Recently, I blogged about the fact that many US persons living abroad have “foreign” (non-US) life, sickness or accident insurance or a foreign annuity. A mere handful have any knowledge of the complex US tax rules that may apply to these policies. Buzz words include “passive foreign investment company” (PFIC) exposure, Form 114 Bank Secrecy Act reporting (the FBAR), foreign asset information reporting on Form 8938, additional income to report on the tax return, and let’s not forget that a special 1% excise tax is imposed on premiums paid with respect to such a foreign insurance policy.
Department of Justice Action April 25th
Those with foreign life insurance and related policies are now in the crosshairs. The Department of Justice (DOJ) just announced it has reached a non-prosecution agreement (NPA) with Zurich Life Insurance Co. (in both Zurich, Switzerland and the Isle of Man) with respect to foreign life insurance and similar products. Generally, NPAs allow the foreign financial institution to avoid criminal charges in exchange for providing US customer account information and paying a large fine. As part of its NPA, Zurich Life will pay a penalty of US$5,115,000 to the United States.
Sadly, many US taxpayers living abroad may have purchased these products because US life insurance was unavailable to them! Now they are faced with a serious US tax problem as their account information may be on the way to the Internal Revenue Service.
While there are numerous choices available for purchasing life insurance in the United States for individuals who are residents of the US, the situation is not quite as clear for those who are US citizens living abroad. In fact, in many cases, the policy that is in force in the United States may not provide the individual with the same protection that he or she had when residing State-side. This is another reason that Americans abroad turn to the foreign insurance provider.
If you need help sorting out a US tax problem involving foreign life insurance, foreign annuities or similar foreign financial products, email me for assistance.
Posted April 27, 2019
All the US tax information you need, every week –
Just follow me on Twitter @VLJeker (listed in Forbes, Top 100 Must-Follow Tax Twitter Accounts 2017-2019).
Subscribe to Virginia – US Tax Talk to receive my weekly US tax blog posts in your inbox.
Visit my earlier US tax blog “Let’s Talk About US Tax” hosted by AngloInfo since 2011, it contains all my old posts. Some hyperlinks to my blog posts on AngloInfo may have expired. If you copy the expired URL, you can most likely retrieve the actual post by using the “Wayback Machine” which is an archiving service. Simply paste the URL into the Wayback Machine search box. It will show you the archived post was saved on a specific date. Click on that date to retrieve the post.
One thought on “Foreign Life Insurance Policy? Houston, We Have a Problem……”