Reporting Pension

[irv68]

I have a client who received pension from Russia.  There are no forms that were provided.  Where on 1040 do I report this so I can e-file.

[Terry53029]

I believe that is tax exempt. Here is a link to our tax treaty with Russia:

https://www.irs.gov/pub/irs-trty/russia.pdf

[itonewbie]

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@Terry53029 wrote:

I believe that is tax exempt. Here is a link to our tax treaty with Russia:

https://www.irs.gov/pub/irs-trty/russia.pdf

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This actually depends on a number of factors:

1. Whether the recipient is a tax resident of Russia at the time of payment;

2. Whether the recipient is a Russian or US citizen or both; and

3. Whether the pension is a private pension, government pension, or social security.

To the extent treaty exemption does not apply, foreign pensions are generally subject to US tax as annuities under §72.  Generally, you will need to look to whether the taxpayer has established any basis over the years and that will entail assessing whether the pension was a §402(b) nonexempt employees' trust or foreign grantor trust, which are taxed differently for US tax purposes.  There are special considerations if the taxpayer was a nonresident at some point in time.

Just to throw a spanner in the works, it is not unusual that clients do not understand the technicalities to comply with the appropriate reporting and filing requirements and may have exposures in terms of trust filing and PFIC.

[me112233]

OK . . . . irv68's actual question was how does one go about getting the foreign pension into the proseries software and onto the 1040 (in a way that doesn't trigger tons of error messages).   Can someone out there address this "how to" question?  I can use the 1099-R input sheet, but without an employer ID number, proseries pitches a fit on the final review.   I can override the field on the tax return (line 4c/4d) where the pensions numbers go, yet that has its own set of issues.

[Just-Lisa-Now- · Accepted solution]

Since there is no withholding and its taxed as ordinary income, couldnt you just add it to Other Income with Foreign Pension as the description?  

[itonewbie]

Foreign pensions are generally taxable and reportable as annuities.

[irv68]

There is no data such as Federal ID to complete form 1099-R. If that information is missing e-file can't be done.  Other income is the only solution

[me112233]

irv68 --  I sort of figured that was the ultimate outcome.  I was hoping that someone knew of a work-around.   

I want to get this reported correctly -- listing the full pension, then showing it is not taxable (as per relevant treaty).   I don't want to deal with it later if the IRS figures out that this guy is living a lifestyle way above what his assets and reported income would otherwise suggest.  I know it would all work out in the end, just a headache to deal with IRS letters.

Thanks for your response.

[me112233]

itonewbie -- Thanks for your input.  I understand the general rule, and that sometimes treaties affect the general rule.  I was looking for the nuts and bolts side of this issue, as in  how to get it into the program (and on to the tax return) in the appropriate manner. 

[itonewbie]

That's not entirely correct.  Not sure about ProSeries but in Lacerte/PTO, you can mark it as a foreign pension and indicate the relevant country, which will allow the return to be e-filed without an EIN for that particular payor.

[me112233]

I can't find a check-box for a foreign pension in proseries.  Not saying it isn't there, just saying I can't find it.

[irv68]

I could not find it either.  

[itonewbie]

Sorry, can't help you there but it wouldn't surprise me that PS doesn't have the entry since PS tends to be more domestically focused.

[itonewbie]

One way to overcome that could be to use the Canada RRP Wks.  That is an input form that is particular to PS and not something that the IRS uses.  What it does is to allow you to bypass the EIN requirement.  Skip over everything that is related to RRSP and RRIF won't trigger any diagnostic.  Neither would the use of this worksheet create any statement that indicates the distribution is from a Canadian pension plan.

Gross and taxable distributions are entered on Line 7a and 7b of the worksheet, respectively.

[BobKamman]

There is an interesting discussion of Russian Social Security at

https://www.castroandco.com/blog/2019/december/u-s-tax-treatment-of-russian-social-individual-I/

The author states:

Code section 6114 requires any person relying on a tax treaty to disclose such position on his or her federal income tax return unless an exception applies. IRS Form 8833 is used to make a disclosure regarding a treaty-based return position. A separate form is required for each treaty-based return position taken by the taxpayer.

[itonewbie]

Disclosure for claiming treaty benefit on pension is specifically exempted under §301.6114-1(c)(1)(iv).

[BobKamman]

It's exempt, but should it be done anyway?  Does it make an audit more or less likely?  I'm wondering what's really going on here.  The average Social Security benefit in Russia is about $225 monthly -- hardly enough to raise suspicions of a lavish lifestyle.  But does the treaty exclusion apply to all pensions?  If so, is that a way to disguise wages, or dividends?  

[itonewbie]

As professionals, you'd hope that each would have done their due d, everything is above board, and all the documentation is in place in case of audit.

[me112233]

itonewbie -- My understanding of the cited statute is that it means Form 8833 (Treaty-Based Return Position Disclosure) need not be completed.   However, I'm not confident that it likewise means that the income need not be reported on line 4c, followed-up with a zero on line 4d. 

I realize that as far as tax consequences go, it is moot issue.  However, in the case I'm working on, the pension is significant (US$40,000).  The pension income might have an impact on eligibility for Medicaid, SCHIP, and/or Obamacare premium discounts (tax credits), as some untaxed income sources (SS, muni bonds, and foreign income) are included in the formula for Modified AGI to determine eligibility for benefits.  (If this pension were received from the US government instead of the of foreign government, it would be taxable income.)

[itonewbie]

@me112233No requirement for treaty disclosure is not equivalent to no requirement for disclosure.  Most of the time, when disclosure or information reporting is exempted under a particular code section, that is only because the information is already reported somewhere else and the exemption is only there to eliminate/alleviate duplicate reporting.  I would still report that the gross distribution on Line 4c as you said.

[BobKamman]

Is this a government pension or Social Security?  The way I read the treaty, the private pension exclusion would apply only to residents of Russia.  But then, I don't do many oligarch returns.  

[itonewbie]

@BobKammanYes, those questions were raised in post #4 above.

[me112233]

Bob -- Each treaty is unique.  In the case I'm working with, the person is receiving a military pension from Australia, and the treaty says that wages or pensions paid for government employment are taxable only in the Country that paid the pension.  (Not to be confused with a pension paid by a private employer in Australia, which has a whole different set of rules.)  I suspect a Russian treaty is different, as is the treaty with France, and so forth.

[me112233]

The Canada RRP worksheet seems to have done the trick.  I mailed the return in back in mid-April, and the IRS still hasn't bothered to process it.  Six months, and they still haven't gotten to it.   I've never seen such a collection of immoral people in my life.  The union scum who "work" at the IRS are playing this virus thing for every possible excuse to not do their **bleep** jobs.   

So, now I'm not looking to e-file the return, and the Canada RRP thing you mentioned is going get me past the e-file problem created when using the pension input form without a Federal ID number for the payer.  

[sjrcpa]

IRS shut down in March. They started reopening in July/August. They have a backlog of 10 million + pieces of mail.

[itonewbie]

@me112233 Article 19 of the DTA is not unconditional.  It depends on whether the taxpayer is an Australian citizen and the article is subject to the Saving Clause depending on whether the recipient is a US citizen or green card holder.

[BobKamman]

200,000 deaths, and IRS employees are "immoral union scum."  I think I know how this guy is going to vote -- if they let him into the polling place without a mask.  

[IRonMaN]

Thanks for the smile Bob -------- of course you wouldn't be able to see it since I do wear a mask.  

[lancermc]

My case is a lump sum withdrawal of University pensions that had been left in Canada for some 25 years, amounting to $1,000,000 roughly. All of the replies help immensely, but this is going to be one of those “sleepless nights”‘transactions until I sort it all out.