Canadian RRSPs, RRIFs and Other Foreign Funded Retirement Plans: Tax Planning and Reporting for 402(b) and Other Funded Plans

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1 Canadian RRSPs, RRIFs and Other Foreign Funded Retirement Plans: Tax Planning and Reporting for 402(b) and Other Funded Plans TUESDAY, MAY 1, 2018, 1:00-2:50 pm Eastern IMPORTANT INFORMATION FOR THE LIVE PROGRAM This program is approved for 2 CPE credit hours. To earn credit you must: Participate in the program on your own computer connection (no sharing) if you need to register additional people, please call customer service at ext.1 (or ext. 1). Strafford accepts American Express, Visa, MasterCard, Discover. Listen on-line via your computer speakers. Respond to five prompts during the program plus a single verification code. To earn full credit, you must remain connected for the entire program. FOR LIVE PROGRAM ONLY WHO TO CONTACT DURING THE LIVE EVENT For Additional Registrations: -Call Strafford Customer Service x1 (or x1) For Assistance During the Live Program: -On the web, use the chat box at the bottom left of the screen If you get disconnected during the program, you can simply log in using your original instructions and PIN.

2 Private Letter Ruling , 9/18/2015, IRC Sec(s) UIL Entity classifications qualification as trust. Headnote: Foreign entity created to provide superannuation benefits to its members and their beneficiaries was classified as trust for tax purposes under Reg (a). Reference(s): Code Sec. 7701; Full Text: Number: Release Date: 9/18/2015 Index Number: Third Party Communication: ne Date of Communication: t Applicable Person To Contact: [Redacted Text] [Redacted Text], ID. Telephone Number: [Redacted Text] Refer Reply To: CC:PSI:B01 PLR Date: June 11, 2015 Legend X = Country = Act A = Act B = Act C = Act D =

3 Act E = Act F = Body A = Body B = Body C = Body D = Y = n= Dear [Redacted Text]: This responds to a letter dated June 16, 2014, and subsequent correspondence, submitted on behalf of X, requesting a ruling that X is classified as a trust for federal income tax purposes under of the Procedure and Administration Regulations of the Internal Revenue Code. FACTS The information submitted states that X was established under Act A and is treated as a trust under the laws of Country. X was created to provide superannuation benefits to members of X in Country. X is governed primarily by Act A, Act B, Act C, Act D, Act E, and Act F. X is regulated by several government bodies, including Body A, Body B, Body C, and Body D. X is managed by Y, which is made up of n trustees. The organizing documents of X provide that the sole purpose of X is to provide superannuation benefits to members of X and their beneficiaries. X derives its funds from a combination of employer contributions, employee contributions, and income from investments. Under the provisions of the organizing documents, Y is obligated to manage the funds of X responsibly in order to protect and conserve the superannuation fund. Y must also provide annually a statement setting forth information of X as required by law. X is subject to annual audit by an approved auditor appointed by Y. The members of X cannot unilaterally assign or transfer their benefits under X to another person. LAW AND ANALYSIS

4 Section (b) provides that the classification of organizations that are recognized as separate entities is determined under , , and unless a provision of the Code provides for special treatment of that organization. Section (a) provides that, in general, an arrangement will be treated as a trust if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and, therefore, are not associates in joint enterprise for the conduct of business for profit. If an entity has both associates and a business purpose, it cannot be classified as a trust for federal income tax purposes. CONCLUSION Based solely on facts submitted and representations made, we conclude that X is classified as a trust for federal income tax purposes under (a). Except as expressly provided herein, no opinion is expressed or implied concerning the federal income tax consequences of the facts above under any other provision of the Code. Specifically, we make no determination concerning whether X or its beneficiaries are entitled to any benefits under the Code or under the income tax treaty entered into by Country and the United States concerning income derived from the United States. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representatives. Sincerely, Faith P. Colson Faith P. Colson Senior Counsel, Branch 1 (Passthroughs & Special Industries) Enclosures (2) Copy of this letter Copy for 6110 purposes cc: {Redacted Text] END OF DOCUMENT Thomson Reuters/Tax & Accounting. All Rights Reserved.

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6 Types of Foreign Assets and Whether They are Reportable Form 8938, Statement of FinCEN Form 114, Report of Specified Foreign Financial Foreign Bank and Financial Assets Accounts (FBAR) Who Must File? Does the United States include U.S. territories? Reporting Threshold (Total Value of Assets) Specified individuals, which include U.S citizens, resident aliens, and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold Yes, resident aliens of U.S territories and U.S. territory entities are subject to FBAR reporting Taxpayers living in the US: Aggregate value of financial Unmarried taxpayer (or married accounts exceeds $10,000 at any filing separately): Total value of time during the calendar year. assets was more than $50,000 This is a cumulative balance, on the last day of the tax year, meaning if you have a combined or more than $75,000 at any account balance of $10,000 at any time during the year. one time (but divided between 2 Married taxpayer filing jointly: accounts), both accounts would Total value of assets was more have to be reported. than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year. Taxpayers living outside the US: Unmarried taxpayer (or married filing separately): Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year. Married taxpayer filing jointly: Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year.

7 Types of Foreign Assets and Whether They are Reportable Form 8938, Statement of FinCEN Form 114, Report of Specified Foreign Financial Foreign Bank and Financial Assets Accounts (FBAR) What is Reported? How are maximum account or asset values determined and reported? When Due? Where to File? Penalties Maximum value of specified foreign financial assets, which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets Fair market value in U.S. dollars in accord with the Form 8938 instructions for each account and asset reported Convert to U.S. dollars using the end of the taxable year exchange rate and report in U.S. dollars. Form is attached to your annual return and due on the date of that return, including any applicable extensions File with income tax return pursuant to instructions for filing the return. Form 8938 and Instructions can be found at direct communication with the financial institution maintaining the account. See instructions for further details Maximum value of financial accounts maintained by a financial institution physically located in a foreign country Use periodic account statements to determine the maximum value in the currency of the account. Convert to U.S. dollars using the end of the calendar year exchange rate and report in U.S. dollars. Received by June 30 (no extensions of time granted) File electronically through FinCENs BSA E-Filing System. The FBAR is not filed with a federal tax return. Up to $10,000 for failure to If non-willful, up to $10,000; if disclose and an additional willful, up to the greater of $10,000 for each 30 days of nonfiling after IRS notice of a failure to balances; criminal penalties may $100,000 or 50 percent of account disclose, for a potential maximum also apply penalty of $60,000; criminal penalties may also apply

8 Financial (deposit and custodial) accounts held at foreign financial institutions Financial account held at a foreign branch of a U.S. financial institution Financial account held at a U.S. branch of a foreign financial institution Foreign financial account for which you have signature authority Foreign stock or securities held in a financial account at a foreign financial institution Types of Foreign Assets and Whether They are Reportable Form 8938, Statement of FinCEN Form 114, Report of Specified Foreign Financial Foreign Bank and Financial Assets Accounts (FBAR) Yes, unless you otherwise have an interest in the account as described above The account itself is subject to reporting, but the contents of the account do not have to be separately reported Yes Yes Foreign stock or securities not Yes held in a financial account Foreign partnership interests Yes Indirect interests in foreign financial assets through an entity Yes, subject to exceptions The account itself is subject to reporting, but the contents of the account do not have to be separately reported Yes, if sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in the entity. See instructions for further detail. Foreign mutual funds Yes Yes Domestic mutual fund investing in foreign stocks and securities Foreign accounts and foreign Yes, as to both foreign accounts Yes, as to foreign accounts non-account investment assets and foreign non-account held by foreign or domestic investment assets grantor trust for which you are the grantor Foreign-issued life insurance or Yes Yes annuity contract with a cashvalue Foreign hedge funds and foreign private equity funds Yes Foreign real estate held directly Foreign real estate held through a foreign entity, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate Foreign currency held directly Precious Metals held directly Personal property, held directly, such as art, antiques, jewelry, cars and other collectibles Social Security - type program benefits provided by a foreign government

9 Types of Foreign Assets and Whether They are Reportable Form 8938, Statement of FinCEN Form 114, Report of Specified Foreign Financial Foreign Bank and Financial Assets Accounts (FBAR) Other Considerations: (1) Consider whether plan constitutes a PFIC or invests in PFICs. If so, Form 8621 may need to be filed. (2) Does the beneficiary have a >50% interest in a trust that holds the retirement / pension account. If so, Forms 3520 and 3520-A filing may be required (3) Does the investment constitute a CFC? If so, Form 5471 filing may be required.

10 INFO Other FOIA (Freedom of Information Act) Documents (RIA) INFO UIL , Headnote: Reference(s): FULL TEXT: October 31, 2011 Number: Release Date: 12/30/2011 CC:INTL:B01 GENIN UIL: , Reference: Request for information concerning the U.S. income tax treaties with Malta and the United Kingdom Dear [Redacted Text]: This letter responds to your recent request for information concerning the application of the U.S.-Malta income tax treaty (the Malta Treaty) 1 and the U.S.-U.K. income tax treaty (the U.K. Treaty) 2 to certain transfers between

11 pension funds. Transfers from one Malta pension fund to another Malta pension fund Article 18 (Pension Funds) of the Malta Treaty provides that Where an individual who is a resident of one of the States is a member or beneficiary of, or participant in, a pension fund that is a resident of the other State, income earned by the pension fund may be taxed as income of that individual only when, and, subject to the provisions of paragraph 1 of Article 17 (Pensions, Social Security, Annuities, Alimony, and Child Support), to the extent that, it is paid to, or for the benefit of, that individual from the pension fund (and not transferred to another pension fund in that other State). Paragraph 1(k) of Article 3 (General Definitions) of the Malta Treaty defines a "pension fund" for purposes of the Malta Treaty as any person established in a Contracting State that is: i) in the case of pension funds established in the United States, generally exempt from income taxation, and in the case of pension funds established in Malta, a licensed fund or scheme subject to tax only on income derived from immovable property situated in Malta; and ii) operated principally either: A) to administer or provide pension or retirement benefits; or B) to earn income for the benefit of one or more persons meeting the requirements of subparagraph i) and clause A) of this subparagraph. If an individual is a resident of the United States under Article 4 (Resident) of the Malta Treaty and a member or beneficiary of, or participant in, a pension fund established in Malta, then a transfer of income earned by that pension fund to another pension fund established in Malta would not be taxed currently as income of the individual provided that each pension fund qualifies as a " pension fund" within the meaning of Article 3(1)(k) of the Malta Treaty. Transfers from a U.K. pension scheme to a third-country pension scheme

12 Paragraph 1 of Article 18 ( Pension Schemes) of the U.K. Treaty provides that: Where an individual who is a resident of a Contracting State is a member or beneficiary of, or participant in, a pension scheme established in the other Contracting State, income earned by the pension scheme may be taxed as income of that individual only when, and, subject to paragraphs 1 and 2 of Article 17 ( Pensions, Social Security, Annuities, Alimony, and Child Support) of this Convention, to the extent that, it is paid to, or for the benefit of, that individual from the pension scheme (and not transferred to another pension scheme). Paragraph 1(o) of Article 3 (General Definitions) of the U.K. Treaty defines the term " pension scheme" as: [A]ny plan, scheme, fund, trust or other arrangement established in a Contracting State which is: (i) generally exempt from income taxation in that State; and (ii) operated principally to administer or provide pension or retirement benefits or to earn income for the benefit of one or more such arrangements. (Emphasis added). If an individual is a resident of the United States under Article 4 (Residence) of the U.K. Treaty and a member or beneficiary of, or participant in, a pension scheme established in the United Kingdom, then a transfer of income earned by that pension scheme to another pension scheme established in the United Kingdom would not be taxed currently as income of the individual provided that each pension scheme qualifies as a " pension scheme" within the meaning of Article 3(1)(o) of the U.K. Treaty. However, a pension scheme established in a third country, e.g., Malta, would not be a pension scheme within the meaning of Article 3(1)(o) of the U.K. treaty because it is not established in one of the two Contracting States (the United Kingdom and the United States).Therefore, if the transfer were to a pension scheme established in a third country, instead of to another pension scheme established in the United Kingdom, the transfer could be treated as a distribution that would be subject to taxation as income of the individual under paragraphs 1 and 2 of Article 17 of the U.K. Treaty.

13 Effect of U.S. citizenship or "green card" holder status U.S. citizens and lawful permanent residents ("green card holders") are generally subject to U.S. income tax on their worldwide income without regard to where they reside. If a U.S. citizen or green card holder is a resident of the United States under the residence article of either the U.K. Treaty or the Malta Treaty, as the case may be, at the time of a transfer from one pension scheme to another pension scheme, then the rules described above apply. If, however, the U.S. citizen or green card holder is not a resident of the United States under the residence article of the applicable treaty at the time of the transfer, then Article 18 of the Malta Treaty or Article 18(1) of the U.K. Treaty would not apply. Information reporting with respect to foreign pension schemes Section 6048 of the Internal Revenue Code generally requires U.S. persons who make transfers to or receive distributions from foreign trusts to report certain information on Form 3520 (Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts). U.S. persons who are treated as owners of foreign trusts under the grantor trust rules ( ) also are required to file Form 3520 and to ensure that the foreign trust files Form 3520-A (Annual Information Return of Foreign Trust With a US Owner). As a general rule, these reporting requirements apply to any foreign pension scheme that is classified as a trust for U.S. tax purposes. This letter has called your attention to certain general principles of the law. It is intended for informational purposes only and does not constitute a ruling. See Rev. Proc , 2.04, IRB 7 (Jan. 3, 2011). If you have any additional questions, please contact [Redacted Text] at ([Redacted Text])[Redacted Text]. Sincerely, By: M Grace Fleeman Senior Technical Reviewer, Branch 1 (International)

14 1 Convention Between the Government of the United States of America and the Government of Malta for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed at Valletta, August 8, Convention Between the Government of the United States of America and the Government of the United Kingdom of Great Britain and rthern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains, signed at London, July 24, 2001, as amended by Protocol, signed at Washington, July 19, Thomson Reuters/Tax & Accounting. All Rights Reserved.