Foreign Insurance Accounts PFIC and Form 8621

[Ko234]

Hi,

I am not sure how to determine if a foreign life insurance company is a PFIC. But if it is one because of section 1297(b)(2), I am not sure what to enter for form 8621 based on the annual statement given by the insurance company. The first thing to enter is 'Name of shareholder'. Nothing about the life insurance mentions me directly holding to any shares. So the question is, if a foreign insurance account is somehow a PFIC, which parts and fields of 8621 will be relevant for foreign insurance? What exactly can I fill in based on annual statements given by the insurance company? Thanks.

[SusanY1 · Accepted solution]

If your insurance policy is "unit linked" - meaning that there is an underlying value calculation that is tied to an index of some sort, then it's a PFIC.  It isn't always very easy to tell, but the most common policies that fall under this definition are those from the UK, Singapore, or India from AIA, ICICI, Prudential, and Aviva.    Not all policies issued in those countries or from those insurers are PFICs, and there may be others I've not mentioned which are PFICs. 

If in doubt, report the asset or find a tax professional who specializes in PFIC reporting to assist.  There can be a lot of penalties if this isn't properly reported and as you can see looking at the form it's not always straightforward or the language used may not match, as in the case of "shareholder".  

If you do find that you need to report the insurance on Form 8621 the policy owner and/or the insured would be the "shareholder" - many times those are one in the same but where they differ the contract terms will dictate the individual that is the "shareholder" for purposes of this form. 

Part I would apply and you would be looking for "units" most likely in stead of "shares" to answer these questions.  The default for question 5 is 1291 but you may be eligible to elect mark to market treatment (1296).  Parts II and IV may or may not apply depending on your situation.  

Depending on the nature of the information reported on your annual statements, it is possible that you may need additional information to determine unit values - sometimes this information isn't always easy to obtain.  Some insurers have "supplemental PFIC" information available for the asking or at their websites and others are unable to give you anything more than your annual statement.

Usually, I recommend that everyone filing this form seek professional guidance, at least for the first year, as that is often when certain elections favorable to the taxpayer must be made.  The form isn't user friendly and it's really best completed by someone with specific experience filing the form.  


 

[Ko234]

Hi SusanY1,

Thank you for the quick and great answer. Are you perhaps someone whom I can seek professional guidance from? Is it possible to upgrade the TurboTax payment option from basic to assisted? I have actually filed my 2023 tax, but I realized I would need to amend it because I did not realize that foreign insurances (from AIA, Singapore) are considered foreign accounts. I am currently trying to fill in 8938, 720, FBAR and maybe 8621.

[SusanY1]

TurboTax doesn't support the Form 8621 at all, not even with our assisted return preparation options. 

It's a tricky form with a lot of variables.  

As strange as it sounds, since you've already filed, I'd suggest filing an extension on your tax return so that you will be covered by the rules for "timely" filing these forms should it take you some time to find appropriate assistance near you.  TurboTax is likely to not understand the request to eFile that form after already filing your tax return, so filing by mail is likely the simplest - you can find the form HERE.   It's an automatic extension, so you don't have to wait to hear back from the IRS.

Google can probably assist with finding a qualified professional (we don't have a list to suggest for this) but I'd vet the sources carefully.  I'd also check with any friends or family members that you think may have similar situations to see if they can offer any recommendations as well.  Some experts specialize in only certain types of PFIC reporting (such as only Canadian accounts or only Australian Superannuation), so be sure to ask the ones you are interested in working with if they have specific experience with foreign life insurance, ideally the specific type that you have from the country that issued it.  
 

[helpforyourpc]

Even though TurboTax has never supported the form 8621, in the past it has at least allowed us to Efile the rest of our federal return, while mailing out the 8621. This year's program for tax year 2023, however has us check a box if we need to file 8621, and upon doing so bars us from filing the rest of the return, even with the understanding that we will be mailing out our 8621. Is this a glitch or has something changed in your program for tax year 2023?

Thanks

[SusanY1]

This is an issue that we're aware of with the e-file stop, but do not anticipate an immediate resolution.   

@helpforyourpc