Tags: IRS Exempts Many UK SIPPs From Form 3520 | Form 3520-A Filing Requirement

IRS Exempts Many UK SIPPs From Some Filing Requirements

IRS Exempts Many UK SIPPs From Some Filing Requirements
Martin Kemp | Dreamstime.com

By Thursday, 05 March 2020 12:47 PM Current | Bio | Archive

A self-invested personal pension (“SIPP”) is a highly advantageous personal pension plan available under United Kingdom law.

A separate article considers how SIPPs are reported for United States income tax purposes. As a SIPP is a trust, a U.S. taxpayer for whom a SIPP is established must report the SIPP annually on Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, and Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner. Yet another article examines U.S. income taxation of contributions to a SIPP.

A third article will consider U.S. income taxation of distributions from a SIPP.

On March 2, 2020, the Internal Revenue Service issued Revenue Procedure 2020-17, I.R.B. 2020-12, exempting certain tax-favored foreign retirement trusts and certain tax-favored foreign nonretirement trusts from information reporting on Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, or Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner. As applied, Rev. Proc. 2020-17 will exempt many United Kingdom Self-Invested Pension Plans (“SIPPs”) from the Form 3520 or Form 3520-A information reporting requirements.

To qualify for the Rev. Proc. 2020-17 exemption from information reporting, a foreign retirement trust must meet six conditions:

  1. The trust must be generally exempt from income tax or is otherwise tax-favored under the laws of the trust’s jurisdiction. For this purpose, a trust is tax-favored if it meets any one or more of the following conditions: (i) contributions to the trust that would otherwise be subject to tax are deductible or excluded from income, are taxed at a reduced rate, give rise to a tax credit, or are otherwise eligible for another tax benefit (such as a government subsidy or contribution); and (ii) taxation of investment income produced by the trust is deferred until distribution or the investment income is taxed at a reduced rate.
  2. Annual information reporting with respect to the trust (or its participants or beneficiaries) is provided, or is otherwise available, to the relevant tax authorities in the trust’s jurisdiction.
  3. Only contributions with respect to income earned from the performance or personal services are permitted.
  4. Contributions to the trust are limited by a percentage of earned income of the participant, are subject to an annual limit of $50,000 or less to the trust, or are subject to a lifetime limit of $1,000,000 or less to the trust. These contribution limits are determined using the U.S. Treasury Bureau of Fiscal Service foreign currency conversion rate on the last day of the tax year (available at https://www.fiscal.treasury.gov/reports-statements/treasury-reporting-rates-exchange).
  5. Withdrawals, distributions, or payments from the trust are conditioned upon reaching a specified retirement age, disability, or death, or penalties apply to withdrawals, distributions, or payments made before such conditions are met. A trust that otherwise meets this condition, but that allows withdrawals, distributions, or payments for in-service loans or for reasons such as hardship, educational purposes, or the purchase of a primary residence, will be treated as meeting the requirements of this section.
  6. In the case of an employer-maintained trust, the trust (alone or in combination with other trusts offered by the employer) is nondiscriminatory by meeting three tests: (i) the trust is made available to a wide range of employees, including rank-and-file employees; (ii) the trust actually provides significant benefits for a substantial majority of eligible employees; and (iii) the benefits actually provided under the trust to eligible employees are nondiscriminatory.

SIPPs by legal definition meet conditions (1) through (5) above.SIPPs must be factually tested on a case-by-case basis to determine whether they meet the tests of condition (6).

Rev. Proc. 2020-17 is immediately effective, and it applies to all prior open years subject to the limitations of Internal Revenue Code § 6511.

A taxpayer seeks relief from assessed penalties for failure to timely file Form 3520 or Form 3520-A with respect to a SIPP by filing Form 843, Claim for Refund and Request for Abatement.

In sum, Revenue Procedure 2020-17 can relieve the requirement that a U.S. taxpayer information-report a SIPP on Form 3520 or Form 3520-A.But Rev. Proc. 2020-17 does not affect reporting of income from a SIPP on a U.S. income tax return, or U.S. taxation of that income.

Stephen J. Dunn is a tax attorney in Troy, Michigan. He is the author of the treatise Foreign Accounts Compliance (Thomson Reuters 2017) and Foreign Accounts Compliance Blog. He is also an adjunct professor at Michigan State University College of Law.

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A taxpayer seeks relief from assessed penalties for failure to timely file Form 3520 or Form 3520-A with respect to a SIPP by filing Form 843, Claim for Refund and Request for Abatement.
IRS Exempts Many UK SIPPs From Form 3520, Form 3520-A Filing Requirement
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2020-47-05
Thursday, 05 March 2020 12:47 PM
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