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Taxation of Foreign Pensions: Application of IRC 402(b) and Avoiding Penalties for Noncompliance

Tax Rules Governing Foreign Pension Accounts, Foreign vs. U.S. Qualified Plans, Use of Tax Treaties, IRS Examinations

Recording of a 90-minute premium CLE/CPE video webinar with Q&A

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Conducted on Thursday, October 28, 2021

Recorded event now available

or call 1-800-926-7926

This CLE/CPE course will provide tax counsel and ERISA attorneys a detailed analysis of the tax rules governing foreign pension accounts, with a specific focus on avoiding penalties for noncompliance. The webinar will go beyond the basics to offer useful practice pointers on the application of IRC 402(b) to foreign pensions and annuities, the difference between foreign and U.S. qualified plans, the IRS approaches to foreign pensions during examinations, and tips to prevent potentially costly tax penalties and sanctions.


The IRS' treatment of foreign pensions held by U.S. taxpayers presents attorneys and advisers with significant compliance challenges. To ensure compliance, attorneys and advisers must fully understand IRC 402(b)'s application to foreign pensions and annuities.

Most foreign retirement account plans are not considered "qualified plans" under IRC 401(a), which means the accounts generally do not qualify for tax-deferral treatment; instead, these accounts are governed by Section 402(b) as a foreign trust. Depending on the IRS application of 402(b), employees holding foreign retirement accounts (and their beneficiaries) may receive harsher tax treatment than that of other non-tax-favored deferred compensation arrangements.

Tax advisers must thoroughly understand the IRS rules on reporting foreign retirement accounts and how the Service may approach compliance examinations. With penalties for failure to file Form 3520-A set at a minimum of $10,000 per year, the consequences of a missed or incorrect filing are costly.

Listen as our panel offers practice pointers on the IRS approaches to foreign pensions during examinations.



  1. Information reporting and classification of foreign pensions, annuities, and social security
  2. Differentiation between foreign plans and "U.S. qualified plans"
  3. Section 402(b) provisions and treatment
  4. Grantor trust treatment
  5. Tax treaty applicability
  6. Identifying and remedying misreporting


The panel will review these and other tactical issues:

  • Understanding the IRS' position and tests for grantor vs. employee trusts
  • The IRS' 402(b) focus and when bifurcation is appropriate
  • Foreign pensions of highly compensated employees
  • Form 3520-A: when is it required along with Forms 3520, FBAR, and 8938; penalty mitigation strategies
  • The treatment of PFICs inside a foreign pension
  • Using tax treaties to limit potential liability
  • Whether or not to use a disclosure program to correct past misreporting


Hanson, Robert
Robert V. Hanson, Esq.

Tax Manager
Moore Doeren Mayhew

Mr. Hanson’s practice focuses on individuals and organizations with offshore assets and international tax...  |  Read More

Klein, James
James P. Klein

Senior Counsel
Pillsbury Winthrop Shaw Pittman

Mr. Klein focuses his practice in the areas of executive compensation and benefits, and tax. He has broad experience...  |  Read More

Cassidy, Jim
James (Jim) Cassidy, CPA

International Advisor
Schulman Lobel

Mr. Cassidy is a Certified Public Accountant (New York) with more than 30 years of experience providing U.S. and...  |  Read More

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