US Citizen receiving pension distribution from foreign country

[SopranoKris]

What is the name of your state (only U.S. law)? Louisiana

My parents lived & worked in the the Cayman Islands for 10 years and are US Citizens. They moved back to the States 2 years ago and now reside in Louisiana. My dad received a pension distribution lump sum from the company he worked for on the island. They only gave him a check. There is no 1099R. We cannot find ANY information on the irs.gov website that answers the question: does he have to claim this on federal & state taxes? If so, how does he claim this with no 1099R? They were tax-exempt when the money was earned because Cayman has no income tax and their income did not exceed the US foreign income exemption.

We're at our wits end trying to figure out what to do. Does it have to be claimed? If so, how? Thanks in advance for any help you might be able to provide!

 

[davew128]

What is the name of your state (only U.S. law)? Louisiana

My parents lived & worked in the the Cayman Islands for 10 years and are US Citizens. They moved back to the States 2 years ago and now reside in Louisiana. My dad received a pension distribution lump sum from the company he worked for on the island. They only gave him a check. There is no 1099R. We cannot find ANY information on the irs.gov website that answers the question: does he have to claim this on federal & state taxes?

Let me give you the short version of Internal Revenue Code Section 1: All income from any source is taxable unless specified otherwise.

If so, how does he claim this with no 1099R?

I assume there is a bank account with deposit records? Or that the company has a phone number?

 

[LdiJ]

What is the name of your state (only U.S. law)? Louisiana

My parents lived & worked in the the Cayman Islands for 10 years and are US Citizens. They moved back to the States 2 years ago and now reside in Louisiana. My dad received a pension distribution lump sum from the company he worked for on the island. They only gave him a check. There is no 1099R. We cannot find ANY information on the irs.gov website that answers the question: does he have to claim this on federal & state taxes? If so, how does he claim this with no 1099R? They were tax-exempt when the money was earned because Cayman has no income tax and their income did not exceed the US foreign income exemption.

We're at our wits end trying to figure out what to do. Does it have to be claimed? If so, how? Thanks in advance for any help you might be able to provide!

It may not be taxable...

Did your parents file for 2555 with their tax returns for the years that they resided in the Caymans? Did the amount of foreign income they claimed on their 2555 also include the money's withheld for the pension? How much of an employer contribution amount (in excess of his gross pay) was there in the amount distributed to your father?

A pension distribution is taxable income unless it was already previously taxed, or already previously excluded as taxable, from income. (excluded rather than deferred).

Pensions contributions in the US are tax deferred, not tax excluded. Since the Caymans have no income tax, there would not be such as thing as a tax deferred pension contribution. Therefore, if the money was included in his gross pay and properly reported on form 2555 during the years in question, it would not be taxable. It would simply be savings that he accumulated while employed in the Caymans.

If it was not included, and/or your parents did not file tax returns including form 2555 for the years in question, then it gets murkier.

Your parents really need a tax professional this year, and one that is experienced in foreign income exclusions.

My guess is that the money is not taxable, but may have needed to be reported, as earned, via form 2555 if it was not previously reported, or needed to be reported on form 2555 on the last tax year that your father was employed in the Caymens. Your parents may need to amend one or more previous returns.

 

[SopranoKris]

LdiJ,

As alway, you are AWESOME! Thank you so much for all your advice

 

[davew128]

Keep in mind that a pension, in its historical form, consists of money from the employer and NOT the employee's contributions. If that is the case (you said pension and not something along the lines of a 401(k)) then it certainly is taxable. You NEED to have someone take a look at it.

 

[LdiJ]

Keep in mind that a pension, in its historical form, consists of money from the employer and NOT the employee's contributions. If that is the case (you said pension and not something along the lines of a 401(k)) then it certainly is taxable. You NEED to have someone take a look at it.

Dave, its still possible that it is not taxable even if it was all employer contributions. However it most likely should have been reported when it was accrued.

Stop thinking in US "terms" on this one.

 

[SopranoKris]

OK, they consulted a tax attorney who has an international specialty. (Hard to find in Louisiana!)

After he reviewed everything, he said that the foreign employer contributions to the pension fund were reported when my folks were living in the Cayman Islands. So, they already claimed it in the US when they filed their US returns during the years they lived there. They do not have to pay taxes on it now.

Thanks again, everyone!

 

[SamfromCayman]

Earnings are taxable

You forgot about earnings. Earnings on EE and ER contributions previously reported as taxable (excluded in this case), are taxable in the year of distribution

 

[Proserpina]

You forgot about earnings. Earnings on EE and ER contributions previously reported as taxable (excluded in this case), are taxable in the year of distribution

Sam, please don't necropost.

Thanks!