US Tax return- Corporate DC (確定拠出年金)

[ilasan]

Hello,

I was wondering if any US Expats has been in a similar situation and could help me figure out how to declare my taxes properly.
So my company in Japan has a Corporate DC (確定拠出年金), which I am already part of (I wish I knew better).
I have an account number (加入者口座番号)　under my name to administer the money, but the contract with the financial company is made by my company.

Do I have to declare this account at my FBAR?
Do I have to declare the returns as well? How does it work?

I would be very happy to receive any information.

Thank you!

[captainspoke]

I don't know, sorry, but you might sign up to reddit and ask at:

https://www.reddit.com/r/JapanFinance/ (some very knowledgable people)

or maybe:

https://www.reddit.com/r/USExpatTaxes/

[ilasan]

Captainspoke
Thank you for the recommendation! I’ll definitely check that out

[Teflon]

If your corporate DC plan is > 50% employer contribution then it's considered an "employees' trust" by the IRS and doesn't need to be reported on your taxes or FBAR or anything else. You only report it as income once you start receiving distributions at retirement. In addition, PFIC Rules do NOT apply due to the "opaque doctrine" for employees’ trusts. See IRS regulation 1.1298-1T(b)(3)(ii).

Essentially, if the DC plan is > 50% employer contribution the IRS considers it to be an asset of the employer, not the employee. That is true even if you have some degree of control over where to invest the contributions. As far as I know, this is the only way to invest in mutual funds in a foreign country without being subjected to PFIC rules.

On the other hand, if your corporate DC plan is > 50% employee contribution then it's considered a "foreign grantor trust" and is subject to all kinds of reporting requirements including PFIC. In that sense, the IRS would treat it the same as an iDeCo plan and the same reporting rules would apply.

That is my understanding of the tax rules and standard disclaimers apply. I am not an accountant or a tax expert. Everyone's situation is unique and you should seek the help of a qualified professional.

[ilasan]

Thank you Teflon!

I guess I’ll be seeking professional advice as I’m not sure what kind of plan is it.

[adamu]

As far as I know, this is the only way to invest in mutual funds in a foreign country without being subjected to PFIC rules.

I'm not American, but this is the first time I've heard of this. Do you know where the 50% rule comes from? I found a guide and a flowchart below, but it doesn't mention the 50% rule (that I could find).

In fact, it only mentions that the fund had to be a pension fund, which makes me wonder if iDeCo would work too?
Although it seems extremely complicated and that's probably wishful thinking / misunderstanding on my part.

https://www.irs.gov/irb/2017-04_IRB
https://www.tax-charts.com/charts/1298-1T.pdf

[Teflon]

As far as I know, this is the only way to invest in mutual funds in a foreign country without being subjected to PFIC rules.

I'm not American, but this is the first time I've heard of this. Do you know where the 50% rule comes from? I found a guide and a flowchart below, but it doesn't mention the 50% rule (that I could find).

In fact, it only mentions that the fund had to be a pension fund, which makes me wonder if iDeCo would work too?
Although it seems extremely complicated and that's probably wishful thinking / misunderstanding on my part.

https://www.irs.gov/irb/2017-04_IRB
https://www.tax-charts.com/charts/1298-1T.pdf

Wow that is one heck of a complicated chart! Forgive me for not following it.

It's actually really hard to find sources of information on the reporting requirements for foreign pensions defined as "employees' trusts". This is apparently a very niche type of trust. I just happened to stumble across it while googling the reporting requirements for my own corporate DC plan about a year ago and made a note of some urls. This one seems to be the most clear and authoritative: https://www.pointsquaretax.com/wp-content/uploads/2015/07/Special-Tax-Issues-for-Expatriate-Americans.pdf

Specifically, the relevant pages are 21, 22, and 23, which I can easily copy paste here:

Page 21:

Employee Trusts: The “Opaque Doctrine”
• PFIC attribution suspended for employee trusts (Reg. § 1.641(a)-0)
• Resultantly, U.S. beneficiaries not considered owners of the underlying assets thereby relieving them from filing Forms 8621, 8938, FBARs etc.
• This leads us to the question: “What is an employee trust?” (Which in turn necessitates discussing what are grantor, nongrantor and hybrid trusts.)
Credit: Andrew Mitchell, Esq. – Andrew Mitchell, LLC

Page 22:

Trusts in the Foreign Pension Context
• Most foreign pensions are classified as trusts under U.S. law
• Specific classification will depend on a given pension’s unique financial and legal terms
• Grantor trusts: Donor is the beneficiary (fiscally transparent entity)
• Nongrantor trusts: Degree of separation is the determining factor
• Employee trusts: The law refers to employee trusts but provides no definition of such. Nongrantor trust in which the employer maintains a high degree of control.

Page 23:

Employee trusts are conceptualized by reference to § 402(b). Likely an employee trust if/when the trust is:
• Created by the employer for the benefit of the employee
• Administered by the employer on behalf of the employee
• Over 50% funded by the employer for the benefit of the employee
Hybrid employee trusts
• Bifurcation requirement in the event that the employee’s contributions exceed those of the employer (Reg. § 1.402(b)-1(b)(6)).
• Opaque doctrine inapplicable to the portion of the trust treated as a grantor trust.

I tried to make the most relevant content bold but it doesn't look very bold to me. Oh well. Here is another url that mentions foreign pensions defined as "employees' trusts": https://www.taxsamaritan.com/tax-preparation-services/expatriate-tax-services/u-s-tax-treatment-of-a-foreign-pension/ (search for the heading: Employees’ Trust and U.S. Taxation )

Based on these sources, it seems that iDeCo and other so-called "foreign grantor trusts" do not meet the requirements for non-reporting of PFICs.

[adamu]

Thanks. I'm not going to pretend to understand that, but it seems like useful information so I added a link to this discussion from https://retirewiki.jp/wiki/United_States.

[Teflon]

Thanks. I'm not going to pretend to understand that, but it seems like useful information so I added a link to this discussion from https://retirewiki.jp/wiki/United_States.

Nice! I'm glad if it can help other people navigate the PFIC minefield. Thanks for adding it to your wiki.