Retired American in Italy — a pension and foreign ETFs

Facts

• US citizen, living in Italy.
• US filings: I'm up to date.
• Income: pension or retirement income, dividends or interest.
• Non-US accounts at their peak: $10,000 – $50,000.
• Non-US funds or ETFs: yes, 1 to 3 — I sold some this year.
• Filing: with an accountant I already work with.

What they hold

• ETF armonizzati at Fineco
• Italian bank accounts

Potential issues

• FBAR (FinCEN Form 114)Possible

  An FBAR is required when the aggregate value of your non-US financial accounts exceeded $10,000 at any point during the calendar year. It is filed with FinCEN, separately from your tax return.

• FATCA (Form 8938)Not currently indicated

  Form 8938 reports specified foreign financial assets and is filed WITH your tax return. Its thresholds are much higher than the FBAR's, and higher again if you live abroad.

• Foreign investments / PFIC (Form 8621)Likely

  Almost every fund organised outside the US — a UCITS ETF, a local mutual fund, many insurance-wrapped investments — is a passive foreign investment company for a US owner, and generally needs its own Form 8621 each year.

• Foreign pensionsNot currently indicated

  A non-US pension is generally a specified foreign financial asset for Form 8938, is often a reportable account for the FBAR, can be a foreign trust for Form 3520 unless an exemption applies, and its contributions and growth may be taxable in the US each year unless a treaty article defers them.

• Foreign companies, branches and trustsNot currently indicated

  Nothing in your answers indicates a foreign company, branch, trust or large foreign gift.

Likely forms

• US federal tax return (Form 1040)Likely

  Filing separately from a non-US spouse, the gross-income filing threshold is $5 — not the standard deduction.

• PFIC reporting (Form 8621)Likely

  You hold funds or ETFs organised outside the US. PFIC status turns on where the fund is organised, not on what it holds — an Ireland-domiciled ETF tracking the S&P 500 is still a PFIC.

• FBAR (FinCEN Form 114)Possible

  Your range ($10,000 – $50,000) spans the $10,000 threshold, so it depends on your actual peak.

• Foreign Tax Credit (Form 1116)Possible

  You paid income tax to another country, so the credit is likely the mechanism that stops the same income being taxed twice.

Likely · Possible · Needs review — likelihoods on the stated facts, never determinations.

What depends on more information

• ○Your highest combined balance during the year, against $10,000.

Atamatax workflow

1. 01Gather the prior US returns you have and the local tax records for each year in scope.
2. 02Build the account list with each account's highest balance during the year — this feeds both the FBAR and Form 8938 and is the item most people underestimate.
3. 03Export brokerage statements for every year each fund was held and list each fund's ISIN; establish which holdings are PFICs before any return is prepared.
4. 04Decide between the Foreign Earned Income Exclusion and the Foreign Tax Credit before preparing the earliest year — the choice is hard to reverse and applies year on year.
5. 05Prepare the return with its information forms, then file the FBAR separately with FinCEN — they go to different agencies with different deadlines.

Needs a professional's judgement: FEIE versus Foreign Tax Credit: the election is hard to reverse and depends on figures this assessment did not ask for.