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Discussion Starter · #1 ·
Hello

I was born in the States but moved to Switzerland when I was 1. I did move back to the State for school but I've been living back in Switzerland since 2007 now.

I seem to have the same problem as many people do. Didn't know I had to file us tax returns and now I'm trying to get up to date.

The tax returns seems to be pretty straight forward and I should be able to do them... EXCEPT: I have a mutual fund (portfolio) from a bank here in Switzerland and as I've been reading online, they are automatically categorized as PFICs. I've basically had it for almost 15 years, so I didn't realize that this would turn out to be such a big pain in the butt.

So basically that's my problem. I have NO idea how to correctly declare this mutual fund on the 8621 form and I've read that it can take up to 30 hours to fill it out correctly.
If I have a tax expert do it for me it would cost me a fortune and I don't have the knowledge to fill it out myself.

This is really frustrating and I'm close to just giving up my passport. I would really like to resolve this issue without doing so.

Do I have an option that won't cost me a fortune but still lets me be compliant and get this over with?

Any feedback is appreciated.. Thank you
 

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One option to try is to use one of the freebie online tax filing sites that includes form 8621. (TaxAct is the only one I know that doesn't set an income limit for using the freebie software and you can just download the software if you prefer.)

Or you can use one of their low-cost "assisted" plans (without the state return option). It's bound to be cheaper than getting a "tax adviser" to help you. There's usually a questionnaire that should help step you through the forms - and in any event, what you want to do is to make a good-faith effort to give them the information they want. If they have questions, they'll come back and ask.
Cheers,
Bev
 

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Discussion Starter · #3 ·
Thank you for your answer, Bev. I appreciate it!

I will try and see how far I get with TaxAct.

If I can figure this out and do the "Streamlined Process", will I get "in trouble" for having a mutual fund from a foreign bank (I think they ask you this on the questionnaire for the Streamlined Process, if I'm not mistaken). Or is it best to just send in the tax returns without doing the "Streamlined Process"? With my income I'm pretty sure I don't owe any taxes but I guess it would be possible that I owe taxes based on the mutual fund? Am I correct with my assumptions?

sigh.. what a pain.

Thanks again!
 

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If the gains in that fund are below your personal exemption and standard deduction, and you're not exhausting those limits otherwise, you probably won't owe any U.S. income tax.

A couple more things to check:

1. Does the U.S.-Switzerland tax treaty provide any special treatment for this mutual fund account?

2. Going forward, would it make better sense for you to roll this account into a U.S. account and save additionally into that U.S. account?
 

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Discussion Starter · #5 ·
Thank you for your reply BBC

What I want to do is get rid of the mutual fund. It's not like it's making me rich anyway! ;) So going forward I would have less of a hassle. But I'm still stuck if I want to do my back-taxes.

I doubt there is any U.S.-Switzerland tax treaty on this mutual fund. It was created in the 90s and thus they didn't worry about anything like this happening. But to make sure I will try and find out! It's worth a try.

I'm pretty sure that the gains are below my personal exemption but also I'm not sure how this PFIC form and subsequent taxation work... so maybe not?

Do I basically have to know every stock in this mutual fund and list it?

Thank you!
 

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The U.S.-Switzerland tax treaty also dates to the 1990s. Aren't you lucky? Take a look. For example, if the account is something Switzerland recognizes as a retirement or pension account of some sort, it may be treaty protected. Do note also that you may have foreign tax credits on that account.

If you don't get any treaty help, usually what you do is take QEF elections on those gains (via "deemed sale"). It can be complicated, yes, that's why Bev recommended letting TaxAct (which is free) do the work as much as possible.

I found this PFIC calculation example if you want to get an idea what happens in these situations.
 

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Discussion Starter · #7 ·
Thank you.

I will check it out. But it's definitely not a retirement fund. I'm pretty sure of that. It's not worth that much either.. I'm made maybe 1000 bucks on it over all these years. So that is why it's such a hassle.. (if I'd gotten rich off of it I wouldn't be complaining ;-) ) haha.

Thanks for the PFIC example. I was looking for an example for the longest time and couldn't find one. It looks complicated.. uff.

Let me see how far I get. If I can't do it: bye bye passport! ;-)!
In the end it's just not worth all of this pain!

I appreciate all the help. Thank you!
 

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Do I basically have to know every stock in this mutual fund and list it?
Normally you shouldn't have to know every stock in the fund. Does your fund send you any sort of tax document or summary of transactions/earnings on the fund? Although there may be some technical differences in how the Swiss and the IRS evaluate earnings for taxes, you can usually make a good faith pass at it by using whatever statement the fund itself sends you.
Cheers,
Bev
 

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I think you'll discover you won't owe anything, but let TaxAct run the numbers.

If there are no Swiss benefits to keeping the account Swiss then I'd very seriously consider rolling it into a U.S. account, probably even now (before the end of the calendar year) to cut down on tax complications going forward. In other words, make that deemed sale an actual sale. The Swiss franc is strong and stock (equities) markets are probably high, so the timing seems right. If you have earned income that you're not fully shielding via the U.S. Foreign Earned Income and Foreign Housing Exclusions then a U.S. Roth IRA would probably be a good idea, perhaps via the "back door," though you have until early April to decide whether to do that for tax year 2013. Note that there are good U.S. investment vehicles if you want heavy Swiss franc exchange rate correlation, so that's not a problem.
 

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Discussion Starter · #10 ·
Thank you both for your answers.

Yes, they do send me a statement for my taxes here in Switzerland. I'll see what/how much of that I can use.

I'm glad I don't have to list every stock. I wouldn't even know where to begin with that.

Yes, I will most definitely get rid of my mutual fund. Who knew it would cause me so much grief..

With the FEIE and FHE I should definitely not owe any taxes.

I'll probably be back with many more questions once I start this PFIC process! ;-)

Thanks again for all your help!!:)
 
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