Hi PK, not sure what happened but I had written a lengthy response last week. Anyways, here is my response to your questions. All of this is coming from your explanations, and then I also read IRS documents and other online articles from Golding & Golding (and some others). At this point, I just want to do the forms on my taxes and finish as deadline is 4-15 and I owe taxes from some other income. So to err on the side of caution, please just let me know which forms I should file (and be Complient) and in the process pay any taxes if needed.
1- Form 720- IRS says a policy holder (Foreign life ins) should pay 1% excise on premiums paid to foreign companies like I have policy with. Line 30 on this form has a section for tax on foreign life policy payment. IRS says as a US person, it is my responsibility. More is explained on their instructions. Other articles have said the same. So, I am so confused as to do I have to fill and report and pay this tax OR not? Hope you can assist further & clarify. In this form- you have to report quarterly and pay taxes twice a year I think. But since I was not aware of this form until recently, I did not do anything. But my annual premium was paid last year (April 2024) so what can I do on this form to meet that requirement for last year?
2-Form 8938- Thanks for the comparison link from IRS. I know I do not meet the threshold since total values of the policy so far (and even totals for all bank accounts together) my married filing jointly status is much lower than requirement to file. So, I guess I am good with this one.
3- FBAR form 114- I file this form every year because I have some small value bank acct in India. So I am familiar as to how to do it. But for a foreign life policy this year, what value should I be stating on this form? Is it is total value (at year end) of investment? Or a surrender value that the policy states how to calculate? I do not have other income or distribution or dividends etc. It is just the growth value in the invested funds of the ULIP policy. Just FYI- for 2024- total value of the policy with this growth is most likely more than the premium I paid and perhaps even more than surrender value that policy gives the formula to calculate. Any clarification on this would be deeply appreciated.
4- Form 8621- I also read that this form is necessary for PFIC declaration. I read IRS direction (and other articles) and looks like I do not meet the threshold to file this for total value policy has for shares in the funds that policy has invested in. But because there is conflicting info online, so to possibly meet PFIC requirements if any, it was also suggested, to err on the side of caution, file the top portion of the form 8621 only for each fund in the policy (policy has invested in 2 funds) and file. There is no tax due for this. So, can you please assist in clarifying as to how to file and submit it with my tax return? Also, should I do MTM method, if necessary (this is also confusing for me) even I am not sure is tax has to be paid on the growth of the funds which grew in value within the policy by year end, but I did not sell them or received anything from the funds or the policy.
So far this is what I think I may need for taxes this year. And because I have to pay premium now next month for year 2 of the policy, it would help me to follow my obligation from start of the year. Thanks in advance.
