Annuity Paid To Foreign Citizen

[aboffice]

My client has an Aunt who is a citizen of Mexico and now lives in Mexico. YEARS ago she lived and worked in the US (California) and paid into a retirement. She found out last year Prudential had been trying to find her for years and paid her a huge lump sum of back distributions and started monthly distributions. My client just brought me the 1099-R (s) yesterday and I'm not sure how to file this. I thank you in advance for any guidance! 

[Travis H]

Hello, aboffice! Thanks for reaching out!

For guidance on how to report this 1099-R, we suggest reviewing this article, as it is addresses how to report the commonly employed distribution codes.

Hope this helps!

[aboffice]

I guess I wasn't very clear. It is a code 7 normal distribution and I know how to report that. I guess I should have ask how you file? I'm not sure if they pay tax on it here, in Mexico or both. Thanks

[sjrcpa]

In general, US citizens file Form 1040 and pay US income tax on their worldwide income.

[aboffice]

This is a citizen of Mexico who worked along time ago in the US, paid into a retirement fund and has now retired BACK in Mexico. Never a US citizen.

[sjrcpa]

Thanks. Your opening sentence was not clear about citizenship of which country. I see you have changed it now.

[sjrcpa]

Start with the US Mexico income tax treaty.

Or @itonewbie may know this off the top of his head.

[itonewbie]

@sjrcpaThanks for flagging me.

@abofficeIf your client's aunt is a green card holder, the pension to the extent taxable under normal rules would be subject to US tax and her aunt may claim a credit on the Mexican return for US taxes paid.  Otherwise, the pension is taxable only to Mexico, where she is a tax resident, based on Article 19(1)(a) and (2) but she must submit W8-BEN to claim the treaty exemption.  In the event it should have been treaty exempt but no W8-BEN was filed before the distribution, a 1040-NR may then be filed for a refund claim.