When withdraw CPF how to report? which form?

[craftindo]

I have a Central provident fund from singapore (foreign pension plan), and when I became a US person several years ago, say it was $1000usd. After several years, it is NOW $2000usd and I withdraw it in 2024.

Every year increment, I always paid tax (although  never take it out).

So, the questions is

1. when reporting in 3520 + 3520A, i put the amount of withdrawal is $2000usd. But, the actual taxable portion is only $1000usd. Where shall i indicate that the taxable portion is only $1000usd?

2. other than 3520, 3520A, FBAR, 8938, what form to indicate the withdrawal and define which portion is taxable.?

thanks

[DaveF1006]

It depends. The 3520 form is informational only and does not have any taxable implications. Here you would report the full amount of $2000. 

Since the extra $1000 is taxable interest earned on the original principal, this is the amount you will report on your tax return. Report this as such.

1. Open TurboTax: Start by opening your TurboTax software and signing in to your account.
2. Navigate to Income Section: Go to the "Federal" section and then click on "Wages & Income."
3. Go to Investments and Savings (1099-B, 1099-INT, 1099-DIV, 1099-K, Crypto) Interest and Dividends if using Turbo Tax Desktop
4. Go to interest 1099 INT
5. When it asks to import information, mention you want to enter a different way
6. Next screen, select interest
7. Next screen indicate you will type this in yourself.
8. Next will ask where you received this from.  Enter provident Bank and record $1000 in Box 1.

[craftindo]

Thanks Dave for the prompt reply.

However, the confusing part is:

If i report $2000 in 3520, but pay tax $1000 in 1099 INT, then isn't this trigger audit?

Because it doesn't match.

1. Where should i explain "only 1000" is taxable?

2. perhaps there is another form?

[DaveF1006]

Yes, there is a possibility that discrepancies between Form 3520 and Form 1099-INT may raise red flags with the IRS. The IRS uses a computer-based Discriminant Information Function (DIF) scoring system to detect inconsistencies and potential audit triggers. If an withdrawal reported on Form 3520 significantly differs from the income reported on Form 1099-INT, it may prompt the IRS to examine your return. 

Within the Turbo Tax program, there isn't a section to report discrepancies between 3520 and amount reported on 1099 INT.  With this in mind, you have several options to report this.

1. Report in the manner that I suggest. If the IRS has a question later, you can explain to them the difference.  Since your total withdrawal amount does not significantly differ from the taxable interest, the likelihood of raising a red flag may be remote.
2. Instead of electronically filing your return, you may print and mail the return along with a detailed statement explaining the difference between the withdrawal reported on the 3520 and the 1099 INT.

Here is a third option you may do that will allow you to file electronically and report the discrepancy. 

1. Log into your account
2. Select Wages and income
3. Less Common income
4. Miscellaneous Income, 1099-A, 1099>start
5. Scroll to the bottom of the page to Other Reportable Income
6. Other taxable income, answer yes
7. Then give a brief description  and the amount listed. In the description, Call it a distribution reported on 3520 and list the full amount of 2000.
8. Once this appears in a summary screen, click on the Add Miscellaneous Income Item. In the description, report this non-taxable amount of distribution and report this as -1000. Then $1000 will be the taxable income that is reported on the 1040. 

This third option still may trigger an examination by the IRS but at least, you are able to offer a brief explanation between the full distribution and the taxable amount of the distribution. In the this option if you, decide to use this, you can be as detailed as possible along there is enough space for your detail.

My suggestion is to report this as taxable interest in my original advice and if the IRS has any questions, you can take action at that time. This would be preferable if you wish to file electronically.  if you are not concerned about filing this electronically, then prepare a detailed explanation if you wish.

[craftindo]

Thanks Dave,

This option 3 seems better.

One last question, this is actually not an interest income.

CPF is a foreign pension that I withdraw.

So, does option 3 here applies to foreign income where it has taxable and non taxable portion?

If yes, please describe where the menu too.

thanks

[DaveF1006]

To clarify, what do you mean where the menu too?  

[craftindo]

The very same way you're detailing every step 1-9 above.

thanks

[DaveF1006]

To clarify, what question do you have about the steps I mention?

@craftindo 

[craftindo]

Example of those:

1. Log into your account
2. Select Wages and income
3. Less Common income
4. Miscellaneous Income, 1099-A, 1099>start
5. Scroll to the bottom of the page to Other Reportable Income
6. Other taxable income, answer yes

[DaveF1006]

To clarify though, what is your specific question regarding the steps I mention? This is the menu path to take to report this income.

[craftindo]

hi Dave,

forget about the menu.

Let's back to the main question:

This option 3 seems better.

One last question, this is actually not an interest income.

CPF is a foreign pension that I withdraw.

So, does option 3 here applies to foreign income where it has taxable and non taxable portion?

[DaveF1006 · Accepted solution]

Yes, i suggested reporting in this manner to account for the taxable and non taxable portions.  in your case however, I would use option 3 and just report the taxable amount in this section rather than reporting the taxable and non-taxable amounts and then offsetting the non-taxable amount.  Since we are dealing with small amounts, i would suggest keeping this reporting simple.