Treaty Article 17(2) Savings Clause Lump Sum Foreign Pension Distributions

Nat Hussey · ‎05-26-2021

U.S. Citizen/UK resident cashed in UK pensions and paid tax in UK. The combined amount of regular income and distributions kick him over the Form 2555 limit. The IRS interpretation of the saving clause and Article 17(2) of the treaty is that US can tax such lump sum distributions. (Letter Ruling 08-0024). Two questions:

1. Am I reading the ruling correctly?

2. Where do we report the distributions/ how to claim an offset for tax paid in UK on those distributions.

Thank you!

sjrcpa · ‎05-26-2021

Is UK pension income earned income for the foreign earned income exclusion?

Use Form 1116 to claim a foreign tax credit on income that was taxed by both the UK and US.

The UK pension gets reported as pension income. There are fields to indicate it is from a foreign payor.

EDIT: There are fields in Lacerte to indicate it is from a foreign payor. Not sure about ProSeries.

Ex-AllStar

Just-Lisa-Now- · ‎05-26-2021

Ive never had anyone with foreign income like this, but heres where you enter it in ProSeries.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

Nat Hussey · ‎05-27-2021

Thanks so much for that. What is the entry point for pension income? I have 1099-R, and other income under Sched 1 and just entering it in 2555. I didn't see anything for pension with a foreign payor option. Thank you again!

sjrcpa · ‎05-27-2021

See Lisa's answer. She uses ProSeries and I don't.

Ex-AllStar

Nat Hussey · ‎05-28-2021

Thank you!