@FrenchBaguette ,
see --- > Assurance Vie Taxation: A Guide for US Expats in France and others on the internet.
While I recognize that there is no case law ( that I have found ) as to whether IRS has taken a position on Assurance Vie is a PFIC or a savings vehicle , its regs, distribution etc. makes me uncomfortable to declare this as a savings account ( position taken by TurboTax expert T_minh ).
Examining the outcome /requirements of this is classed as PFIC --- (a) you have to report on form 8621; (b) you have to follow the excess distribution regime; (c) allocate the gains to each holding year ; (d ) be taxed at a higher rate.
What are the rules trying to do --- penalize / discourage non-recognition of offshore holdings of wealth & gain thereof , through Passive investment vehicles outside the ken of IRS.
I think a middle ground for small investors in such vehicles is to recognize un-distributed gains each year of holding and as ordinary income -- a-la dividend / interest. This way the required carry-back of gain at distribution is a non-issue. IRS gets its monies. And the taxpayer can legitimately claim that I looked upon this as savings account and paid taxes on undistributed at marginal rate.
The ;problem with this scenario for US Person with accounts in a foreign land -- Assurance Vie in France for example -- there is no way to use the foreign tax credit . This is because if you have recognized all the un-distributed gain over the years, at final distribution there is no foreign income ( the earnings had already been taxed by US ) and therefore no foreign tax credit.
Does this make sense ?
That is my view.
