponding amount from the insurer, and would therefore not be considered as PFIC. 

Not an expert so any advice or experience from previous tax returns would be much appreciated.
Thanks !


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## Bevdeforges

No update, but I do know of some folks who are simply reporting their assurance vie accounts on their FBARs and identifying them as "assurance vie" and then reporting the interest received as, well, interest income. So far no come back from the IRS or the Treasury Department - but it may depend a bit on how large your balances are.
Cheers,
Bev


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## gregj

thanks for the prompt reply ! 

In my case it seems crazy to pay a tax expert 3000$ to report an Assurance-Vie which has actually made no interest in the past year.........I think I''ll take my chances and follow your advice.

Would be great to gather more feedback if other expats are in the same case.


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## cv08

Serphone said:


> I've read a bit about PFIC, is that it?
> And if yes, should i consider the whole "assurance vie" wrapper as a PFIC? Or only the shares in funds (called "unités de compte")? What about the Euro fund then?



Hello everyone. Any follow-up on this issue? I'm currently having some problems figuring out how to treat my Assurance Vie (and PEA account...).

Has anyone had any recent experiences by declaring as a PFIC and filing form 8621?


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## Bevdeforges

cv08 said:


> Hello everyone. Any follow-up on this issue? I'm currently having some problems figuring out how to treat my Assurance Vie (and PEA account...).
> 
> Has anyone had any recent experiences by declaring as a PFIC and filing form 8621?


I would be surprised if we ever get a definitive answer out of the IRS regarding "assurance vie" for US tax purposes. Almost any paid tax adviser you ask will insist that they are PFICs, but if your balance is within moderate ranges, I'd be tempted to report them as you would a bank account. Report the high balance for the year on your FBAR/FinCEN and the net amount of interest/earnings on the account as you would bank account interest. If you do it that way, then when you take withdrawals from the account, they would be without further US tax. (Like withdrawing money from a bank account.)

If your totals are over $200,000 there are some additional FATCA reporting requirements - but I'd treat that like a bank account until and unless the IRS says differently.
Cheers,
Bev


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## cv08

Yeah I guess that's the easier solution. I've read about people suggesting this in other forums, but do I risk getting fined though?

I wanted to do the 'right' thing and declare as a PFIC with the Market-to-Market (MTM) election which seems to be the easier (if not the only) choice between the three elections. It takes some time figuring it out, so far the main risk I've seen is having to pay taxes on unrealized gains (if they go above standard deduction + personal exemption...) since they have to be declared as ordinary income.

Another problem is that MTM has to be for publically traded stock. That's fine for the Unites de Compte, but not for the Fond Euros (which I still haven't figured out would be an equivalent in the USA... it seems to behave just like a savings account of sorts??) So this basically comes back to the questions from the first post by Serphone.....

And what about the PEA account? Should I also file as a bank account?


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## Bevdeforges

You'll only get fined if the IRS has reason to audit your returns for some reason and "finds" something grossly wrong. And the chances of getting audited if you're living overseas are pretty small unless your returns scream out "I'm stashing my ill gotten gains in flakey off-shore account to try to hide them from sight!!!!" 

If it "seems to behave just like a savings account" then report it that way. The bigger risk is to not report something that needs to be reported. Reporting it "wrong" (though who's to say?) always leaves open a "good faith" defense. But the fact of the matter is that there are few, if any, IRS definitions to help you find an equivalence for most of these local types of accounts and investments.

Also, I got notification from my bank about their FATCA reporting obligation and they do take great pains to list the types of accounts that are excluded from the need to identify and declare (as per the Bilateral Agreement) - and those include the Livret A, Livret Bleu, LEP, LDD, PEL, CEL, PEP, Livret jeune and "Plan d'épargne entreprise et plans d'épargne retraite." Now, I don't know whether that means we shouldn't have to report those accounts and the interest they generate on our 1040s and FBARs - but apparently they aren't going to report that stuff to the IRS. Go figure.
Cheers,
Bev


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## muchomacias

Hello, i am working on that case and i try to find information about assurance vie and taxation in usa.

Ruchelaw in NYC send me an answer about PFIC :

"P.F.I.C. attribution rules don’t attribute ownership of P.F.I.C. shares held in a French life insurance policy to the holders of the policy. Further, a life insurance policy will not be a P.F.I.C. since it would not be considered a corporation for U.S. tax purposes."

They have made a 13 pages document about pfic and assurance vie (i could post the pdf url if bev is ok)

"In sum, as long as the policy holder does not have effective control over the investments maintained by the insurance company, the risk to the policy holder should be minimal with regard to P.F.I.C. reporting. "


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## Bevdeforges

As I understand it, it's not so much that assurance vie is considered a PFIC as that it could be considered a "foreign trust" which is something also subject to elaborate reporting requirements. (At least according to many tax experts.)

The IRS doesn't generally give out information on how to treat specific foreign financial instruments like this, leaving it all very vague. Assuming the balance of your assurance vie is within the six figure arena, I know some folks simply report them as a type of "bank account" and so far, at least, have had no problems or questions. That does, of course, include declaring the earnings each year as "interest" income.
Cheers,
Bev


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## muchomacias

Bev,

Do you mean, if we own an assurance below 1.000.000 $/€ that return interest about 1.5%-2% before tax, that would be declared under 1040 form + FATCA + FBAR ?

You said you know some people does it like that, those people lived in europe or in the usa ?


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## Bevdeforges

muchomacias said:


> Bev,
> 
> Do you mean, if we own an assurance below 1.000.000 $/€ that return interest about 1.5%-2% before tax, that would be declared under 1040 form + FATCA + FBAR ?
> 
> You said you know some people does it like that, those people lived in europe or in the usa ?


Let me put it this way: if you own an assurance vie below $1M (or even one greater than that amount), you are supposed to report the "financial asset" on your FBAR and 1040 filing. The FATCA forms are pretty much all part of the 1040 filing and depend on how you define your financial asset and the total amount of your foreign financial assets.

Technically, you have to include a form 8938 if you hold $200,000 or more in "foreign financial assets" and live outside the US. This tends to be where the additional FATCA reporting and paperwork is supposed to kick in. (The limit for US residents is $50,000.) Those thresholds are for single taxpayers - they're doubled for joint filers.

The folks I know who file their assurance vie like they were regular bank accounts all live outside the US (and so enjoy the larger threshold). At this point, the banks and other financial institutions are only obliged to report the balance of the financial assets to the IRS (through the national banking organization), not the transactions nor the earnings on the account.
Cheers,
Bev


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## muchomacias

Ok thank you, is that i was understand

For my case i will live in USA, not outside, i hope that will not change the tax treatment

You said "Technically, you have to include a form 8938 if you hold $200,000 or more in "foreign financial assets" and live outside the US", i guess this is an obligation even if you are not living outside united state


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## Bevdeforges

Yes, as I mentioned, the threshold is considerably lower for filing the 8938 if you are US resident. And, if you'll be living in the US, the risk factor is quite a bit different, assuming you will have US based accounts and potential sources of income (like eligibility for US social security).
Cheers,
Bev


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## Kevin103

Serphone said:


> Hi everyone,
> 
> I'm a dual citizen (US/French) who always lived in France (born in the US but moved back to France as a baby). I recently found out that i was supposed to file and pay taxes in the US too.
> 
> I didn't have a lot of income for the past few years (under the threshold required for filing), so i should be fine for now.
> 
> However, i have a passive income product that my parents opened for me a few years ago and i don't know what to do with it. It is called an "assurance vie" in France, it translates as "life insurance" but is somewhat different from the US definition of it.
> 
> Basically here, it is a tax-favored investment vehicle. It usually consists of two types of investments:
> _ a "Fonds euros" (Euros fund): The money put here is guaranteed and there is a minimal rate guaranteed for each year - it usually ends up to be more (around 2/3%). So it is a very low risk and common investment here.
> _ and then if you want more returns, you can add some "Unités de compte": which are simply shares in funds, stocks, etfs, etc..
> 
> And i'm really not sure about how i should treat this "assurance vie" regarding to the IRS.
> 
> I've read a bit about PFIC, is that it?
> And if yes, should i consider the whole "assurance vie" wrapper as a PFIC? Or only the shares in funds (called "unités de compte")? What about the Euro fund then?
> 
> It seems like a very complex issue, and i hope i can find someone here who has been in the same situation before or who knows the answer.
> 
> Thanks in advance for your help,
> Thomas


Hello,
Were you able to get a definitive answer on whether French assurances vie are considered PFICs?
Thank you,


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## Bevdeforges

Kevin103 said:


> Hello,
> Were you able to get a definitive answer on whether French assurances vie are considered PFICs?
> Thank you,


To be honest, if you consult any professional tax adviser they will tell you that all French assurance vie contracts are PFICs. Have seen that posted many times over on the AARO site. What some folks have done is to report the income/earnings from the contract like it was a simple bank account so that you can't be accused of failing to report income and wait to see if they come back to you on the issue. Given the current IRS backlog, you may never hear back from them, though you will wind up paying US taxes on the earnings.


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## Kevin103

Bevdeforges said:


> To be honest, if you consult any professional tax adviser they will tell you that all French assurance vie contracts are PFICs. Have seen that posted many times over on the AARO site. What some folks have done is to report the income/earnings from the contract like it was a simple bank account so that you can't be accused of failing to report income and wait to see if they come back to you on the issue. Given the current IRS backlog, you may never hear back from them, though you will wind up paying US taxes on the earnings.


Noted, thanks for your reply!


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