Expatriation form Balance Sheet - Foreign Pensions

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victoriaguy
Posts: 54
Joined: Sun Oct 26, 2014 12:03 am
Location: Victoria, BC, Canada

Expatriation form Balance Sheet - Foreign Pensions

Post by victoriaguy »

Hi there,

I'm trying to fill out my sister's form 8854 balance sheet. As she is retired, she is receiving a small employee pension distribution each month. For the value of the pension, would it be permissible to put the monthly distribution amount, as is permitted on the FBAR?

Thank you!
rlb
Posts: 139
Joined: Thu Feb 17, 2011 8:51 pm
Location: NB, Canada

Post by rlb »

No. The value of the pension is the "Present Value" of the series of payments from now through your sister's life expectancy.

You can ask the pension payor give you this figure. If they won't do that (mine would not), you can use the following procedure to calculate it yourself. It's phrased as being for foreign pensions (because they would not know how to do it to IRS specifications anyway), but you can use it for a domestic pension where the payor will not give the proper calculation. Or if you don't want to bother asking, because the procedure is really easy.

For foreign pensions, the IRS documentation says to discount this back to the present at 7% annual rate of interest (in this case, the higher the discount rate, the lower the amount she has to report). To save you the trouble of researching this, here are the steps I followed. First, Notice 2009-85 (Guide for Expatriates under 877A) says that the present value of a defined benefit plan is determined by Rev. Proc 2004-37. So Google Rev. Proc 2004-37 to print a copy (the quick link to that is http://www.irs.gov/irb/2004-26_IRB/ar08.html ). Go to Table II and look up your sister's present age and find the factor by which to multiply the annual (not monthly) payment amount to get the present value. For example, if she is 63 years old at present, and receives $10,000 per year, the amount to put on form 8854 is 10.48 (the factor in the table) times $10,000 (the annual payment total), giving $104,800 to declare on the form.

Since I was between birthdays on renunciation day, I just did a linear interpolation between my last and next birthdays to get a factor in between the two in the table.
victoriaguy
Posts: 54
Joined: Sun Oct 26, 2014 12:03 am
Location: Victoria, BC, Canada

Post by victoriaguy »

Awesome, thorough response rlb. Thank you so much. I agree with you. Why bother with the pension provider.
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