French Pension

[joelgilb]

Have a client who has dual citizenship here and in France and has been a resident of U.S. for 12 years. Hub is currently collecting a $14K pension from the French government. Been looking at the Treaty and have been trying to determine if they are subject to tax on the French Pension here in the U.S.

Treaty and IRS explanation almost seem to conflict.

Treaty (new 2004 protcol says in part: http://www.ustreas.gov/offices/tax-policy/...eprotocol04.pdf

ARTICLE III Article 18 (Pensions) of the Convention shall be deleted and replaced by the following: “ARTICLE 18 - Pensions

1. Payments under the social security legislation or similar legislation of a Contracting State to a resident of the other Contracting State, and pension distributions and other similar remuneration arising in one of the Contracting States in consideration of past employment paid to a resident of the other contracting State, whether paid periodically or in a lump sum, shall be taxable only in the first-mentioned State. For purposes of this paragraph, pension distributions and other similar remuneration shall be deemed to arise in a Contracting State only if paid by a pension or other retirement arrangement established in that State.

IRS Explanation says in part: http://www.irs.gov/pub/irs-trty/france_te_...ocol_103-32.pdf

Paragraph 2 of Article 18 is an exception to the saving clause of paragraph 2 of Article 29 by virtue of paragraph 3(B ) of Article 29 as revised by this Protocol, but only in the case of individuals who are neither citizens of, nor have immigrant status in, the United States. The term "immigrant status" refers to a person admitted to the United States as a permanent resident under U.S. immigration laws (i.e., holding a "green card"). Accordingly, a U.S. resident (who is not a citizen or a green card holder) who is a beneficiary of a French pension plan will not be subject to tax in the United States on the earnings and accretions of, or the contributions made to, a French exempt pension trust with respect to that U.S. resident.

So it looks like ... well it coudl go either way, but I am leaning to taxing in the U.S.

Any thoughts would be appreciated.

[Lion EA]

Joel, you're our lawyer. If you can't figure this out, none of us can!

[joelgilb]

Not the answer I was looking for. LOL

[kcjenkins]

Have a client who has dual citizenship here and in France and has been a resident of U.S. for 12 years. Hub is currently collecting a $14K pension from the French government. Been looking at the Treaty and have been trying to determine if they are subject to tax on the French Pension here in the U.S.

Any thoughts would be appreciated.

So, does Hubby have a green card? If so, it's taxable, as I read it. If not, then non-taxable in US.

[joelgilb]

Thx KC. That was what I was seeing when I read it too, but sometimes you just want a second opinion, especially when the client doesn't agree with you.

FYI - In this case hub and wife are actually U.S. citizens as well as French citizens (France allows dual citizenship). As I see it that someone with a green card or that is a U.S. citizen would have fall under the same rules though.

Again, thx for the 2nd!

Joel

[joelgilb]

Ok

I have beat this one up over and over because I was having a mental block and just wasn't reading the Treaty properly.

So I reread it (several times), made a new determination (again and again and again - sometimes you just have a mind F_rt). And then to check myself one more time I spoke with a International Law attorney that deals with treaties more often than me, and he agreed.

Not Taxable in the U.S.!

whew

I feel better now

(this client better pay me for this effort!)

[kcjenkins]

So share, Joel !!! What is the basis of it not being taxable, when they are both citizens? Since citizens are taxed on world-wide income?

[joelgilb]

Well to quote the treaty:

"“ARTICLE 18 - Pensions

1. Payments under the social security legislation or similar legislation of a Contracting State to a resident of the other Contracting State, and pension distributions and other similar remuneration arising in one of the Contracting States in consideration of past employment paid to a resident of the other contracting State, whether paid periodically or in a lump sum, shall be taxable only in the first-mentioned State. For purposes of this paragraph, pension distributions and other similar remuneration shall be deemed to arise in a Contracting State only if paid by a

pension or other retirement arrangement established in that State."

and the IRS explanation:

"Paragraph 1 provides for exclusive source country taxation of social security benefits, pension distributions and other similar remuneration paid by a pension or other retirement arrangement established in one Contracting State to a resident of the other Contracting State. The rule applies to both periodic and lump sum payments."

OK, that's some of the worst legalese I have ever seen written. Party of the first part and the party of the 2nd party residing in the location of the 1st.....

But, it means that France and the U.S. have decided to etch out a special exception to the normal rules by ... well... Treaty. No particular rhyme or reason for this and the U.S. has not done this with every country, although I am pretty sure they have done the same with Ireland and who knows what other country.

Guess we just need to watch for this and then go to the IRS site and review the treaties in cases where we see source income from foreign countries. I was just having some trouble following the flow from the language alone and had to basically flow chart it. Should have done that from the start.

Hope that helps KC

and still thx for your input.

Joel

[kcjenkins]

OK, so you are saying that since Paragraph 1 applies, Paragraph 2 does not apply to the pension? Thanks. Had never had it be an issue, but I always appreciate learning something new.

[wildfins]

Not Taxable in the U.S.!

Joel,

Just stumble upon this old thread and would like to know if the said French pension is still to be reported in the 1040 form (line 16) or it does not need to be reported at all? Thanks, Wild.