Hi everyone. I am an American and am currently busy preparing my 2011 tax returns. I have a question about reporting a withdrawal from a pillar 2 pension to the IRS. I found this forum through some Googling and have read through a number of the posts on this subject. I've learned a lot, but I'm still unsure of what I need to do next. I am unfamiliar with the details of Swiss employment and pensions and I unfortunately don't speak German, French, Italian, or Romansh, so I'm getting bogged down with poor translations of unfamiliar terms. I'm hoping someone here can point me in the right direction.
Some background, in case it matters: my wife is American by birth. After living in Switzerland for a number of years, she became a naturalized Swiss citizen. In 2007, when she was 26, she left Switzerland and moved to the US. I met her shortly after she arrived. She's a lovely woman, but her taxes are causing me headaches
While she was working in Switzerland, she had something called an "LPP." My understanding is that this is the "pillar 2" or "2nd pillar" of the pension system. I think it is called "BVP" in German? From what I've read, the US does not recognize this as anything special, meaning that her share of the contributions were made "after taxes" as far as the IRS is concerned. I believe her employer's contributions would have counted as income and been reported on her US tax returns (although I don't think she ever made enough money in Switzerland to have to pay US income taxes). Is my understanding correct? Does the IRS not recognize an LPP as a pension?
In 2011, she had all of the money in the account withdrawn and transfered to a US bank. She had to file a lot of paperwork, prove that she left Switzerland, etc. When the process completed, we received a letter from the bank that held the account saying: Compte de libre passage xxx
Versement de l'avoir de libre passage
Nous verserons l'avoir de libre passage, valeur dd.mm.yyyy, selon instructions.
..........................LPP CHF...Suroblig. CHF...Total CHF
Avoir de libre passage.......6000............5000.......11000
Montant du versement brut...............................11055
Impôt à la source.........................................330
Montant du versement net................................10725
My rough translation is "Vested benefits account xxx," "Payment of vested benefits," "We will pay the vested benefits, value as of dd.mm.yyyy, according to instructions," and then the table shows vested benefits, interest, gross amount, tax, and net amount. What do the "LPP" and "Suroblig." columns mean? I can't find a translation of "suroblig." Does anyone know what it means? Is the interest shown on this letter the interest earned over the lifetime of the account? There are no other dates on this letter, so it doesn't look like it's showing "interest earned last month" or "interest earned last year" or anything like that.
The only other statement we have is from 2007 when she left. It says "Avis de sortie." Votre prestation de libre passage
Compte d'épargne constitué............................10250
Total de vos apports avec intérêts
...au taux LPP (date du dernier apport : 01.04.2007)...7000
Prestation de libre passage minimale selon règlement...8500
Avoir de vieillesse acquis selon la LPP................5500
Votre prestation de libre passage.....................10250
I can't reconcile any of the numbers on this 2007 statement with the 2011 letter mentioned above. "Votre prestation de libre passage" from 2007 is less than a thousand CHF off from "Montant du versement brut" from 2011. Anyone have any ideas on this? I can't explain it from the paperwork I have.
Between those two documents, is there enough information for me to report something to the IRS? If my understanding is correct that the contributes were already "after tax" as far as the IRS is concerned, do I just need to report the interest? Is there a special form for foreign interest of this type?
Finally, along with that letter that closed the account, we received a form that says, in part, "Please find enclosed an application form with which to reclaim withholding tax levied on the lump-sum capital payment made from your pension fund assets. Please complete the form in full and have it stamped by the tax authorities of your foreign residence." This form is thankfully in English, along with German, French, and Italian. In German, it is titled, "Antrag auf Rückerstattung der Quellensteuer auf Kapitalleistungen von Vorsorgeeinrichtungen mit Sitz in der Schweiz." It asks basic information, such as name, nationality, address, employer, amount of settlement, amount of tax, etc. Is this form to reclaim to the 330 CHF deducted in taxes? Is everyone eligible to get the tax refunded or does a refund only apply in special cases? Who is the tax authority in the US? Do I need to bring this to a local IRS branch? Will they know what to do or will I need to talk them through it?
I would appreciate any help anyone could provide. I've been looking at this for a few days now and I'm ready to scream.