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Tax Law (Questions About Taxes)/Brazil pension fund is it taxable income in U.S?

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Question
Brazil has a pension fund called FGTS and i worked for 5 years in Brazil and my company had to contribute 8% of my pay by law. To this fiund.  I can now withdraw this money from Brazil.  Is it taxable in the eyes of U.S. IRS? I heard not as it is for services while in Brazil but am not sure?
Thanks
Matt

Answer
Dear Matt,

I am answering this question on the premise that you are a US person living in the US. You have not stated any concrete info about your residency and that is why I made such an assumption.

To start answering your question there is an important fact I believe to be worth while putting it out there, the fact is there is no Tax Treaty between the US and Brazil.

Going back to your issue at hand you are getting a distribution from an FGTS (Unemployment Compensation Fund) from now and forward referred to as "fund". Without going in to how you treated your employer's contributions into this fund in the years of contributions and if you properly reported on your 1040 as a PFIC (Passive Foreign Investment Company) or not. Why PFIC, you might ask because your employer plan is not a qualified plan and thus it is a PFIC.

Fast forward into the present; you are getting a distribution from this fund, you have no basis in this fund since your employer made all the contributions on your behalf. The bottom line is that these distributions in their entirety are taxable to you even if you do not get any official distribution slip i.e.(1099-R).

This is in addition to the FBAR filing and FATCA potential filing requirements.

I hope this is clear, if you have any further question or comment, please e-mail me @ itaniabe@aol.com.

Regards,
Abraham Itani, CPA
www.itanitax.com

PS: Please rate my answer.  

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ABRAHAM ITANI, CPA

Expertise

TAX QUESTIONS DOMESTIC AND INTERNATIONAL OUTBOUND AND INBOUND. FBAR COMPLIANCE. CORPORATE, PERSONAL, PARTNERSHIP, PASS TROUGH ENTITIES, S-CORPORATION, LLC, TRUST, GIFT TAX, 1120, 1040, LATE FILING, NON FILING, AMT, FTC.

Experience

MORE THAN 10 YEARS OF STATE AUDIT TAXATION, MORE THAN 10 YEARS OF PRIVATE AND PUBLIC TAX EXPERIENCE WITH ITANI ACCOUNTING AND TAX, KPMG AND MNP. DEALING WITH HIGH NET WEALTH INDIVIDUALS, LARGE PARTNERSHIPS, EXPAT., CFC AND PFIC. DEALING WITH TAXING AUTHORITY ON ISSUES OF NON FILINGS AND LATE FILINGS.

Organizations
MEMBER OF AICPA, AND NJSCPA.

Education/Credentials
CERTIFIED PUBLIC ACCOUNTANT IN NEW JERSEY AND COLORADO.

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