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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
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Experience:  15years with H & R Block. Divisional leader, Instructor
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This is a US/UK question re PFICS I am a uk citizen who will

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This is a US/UK question re PFICS
I am a uk citizen who will be emigrating to the US later this year.
I own International insurance bonds through an Isle of Man company and I also have a UK SIPP. I believe the IRS consider both of these to be PFICS. There are undistributed gains and dividends in the portfolios of both products. Under HMRC rules any gains in the bonds when crystallised are subject to income tax, not capital gains therefore I would prefer not to sell them whilst a UK taxpayer.
My question is would the bonds have a stepped up basis when entering America and if sold there would my tax position be limited to any gains or dividends received after becoming US resident or would the IRS look to the make up of the bonds since they were first acquired in the UK. Same for the SIPP.
Thank you

Robin D :

Hello and thank you for using Just Answer,
Unfortunately, upon entering the US there would not be a step up in basis. Section 877A(h)(2) provides that, solely for purposes of determining the tax imposed by reason of section 877A(a), property that was held by a nonresident alien on the day that individual first became a resident of the United States (within the meaning of section 7701(b)) will be treated as having a basis on such date of not less than the fair market value of such property on such date.
The Section 877A deals with expatriation rules. They woudl apply if you were to leave the US years later after being a resident alien. Then, if you still held the property, you would need to look from the date of your US resident status and the date you leave the US to see if any tax would be owed.

Robin D :

The basis if sold while US resident would be determined on your investment in the asset and how long you held it.

Robin D :

Sorry if you expected to receive the more beneficial application.

Robin D :

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This is what I expected but it is just as well to have it confirmed Thank You

Robin D. and other Tax Specialists are ready to help you
Customer: replied 3 years ago.
I don't need more as your answer was complete
Thank you
Great! I am so pleased the answer was sufficient.