Life insurance PFIC reporting

Hi,

I have a UK life insurance policy with a small surrender value from when I was a UK-only tax payer. The policy is written into a trust so that the proceeds don't fall into my estate.

Fast forward a number of years and I am now a US tax payer. My accountant says that this is a foreign grantor trust and I should file a 3520, 3520-A and a 8961 for the underlying PFIC.

The fund/PFIC in question is bought and sold within the policy to fund management fees and monthly premiums. Separating out all the fund transactions produces a beast of an 8961 form - 33 pages....

Obviously none of these transactions were ever UK-taxable. Am I going down the right route here?

I rue the day that PFIC's were first invented...

I can offer Scotsman1000 some comments on the US taxation of his UK life policy.

There is no reference to life policies in the UK US Double Tax Treaty.
In the treaty, Article 22 covers “Other Income”. There is no commentary on this in relation to life assurance policies.

A textbook on UK US tax says that the PFIC rules do not apply to a “properly designed variable life policy”. It refers to Code sections 7702 and 7702A. Further, it says that some international life companies off US tax compliant offshore policies.

Perhaps these comments give some limited hope that the PFIC rules do not apply to his UK life policy.

Only scratching at the surface but I think:

You need to establish if the wording constitutes a trust at all under US law (as against say a simple nominee arrangement).

Secondly you need to decide if the foreign policy is (under US law) a life policy at all.

Thirdly you need to decide if the policy has any current tax deferral for US tax purposes or is only taxed on constructive receipt.

Thanks for the help. I did come across this article that suggests that in my case the PFIC rules do not apply as well:

http://hodgen.com/life-insurance-contracts-investing-in-pfics/
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Will update with the final findings.