FBAR Reporting foreign Life insurance pension plan

[kv214756]

I am planning for an investment in a life insurance pension plan. I have some questions about how it affects my FBAR threshold every year and my Tax reporting. I don't have any other investments in a foreign country due to Tax implications and I also report any interest from my foreign bank account in Schedule B. I also make sure all my account's aggregate balance doesn't exceed 10000 to keep it below the threshold. 

Details the policy: In the plan/policy I selected I will be paying an insurance premium (~4000$/year)  for 5 years and the plan will mature in 15 years and start paying pension after that. in the first 5 years where I am paying a premium, there is no cash surrender value because the first 5 years is a lock-in period, and policy cannot be surrendered. I am planning to return to my home country in the next 2-3 years and by the time it reaches the cash surrender value I will be out of the country.

My question is for the next 2-3 years am I supposed to file FBAR and include this life insurance because there is no cash value for 5 years? I understand 8938 has a 100K threshold (MFJ) so not worried about it. 

Thanks

[pk]

@kv214756 ,  from your post should I assume that you are NOT US citizen / Green Cars holder  ( i.e. you and your family are here on work visa  ( H1-B  etc. )?  Because  if not  ( i.e you are US citizen/GreenCard holder ), it would be a bad idea to invest in foreign  life insurance plans  -- because of  possible tax liabilities  ( for example it may be considered as PFIC -- Passive Foreign Investment Corp -- which may subject you to 1% excise tax on notional / unrecognized gains ).  However,  really need to know the country where you are from   because  the Tax Treaty may indeed address this.

Next   since there is no tax effect  on reporting  FBAR, don't understand your desire to not  have to report FBAR.  Also depending on the country you are from, US may already be getting  data on SSN holders  both for FBAR and FATCA  purposes.

Please can you clarify ? 

[kv214756]

@pk Thanks for your response, yes I am from India and working on H1b thanks.

I don't have a problem reporting it in FBAR because it doesn't affect tax but the policy doesn't have a cash surrender value in the first 5 years lock-in period and I don't reach the threshold for reporting without that so not sure what to report or how to handle it. 

Additional details on the policy. Premium paid for first 5 years, cant be surrendered for cash for first 5 years only after 5 years it has cash value, either you can opt to get 60% as lumpsum and continue remaining as monthly pension after 15 years (or) opt for a monthly pension without taking the 60% cash after 15 years maturity period. 

Thanks

Thanks

[pk · Accepted solution]

@kv214756 , since

 (a) there is no mention of life insurance  in the US-India tax treaty;

(b) you  do not plan to be in the USA after the  "zero value " period;

(c) your longer term  plan is to be a resident of  the country where the Insurance  is effective ( i.e. it is an Indian entity, the offerings/ conditions are under Indian laws and US has no jurisdiction  over the offering under US-India Tax treaty;

(d) the benefit period(s) is beyond the scope of the current H-1 visa;

I see no reason why you should not expect ZERO tax consequences  vis-a-vis US tax laws .  It is purely an Indian Tax Law situation and consequence, even if you happen to come back to the USA because the contributions  are  either  after tax US sourced income or from foreign sources  under that foreign country laws.  That is my opinion based on my understanding of the laws, treaty and  scenario as described  by you.

As far as FBAR reporting , it is based on  valuation of liquid asset at the end of the year or during the  year.  Thus  if you have contributed US$ 4000 into a foreign account  that has  ZERO  return value I.e it is not only not liquid ( transferable value ) but actually ZERO  claim value ( i.e. on the entity's books it is zero till a certain date ), for FBAR purposes it is ZERO.   On the other hand  recognizing  the contribution i.e. a US$ 4000 sitting in foreign account has no tax consequence and probably advisable.  Again this is my opinion.

Is there more I can do or you ?

Namaste

pk