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is foreign life insurance growth taxable?

Forum|Forum|3 years ago
July 24, 2022
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I have a foreign life insurance policy inforce, paid premium annually, not distributed and the numbers are growing every year.

questions:

1) is this growth (gain) in the value taxable?

2) how do I categorize it as income (i don't receive anything), interest or dividend?

3) how to determine the number: this years surrender value minus last year surrender value as "gain"?

thanks for help

Best answer by pk12_2

@dsyhome0510 , please this link -- it covers reporting requirements of financial assets for FBAR (FINCEN form 114) and FATCA ( form 8938)-->https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements

1. there is no tax implications for reporting the assets -- this is not income, even if the value is going up from year to year. Only when you take a distribution then there will/ may be a tax consequence. Note that foreign insurance companies are not considered "regulated / qualified", although I would think unless you had this before you became a US person, a company like AIA is probably quite familiar with FBAR / FATCA requirments

2. Even if you have missed filing the form 114 before, don't worry just go ahead and visit www.Fincen.gov, and look for reporting FBAR and it will take you to BSA-efile -- you enter your details there and most of the time it allows for filing missing reports. If not do it for at least 2020 and 2021 and then hold still. If there is questions, just tell them the facts -- that you were unaware of if this had to be reported. Do this ASAP. see --https://bsaefiling.fincen.treas.gov/Benefits.html and the button "File FBAR"

3. currently you do not meet the requirements of having to file form 8938 -- this is filed with your yearly return.

is there more I can do for you ?

pk

P

pk12_2

Employee

@dsyhome0510 , very generally, this is not income and generally not taxable till distribution. This is not generally a qualified plan. However, because this is foreign account "worth " something, it comes under FBAR and possible FATCA ----- you should file the FBAR form at least if the value ( cash) is => than US$10,000.

I would also hasten to add, the actual treatment may be different based on the country where it is and whether you are a US person ( citizen/GreenCard / Resident for tax purposes ).

pk

D

dsyhome0510Author

PK:

thanks for reply.

I am a US person for tax purpose. The insurance company is AIA Singapore, seems not treaty exempted. Value is about $70k so I do need to report to FBAR.

The worst thing is, since I failed report it before, now I have to go with FBAR Streamlined process, and it does require 3-years 1040X including the accounts in question. Then a nature question will be in the amend return, is the yearly gain in this new account taxable and reflected in the 1040X?

thank you

P

pk12_2Answer

Employee

@dsyhome0510 , please this link -- it covers reporting requirements of financial assets for FBAR (FINCEN form 114) and FATCA ( form 8938)-->https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements

1. there is no tax implications for reporting the assets -- this is not income, even if the value is going up from year to year. Only when you take a distribution then there will/ may be a tax consequence. Note that foreign insurance companies are not considered "regulated / qualified", although I would think unless you had this before you became a US person, a company like AIA is probably quite familiar with FBAR / FATCA requirments

2. Even if you have missed filing the form 114 before, don't worry just go ahead and visit www.Fincen.gov, and look for reporting FBAR and it will take you to BSA-efile -- you enter your details there and most of the time it allows for filing missing reports. If not do it for at least 2020 and 2021 and then hold still. If there is questions, just tell them the facts -- that you were unaware of if this had to be reported. Do this ASAP. see --https://bsaefiling.fincen.treas.gov/Benefits.html and the button "File FBAR"

3. currently you do not meet the requirements of having to file form 8938 -- this is filed with your yearly return.

is there more I can do for you ?

pk