Taxing and reporting of Foreign Life insurance ULIP policy of tax return

[thalaivar]

Thank you for the response! That’s what I found out from my research as well. 

[Nkm171964]

Hi PK, you had helped to explain the foreign life policy reporting to me last year. I need your help again. I have tried to get a good accountant, but no one is really knowledgeable about filing and reporting foreign life policy from India. I have to pay taxes this year to IRS so I only have until 4-15.  So please help:

1- Do I need to file form 720 for excise tax(1% of premium? If yes, how do I do one payment for whole 2024? I have read that I needed to pay quarterly and file 720 quarterly, but it is too late for me and I never made any payments yet (total yearly payment may be like $120 which 1% of the premium)?

2-For form 8938- Do I have to file it? I do not have any dividend, interest, distribution or bonus etc. Bajaj Allianz is a no-participating policy.  I do have two funds where premium was invested but value only grew internally by end of the year. 

3- Is turbtax having these forms or I have to download them or there is an online filing I can do like I have to for FBAR 114 for my other bank account?

4- Can I file my taxes normally via Turbotax & any of the other forms separately online?  

Thanks in advance. 

[pk]

@Nkm171964 ,  I could not remember our earlier discussions on the ULIP that you own -- so had to go back and find those first.  Having read the earlier thread, 

(a) I do not understand your reference to "Excise Tax " and  therefore form 720.   Please tell me how  your  owning ULIP based   life insurance  is connected to Excise tax in the USA.  Form 720 is generally ( and I am not really familiar with operations of  excise taxes in general ) used to report and pay taxes collected  on behalf of the IRS.

(b) Form 8938 -- FATCA form -- is an information only form if you meet  the  threshold .  It is filed  along with your  tax return.

(c) FBAR form 114  at  FinCen.gov is an on-line filing only form and again it is required if you meet the threshold  requirement  ( generally due by the tax filing date without regard to any extensions ).

Here is a good comparison of  FBAR and FATCA regs/ requirements --:

Comparison of Form 8938 and FBAR requirements | Internal Revenue Service

 FATCA form  ( 8938) is available  and supported by Turbo Tax.

Please answer  my questions about form 706 -- why you think you need to file one.

I will circle back once I hear from you.  You can indeed  PM  me if you wish.

Namaste ji

[Nkm171964]

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.

[pk]

@Nkm171964 , thank you for bringing this excise tax angle to my attention -- I was not aware of this.   So while I am studying this in more detail -- look at all the relevant  tax code sections and  Rev. Procs   ( will take a bit of time since I know nothing about excise tax ), please see this  page  from the IRS : --->   Exemption from Section 4371 excise tax | Internal Revenue Service.

I will come back on rest of your comments in a few--

 Again thank you  for helping me here on expanding my knowledge band.

pk

[Nkm171964]

Thanks, PK, for exemption link for form 720. I looked at it. So, while India does have a treaty with US, but Bajaj Allianz life insurance is not listed (under letter B) for having closing agreement with IRS. I did find several Allianz corporations under letter A but they are all having address in Europe. So not sure I would be exempt. Perhaps best thing is to pay the 1% (about $120) of premium for 2024 to close the matter on this form. Then I will submit withing deadline for all future years. 

As for other questions, please do let me know what you find out. Thanks so much.

[pk]

@Nkm171964  on your point 4 about form 8621 -- the easiest path here is  to file the form 8621 and choose Mark-To-Market.   I say this because  even though most  participants are small potatoes in the scheme of things  --- 1. it is hard to  get all the details  consistently to support the  other two choices  of "excess distribution " and   QEF etc.

2. Mark-To Market essentially means  this is a deemed sale  each year and matching  to FMV of the shares held .  

Granted this seems  unfair  but  PFICs  rules are draconian and in an effort to discourage  US persons from  shifting incomes elsewhere.  But it is the little guy that gets  crushed  ion the process.

The advantage of this is that since  this MTM -- your basis also changes along the way.  Thus the last bite  may be  more palatable.  The bad part of this is that  while US taxes are reduced  the  bite from India does not move accordingly.  Thus when finally disposed of, there may be large  Foreign Tax, very little  US tax and therefore Foreign Credit may be lost ( because no matter the accumulated / carried forward Foreign Tax Credit, the allowable is no more than the US tax on that foreign income.  It is a lose -lose proposition.

That is my understanding of the situation.

Is there more I can do for you ?

pk

[Nkm171964]

TY PK.

so for 8621, I will file and MTM. And on 1040 return, I should calculate tax due on growth of total value and pay it as additional income? 

now only thing I need to clarify is how do I submit 1040, schedules and 8621 together? TTAx does not support 8621 I believe.

as for 720- Should I go ahead and send separately as has been suggested by some online e advise on 720?  TY