Guernsey

The Director of the Revenue Service may approve an employer's pension scheme only if it is established as a trust,¹ the employer is a contributor to it,² and its benefits cannot be assigned or surrendered.³ The employer must pay in, a member need not, and membership need not be a condition of employment or be open to every employee, though it should be open to everyone in a category;^4,5,6 instead of one scheme, an employer may have up to 12 individual arrangements approved.⁷ Members may pay additional voluntary contributions (AVCs),⁸ and a member may pay in any amount, though tax relief is limited to the lower of 100% of taxable income or £35,000.^9,10

Since 1 July 2024, phased in by employer size to 1 October 2025, an employer must automatically enrol each Designated Employee, someone aged 16 to State Pension Age, not in full-time education and likely to earn more than the Social Security lower earnings limit, in a scheme that meets the Secondary Pensions Law (an approbated scheme).^11,12 A defined contribution scheme must be approved under section 150(2) or 157A of the Income Tax Law and regulated as a pension scheme,¹³ and the employer must offer a choice between its own scheme and Your Island Pension (YIP) unless membership of its own scheme is a condition of employment.¹⁴ YIP is a scheme the States set up, run by a pension provider;¹⁵ the States proposed it as a private trust with a trustee, the States acting as settlor,¹⁶ and its own description, which is not authority, says it is a trust-based multi-employer arrangement approved under sections 150 and 157A, open to employers and to some self-employed and non-employed people.¹⁷ YIP's self-employed and non-employed members, and its Individual Section, are in the RATS block below. An approbated scheme may also be established elsewhere in the British Islands, which include the United Kingdom, Jersey and the Isle of Man.¹⁸

Your employer sets the contributions at or above the minimum rates, may pay all of them, and cannot ask you to pay its share.^19,20 The minimums are 1% from you and 1% from your employer in 2024 and 2025; from 1 January 2026, 1.5% from you against 1% from your employer; 2% each in 2027; then your share rises faster, to 6.5% against your employer's 3.5% in 2032.^21,22 Unless membership is compulsory under your contract, you can opt out at any time, and if you opt out in the first six weeks both your contributions and your employer's are refunded.^23,24 A Voluntary Employee, aged 16 to 74 but not a Designated Employee, may ask to join, and the employer then need not pay in for them.^25,26

Benefits may start from 50, earlier on incapacity, and by 75, even while you keep working for the employer,^27,28 and the scheme may offer a member who has reached 50 a lump sum of up to 30% of the fund value, tax-free up to £203,000.^29,30 The trustees may pay out a small fund in full, up to £15,000 at any age or up to £50,000 from 50.^31,32 A leaver with two years' qualifying service or less is entitled to a refund of their own contributions, one with more chooses between a refund and a transfer, and one with more than five years can also choose deferred benefits;^33,34,35 a refund is taxed at half the standard rate, 10%.³⁶ A payment that neither the Law nor the scheme's approval allows is taxed at 50%.³⁷ In a secondary pension scheme, from three months after enrolment, no refund, no small-fund payout under 50 and no transfer to a scheme that does not meet the Law is allowed, except for a member who has not been resident in Guernsey for two calendar years in a row, is still not resident, and asks in the year after.^38,39

This block also covers a retirement annuity trust scheme an employer uses for secondary pensions.⁴⁰ An employer's pension trust that is not approved is read the same way, on the cautious course.⁴¹

A foreign trust, on our reading: Guernsey approves an employer's scheme only if it is established as a trust.

A foreign trust, on our reading. An employer's scheme is approved only if it is established as a trust,¹ a defined contribution scheme used for secondary pensions must be approved under section 150(2) or 157A,¹³ and a section 157A trust scheme must be established under irrevocable trusts.⁴² Trustees holding the scheme's assets for its members is what makes an arrangement a trust for U.S. purposes,⁴¹ and the IRS has ruled privately that foreign pension funds with locked, personal accounts are trusts.^43,44 A scheme governed by Guernsey law and run in Guernsey meets neither test for a domestic trust.^45,46 One established elsewhere in the British Islands is still a foreign trust; for one established in the United Kingdom, see the UK guide's treaty step.^18,45

No IRS guidance addresses Guernsey schemes. An investment trust whose trustee can vary its investments is not classified as a trust,⁴⁷ but we read a pension scheme held in trust as one: its benefits cannot be assigned or surrendered,³ a payment the Law or its approval does not allow is taxed at 50%,³⁷ and one of the funds the IRS ruled is a trust let its members choose their investments, as YIP's members can.^44,48 A section 157A scheme may instead be an annuity contract with an insurer,⁴⁹ which is the policies block below; where the documents do not make clear whether the arrangement is a contract or a trust, the cautious course reads it as a trust.

A §402(b) employees' trust on our reading; opt-out money, salary sacrifice and AVCs are your own.

No IRS ruling addresses Guernsey schemes, though the IRS has ruled privately that a similar foreign fund, with mandatory employer contributions and personal accounts, is a §402(b) trust.⁵⁰ We read an approved scheme as a §402(b) employees' trust: the employer must pay in for the scheme to be approved,^2,4 and a trust created outside the United States cannot be exempt under U.S. §501(a).⁵¹ §402(d) treats a foreign trust as exempt only if it would otherwise qualify,⁵² and on our reading nothing suggests a Guernsey scheme meets §401(a).

On that reading, employer contributions are U.S. income to you in the year they are paid, to the extent they are vested,^53,54 and the foreign earned income exclusion cannot cover them.⁵⁵ You are not treated as owner of the part they fund.⁵⁶ Employer money vests when the scheme's rules stop it being lost. A leaver with two years' qualifying service or less need only get back their own contributions,⁵⁷ and employer money may be repaid to the employer where it exceeds what the benefits need,⁵⁸ so before two years the rules decide. With more than two years, a leaver can take a transfer valued at the deferred benefits they could have had,^34,59 so on our reading the employer money has vested by then. YIP says, in its own description, that employer contributions vest after three months.⁶⁰ In a defined benefit scheme the employer's contribution for you may not be known; where it is not, the regulations work it out by actuarial methods.⁶¹ No IRS guidance addresses Guernsey vesting.

Your own money, for the count below, is what you choose to put in. AVCs are voluntary,⁸ and Guernsey may treat employer contributions made in place of salary at your request as your employment income;⁶² an amount contributed at an employee's election is treated as the employee's,⁶³ and the IRS's reading of a similar fund treats amounts paid in at the employee's election as the employee's own, taxed as pay.⁶⁴ Contributions you can stop, or avoid by leaving the scheme while staying in the job, are your own on the same reading: under the U.S. rules for §401(k) plans, which apply here only by analogy, automatic enrollment with a right to opt out still counts as an election.⁶⁵ So secondary pension contributions you could opt out of are your own, though the Law calls them employee contributions deducted from your pay.^23,66 Contributions the scheme's rules take from your pay as a condition of membership you cannot leave while employed, a secondary pension your contract makes compulsory included, count as your employer's, on the IRS Chief Counsel's reading of Singapore's fund, which is not precedent,⁶⁷ and so does a one-time irrevocable choice made when you join.⁶⁸ The strongest point against that reading: the secondary pension rules put a minimum on each side, and your employer cannot make you pay its share,²⁰ a duty on each side rather than one employer contribution recovered from pay, as Singapore's was. §414(h)(1) treats a contribution designated as the employee's as not made by the employer, but only for a §401(a) trust or a §403(a) plan,⁶⁹ and the Chief Counsel memorandum, written after it, read the rulings from before the 1974 U.S. pension law (ERISA) the other way as superseded by it and still counted withheld amounts the employee did not elect as the employer's.⁷⁰ Where the documents don't show which, this guide counts them as your own for the forms, the cautious course; on the employer's reading they are §402(b) income, which the foreign earned income exclusion cannot cover.⁵⁵ Where you control the company that employs you, as a proprietary director or employee who controls more than 15% of its ordinary share capital does,⁷¹ you decide what it pays in; no IRS guidance says whether that makes its contributions your own, and that is not settled, so the cautious course counts them as your own for the forms, which brings Part II and Form 3520-A for your whole interest from the start; on the employer's reading they are §402(b) income, which the foreign earned income exclusion cannot cover.^72,63,55

Once your own contributions have come to exceed everything counted as your employer's, counted from the first payment, you are treated as owner of the part your own money funds, if the grantor trust rules are otherwise met.⁷² At the secondary pension minimum rates, with money you can opt out of counted as your own, that happens on your first 2026 payday if you were enrolled in 2024 or 2025, when your 1.5% first passes your employer's 1%; on your first payday if you are first enrolled in 2026, or in 2028 or later; and on your first 2028 payday if you are first enrolled in 2027, when the rates are 2% each all year.^21,22 It happens earlier if your employer pays less of the total than you, and later or never if it pays more, or all.²⁰ A Voluntary Employee whose employer pays nothing in owns the part from the first contribution.²⁶ No contribution to a §402(b) trust is a Part I event, your own included.⁷³ Whether that exception reaches money no employer paid in is not settled: a private ruling found that a fund individuals could also join was a §402(b) trust, but only for members whose employer paid in more than they did.^74,75 The cautious course reports each contribution such a member makes, as the RATS block does for YIP's self-employed members.⁷⁶ Payouts from the employer's part are taxed under §72 when they are paid or made available to you, with what was already taxed to you as basis,^77,78,79 and they stay off Part III if you report them as compensation income,^80,81 unlike payouts from a part you own.⁸²

Made available. An amount is made available, on the IRS Chief Counsel's reading of a similar fund, whenever you could receive it just by giving notice that you want it,⁸³ and it is not received constructively while your control of it is subject to substantial limitations or restrictions.⁸⁴ On the cautious course, the lump sum of up to 30% is made available once the scheme's rules let you take it on request, from 50, working or not,^29,28 counting only what is first made available in a year, not the whole balance again each year.⁷⁷ A small-fund payout, which the Law leaves to the trustees, is not made available before it is paid, unless the scheme's rules let you take it on request; then it is, as for the lump sum.^31,32 For a non-resident member of a secondary pension scheme who meets the two-year conditions, a small-fund payout is made available once the scheme's rules let you take it on request: the Law permits it, it does not require schemes to offer it.^39,85 A refund then follows the refund rule below, and a transfer out is a move, which goes on Part III as money leaving the scheme.⁸⁶ The Revenue Service's notes for retirement annuity trust schemes let money transferred in from an overseas scheme be paid out in any way the law of the place it came from allows, the Revenue Service says its 2015 flexibility for overseas inward transfers overrides restrictions in approval letters, and the occupational schemes' own notes leave lump sums paid in respect of overseas transfers in out of the tax-free limit's count,^87,88,89 so it is made available once the scheme's rules release it to you. A refund on leaving that you can take only by giving up every other benefit under the scheme is not made available, since giving those up is a substantial limitation;^90,84 it goes on Part III when paid. Where the scheme gives a leaver with two years or less nothing but the refund, taking it gives up nothing, so on the cautious course it is made available once you leave.^57,83 Whether money made available and left in the scheme then counts as your own money for Part II is not settled, and no IRS guidance addresses it; the cautious course does not add Part II for it.⁷² An annuity bought in your name is a payout of its whole value,⁹¹ while a pension the trustees pay is taxed as each payment is made.⁷⁷

If you are a highly compensated employee and one reason the scheme is not exempt is that it fails the U.S. coverage tests, the rules on how many of the employer's other staff a plan must cover, you include your vested balance, less what has already been taxed to you, in income each year instead;⁹² those tests leave out nonresident aliens with no U.S.-source earned income from the employer.⁹³ That is the clearer risk for one of up to 12 individual arrangements, or a scheme for a chosen category of staff,^7,6 which fails those tests unless the employer's other employees are all left out of the count, for example as nonresident aliens with no U.S.-source pay from it; such an arrangement for a director who controls the company also takes the cautious course above, and it is unlikely to qualify for an exemption, as the next step says. Whether it applies to you turns on your pay and on whom the scheme covers; have a preparer run the tests.

Rev. Proc. 2020-17 unlikely where members pay in; proposed rules possible for secondary schemes after three months.

Rev. Proc. 2020-17 exempts an eligible individual (one who has filed U.S. returns and reported the scheme's income as U.S. law requires)⁹⁴ from Forms 3520 and 3520-A for a retirement trust that meets its conditions,⁹⁵ each a requirement established by the laws of the trust's jurisdiction.⁹⁶ A Guernsey scheme is tax-favored: its investment income is exempt, and contributions get relief within limits.^97,10,98 It meets the reporting condition, on our reading, where it files the signed accounts and schedule of payments the Revenue Service asks for by 30 November each year;^99,100 otherwise the condition rests on the Director's power to require information,¹⁰¹ and the occupational schemes' notes say accounts need not be filed,¹⁰² so that is not settled. Benefits wait for 50, or incapacity.^27,103

The payout condition plainly fails for a scheme its members pay into, on our reading: a leaver with two years' qualifying service or less is entitled to take back their own contributions, at any age,³³ and the refund is taxed at half the standard rate,³⁶ a reduced rate, not a penalty on early withdrawal.¹⁰³ Two more conditions point the same way: Guernsey limits relief, not contributions, since a member may pay in any amount,^9,5,104 and the Revenue Service's own example has a member pay an inheritance into a scheme, which is not income from personal services.^105,106 So Rev. Proc. 2020-17 is unlikely to cover a scheme its members pay into. A secondary pension scheme is one: its refunds stop three months after enrolment, except for non-residents, but a member may still pay in money that is not from earnings, as in the Revenue Service's inheritance example, so it is unlikely there too.^{38,39,105,106} For a scheme only the employer pays into, the open point is that Guernsey limits relief rather than contributions, so whether it qualifies is not settled; a small-fund payout under 50, at the trustees' discretion and taxed at the standard rate, is a further open point.^31,107 The FATCA agreement (under the U.S. Foreign Account Tax Compliance Act) treats schemes approved under section 150 as exempt for its own purposes, a separate test that does not settle this one.¹⁰⁸

The proposed regulations, which you may rely on now if you apply them in full and consistently with related persons,¹⁰⁹ let a value test stand in for a contribution limit: your Guernsey trusts together at no point in the year above US$600,000 (adjusted for inflation from 2026), which is £438,000 at the Treasury rate for 1 July 2025.^110,111 Their tax-favored condition counts income exempt from tax,¹¹² and their earned income condition asks only that contributions "generally" come from personal services,¹¹³ but they keep the payout condition in the same words,¹¹⁴ so they are unlikely for a scheme whose members can take back their contributions. A secondary pension scheme bars refunds and small-fund payouts under 50 from three months after you enrol,³⁸ so after that the proposed regulations are possible for it, through the value test; a non-resident's refund after two years of non-residence is the remaining point, and it is not settled.³⁹ They also keep the employer condition: a wide range of employees must be able to take part, alone or with comparable plans.^115,116 A secondary pension scheme must take every Designated Employee,¹² which on our reading meets it; one of up to 12 individual arrangements, or a scheme for a chosen category of staff, is unlikely to, unless read with the employer's other plans.^7,6

No treaty, and the information agreements change neither U.S. tax nor these forms.

No treaty: the United States has no income tax treaty with Guernsey,¹¹⁷ and its treaty with the United Kingdom covers only Great Britain and Northern Ireland.¹¹⁸ The tax information exchange agreement and the FATCA agreement (under the U.S. Foreign Account Tax Compliance Act) between the United States and Guernsey change neither U.S. tax nor these forms: they provide for the two governments to exchange information.^119,120 Guernsey charges its own tax on a pension from an approved scheme paid to someone not resident there, at 20% if you live anywhere but the United Kingdom, against which you may claim the allowances you would have had as a resident,^121,122 and it charges the tax to the trustees on your behalf.¹²³ Whether that makes you the person who paid it, for the U.S. foreign tax credit, follows the general rules: the person on whom foreign law imposes legal liability pays it, even if another person remits it.¹²⁴ A UK pension moved into a Guernsey scheme leaves the UK treaty's deferral behind: a scheme established in a third country is not a pension scheme for that treaty.¹²⁵

Part II and 3520-A once your own money passes your employer's; Part III for payouts, moves and money made available.

Read as a §402(b) trust: no Part I for any contribution,⁷³ except that, on the cautious course, Part I can apply if your employer pays nothing in for you, as for a Voluntary Employee, to each contribution you make as a U.S. person or within 5 years before your U.S. residency started.^76,126 On the same cautious course, Part I also applies at your death as a U.S. citizen or resident, if any part of the scheme is then treated as owned by you or is in your gross estate, unless the exception for a §402(b) trust reaches the scheme, as it may: your executor reports it, whether or not the executor is a U.S. person.^127,73 No Part II or Form 3520-A for the employer-funded part; Part II and Form 3520-A can apply if your own contributions, opt-out money, salary sacrifice and AVCs included, come to exceed everything counted as your employer's, which at the secondary pension minimum rates happens on your first 2026 payday, or on your first payday if you are enrolled later, except that if you are first enrolled in 2027 it is your first 2028 payday; from the start if your employer pays nothing in for you, or, on the cautious course, if you control the company that pays in; and they are then due each year for the part your own money funds.^56,72,128 No Part III for payouts from the employer-funded part that you report as compensation income.⁸⁰ Part III can apply if you receive a payout from a part you own, which goes on lines 24 and 27,⁸² or, on the cautious course, if money moves out of the scheme or is made available to you, the lump sum of up to 30% included, unless you report it as compensation income: an amount made available is received constructively, and line 24 covers what you receive actually or constructively.^129,83 On that course the amount for a year is what is first made available in that year, not the whole balance again each year.⁷⁷ Money counted as made available in an earlier year and paid out later goes on Part III when it is paid, with a statement naming the year it was counted, whether or not it went on Part III that year: the count was a constructive receipt and the payout is the actual one, and line 24 covers what you receive actually or constructively, whether or not it is taxable; what was taxed when it was made available is basis by then, not compensation income you report, so the compensation exception does not take it off.^129,130,80 On the cautious course, a payout that mixes that money with growth or other money taxed only when it is paid goes on Part III in full, the part you report as compensation income included, since the exception covers a distribution you report as compensation income and part of this one is not.^129,80 No Form 4970: payouts from a §402(b) trust are taxed under §72, not under the trust distribution rules, and the income of a part you own is taxed to you each year.^77,131,132 If the scheme does not file Form 3520-A, you attach a substitute to your Form 3520.¹³³

Money leaving the scheme. A refund, a small-fund payout, a transfer out and a pension or lump sum at retirement are payouts that go on Part III when paid, unless you report them as compensation income, except money counted as made available in an earlier year, which goes on Part III as above.^86,80 A transfer to a scheme outside Guernsey is taxed in Guernsey as a refund of contributions unless it goes to a scheme the Law names in the United Kingdom, Jersey, the Isle of Man or Ireland,¹³⁴ and since 1 June 2025 an approved transfer for a non-resident is not taxed there;¹³⁵ the notes on moves at the end of this guide say how a move reads on the forms.¹³⁶ YIP's own description lists among its retirement options a transfer into its Individual Section, with a lump sum of up to 30% and regular withdrawals from the invested fund after it;¹³⁷ that is a move into an account you own, which the RATS block below reports in full, and on the cautious course the money leaving this part goes on Part III.^86,76 When a couple separate, the Director may allow part of one spouse's pension rights to move to another approved scheme;¹³⁸ this guide did not check what a Guernsey court may order, and a share paid to a U.S. former spouse goes on that spouse's Part III when paid, on the cautious course.⁸⁶

On a member's death in service the scheme may pay a lump sum of up to four times final remuneration and a refund of the fund value, both free of Guernsey tax.¹³⁹ Paid to you as a beneficiary, it is a payout from a foreign trust that goes on Part III, on the cautious course.⁸⁶ Paid to the member's estate: if the estate is a U.S. person, which it is unless it is a foreign estate, the executor reports it on Part III, as the gifts section says.^140,141 If it is a foreign estate and passes it on to you, whether it is a bequest from a foreign estate, on Part IV, or a distribution from the scheme, on Part III, is not settled; the cautious course reports the whole payment on Part III, however it was funded, as the gifts section says.^142,143

If the scheme is not treated as a §402(b) trust, each contribution you make is a Part I transfer and you are treated as owner of the part it funds, so Part I, Part II, Form 3520-A, and Part III all apply;^{76,144,128,86} if it is not a trust at all, none of them apply. Part I also applies at your death as a U.S. citizen or resident, if any part of the scheme is then treated as owned by you or is in your gross estate: your executor reports it, whether or not the executor is a U.S. person.¹²⁷ Either way, an eligible individual whose scheme qualifies under Rev. Proc. 2020-17 or the proposed regulations files none of them: that is unlikely where members pay in, but possible under the proposed regulations for a secondary pension scheme once you have been enrolled three months.^95,109,38 On our reading the exemption also spares your executor the report of your death, if you were an eligible individual and the plan qualified: it covers an eligible individual's transactions with, or ownership of, the trust, and an eligible individual can be someone who at any time was a U.S. citizen or resident.^145,146,147 No IRS guidance names executors, and the revenue procedure's scope speaks of the eligible individual who would otherwise report.¹⁴⁸ PFIC rules may apply to what the scheme invests in; this guide does not decide that. FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^149,150

An international savings plan (ISP) is what the Revenue Service calls a gratuity scheme: its lump sums, pensions and other payouts are exempt from Guernsey income tax if all its beneficiaries are not resident in Guernsey and all its income, bank interest aside, comes from outside Guernsey.^151,152 For this, Guernsey includes Alderney and Herm, but not Sark.¹⁵³ An ISP may be set up under contract or under trust, needs no approval and no notice to the Revenue Service, and reports to it only under the FATCA rules and the Common Reporting Standard, the international rules under which financial institutions report account information to tax authorities.^154,155,99 There are no restrictions on contributions, on benefits or on the age at which benefits are paid, which follow the plan's rules, and loans to members are allowed where the rules permit.¹⁵⁶

A superannuation fund established in Guernsey under irrevocable trusts for a business carried on wholly or mainly outside Guernsey has its investment income exempt, and its benefits paid to someone not resident in Guernsey are exempt too.^157,158 The Director may approve one under section 154A; its members are people who were not resident in Guernsey when they joined and have not been since, or employees of participating employers working wholly or mainly outside Guernsey.¹⁵⁹ Contributions and benefits follow its rules, and it may pay benefits from 50 and pay out a small fund at any age; contributions get no Guernsey relief, and a refund to a member is not taxed there.^{160,161,162,163} One plan may be partly an ISP and partly a section 40(o) fund.¹⁶⁴

A foreign trust where held in trust, on our reading; a contract with an insurer is not, and an unclear one is read as a trust.

A foreign trust, on our reading, where the plan is held in trust: a section 40(o) fund must be established under irrevocable trusts,¹⁵⁷ and trustees holding a plan's assets for its members is what makes an arrangement a trust for U.S. purposes.⁴¹ Run outside the United States, under Guernsey or another country's law, it meets neither test for a domestic trust.^154,45,46 An ISP may instead be a contract;¹⁵⁴ one written as a contract with an insurer is in the policies block below, and where the documents do not make clear which it is, the cautious course reads it as a trust. No IRS guidance addresses these plans.

A §402(b) trust where an employer pays in; money no employer paid in is reported as your own, on the cautious course.

Where an employer pays in, we read a plan held in trust as a §402(b) employees' trust: it is set up for employers' staff working outside Guernsey,^157,165 though a section 154A fund may also take individuals who were not resident in Guernsey when they joined, with no participating employer,¹⁵⁹ and a trust created outside the United States cannot be exempt under U.S. §501(a).^51,52 Employer contributions are income to you when vested, which the plan's rules decide, and the foreign earned income exclusion cannot cover them.^53,54,55 Your own money is counted against your employer's as for approved schemes, and once it exceeds everything counted as your employer's you are treated as owner of the part it funds; on the cautious course that is from the start if you control the employer.^72,63 Payouts from the employer's part are taxed under §72.^77,78

Where no employer pays in for you, §402(b) taxes nothing to you, and you are treated as owner of what your money funds, since its income is held for you.^53,166 Whether the exception for a §402(b) trust reaches that money is not settled: a private ruling found a fund individuals could also join was a §402(b) trust, but only for members whose employer paid in more than they did.^74,75 The cautious course reports it in full, as this site's guides read Hong Kong's accounts with no employer money.⁷³

Made available, on the cautious course: an amount is made available whenever the plan's rules let you take it on request, which for an ISP can be at any age,^156,83 counting what is first made available in a year, not the whole balance again each year.⁷⁷ A loan the rules allow is a payout that goes on Part III, on the cautious course.^156,167

Unlikely under Rev. Proc. 2020-17 and the proposed rules: no limits, and payouts at any age the rules allow.

Rev. Proc. 2020-17 is unlikely.⁹⁵ An ISP has no approval and no regular reporting to the Revenue Service beyond FATCA and the Common Reporting Standard,^155,100 and neither kind of plan limits contributions or ties payouts to retirement: an ISP pays at any age its rules allow, and a section 40(o) fund may pay out a small fund at any age and refund contributions free of Guernsey tax.^{156,160,162,163,104,103} The proposed regulations' value test can stand in for a contribution limit,^110,109 but they keep the payout condition in the same words,¹¹⁴ so they are unlikely too.

No treaty; Guernsey leaves these plans' payouts to non-residents untaxed while the plans meet its conditions.

No treaty: the United States has no income tax treaty with Guernsey,¹¹⁷ and its treaty with the United Kingdom covers only Great Britain and Northern Ireland.¹¹⁸ The tax information exchange agreement and the FATCA agreement (under the U.S. Foreign Account Tax Compliance Act) between the United States and Guernsey change neither U.S. tax nor these forms: they provide for the two governments to exchange information.^119,120 Guernsey does not tax an ISP's payouts while all its beneficiaries are non-resident and its income, bank interest aside, comes from outside Guernsey, or a section 40(o) fund's benefits paid to someone not resident there.^152,158

Part II once your money passes your employer's, or each year for money no employer paid in; Part III for payouts and moves.

Where an employer pays in and the plan is read as a §402(b) trust: no Part I for any contribution.⁷³ Part II and Form 3520-A can apply if your own contributions come to exceed everything counted as your employer's, or, on the cautious course, from the start if you control the company that pays in, and are then due each year for the part they fund.^56,72,128 For money no employer paid in for you, on the cautious course you are treated as owner, so Part II and Form 3520-A are due each year for it, and Part I can apply to each contribution you make as a U.S. person or within 5 years before your U.S. residency started.^{166,128,76,126} On the same cautious course, Part I also applies at your death as a U.S. citizen or resident, if any part of the plan is then treated as owned by you or is in your gross estate, unless the exception for a §402(b) trust reaches the plan, as it may: your executor reports it, whether or not the executor is a U.S. person.^127,73 Part III can apply if you receive a payout, or, on the cautious course, a loan, or money made available to you or moved out, unless you report it as compensation income; payouts from a part you own go on lines 24 and 27.^{86,167,129,83,80,82} Money counted as made available in an earlier year and paid out later goes on Part III when it is paid, with a statement naming the year it was counted, whether or not it went on Part III that year: the count was a constructive receipt and the payout is the actual one, and line 24 covers what you receive actually or constructively, whether or not it is taxable; what was taxed when it was made available is basis by then, not compensation income you report, so the compensation exception does not take it off.^129,130,80 On the cautious course, a payout that mixes that money with growth or other money taxed only when it is paid goes on Part III in full, the part you report as compensation income included, since the exception covers a distribution you report as compensation income and part of this one is not.^129,80 No Form 4970: payouts from a §402(b) trust are taxed under §72, and the income of a part you own is taxed to you each year.^77,131,132 If the trustees do not file Form 3520-A, you attach a substitute to your Form 3520.¹³³

A plan written as a contract with an insurer reports nothing on these forms, as the policies block below says.⁷⁶ A transfer into or out of these plans is allowed as their rules provide, and the notes on moves at the end of this guide say how it reads.^168,136 A death benefit paid to you as a beneficiary is, on the cautious course, a payout from a foreign trust that goes on Part III.⁸⁶ Paid to the member's estate: if the estate is a U.S. person, which it is unless it is a foreign estate, the executor reports it on Part III, as the gifts section says;^140,141 if it is a foreign estate and passes it on to you, whether it is a bequest from a foreign estate, on Part IV, or a distribution from the plan, on Part III, is not settled; the cautious course reports the whole payment on Part III, however it was funded, as the gifts section says.^142,143 PFIC rules may apply to what the plan invests in; this guide does not decide that. FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^149,150

The Public Servants' Pension Scheme is deemed an approved scheme,¹⁶⁹ and its Scheme Assets are the money and other assets the Committee, a committee of the States, receives under its Rules, with their income and AVCs;¹⁷⁰ the duties to administer and manage it are vested in the Committee.¹⁷¹ An eligible employee is admitted when their employment begins and cannot opt out while in service.^172,173 Under the Rules as approved in 2019, members pay 7.5% of salary, or 7% for members who moved into the career average (CARE) section from the earlier final salary section, and the Committee may change those rates;^174,175 each employer pays at a rate the Committee sets on actuarial advice,¹⁷⁶ and must also pay the Committee an amount equal to its members' contributions; the Rules do not say whether that is a further contribution or the members' own contributions passed on.¹⁷⁷ AVCs, and contributions on salary above an earnings cap, go to a defined contribution account in the member's name.¹⁷⁸ A benefit is forfeited if the member assigns or charges it.¹⁷⁹ A member who leaves with more than two years' pensionable service becomes a deferred member, and a leaver may at any time elect a refund of contributions with interest, less tax, or a transfer.^180,181

Not settled: a fund a States committee administers. Cautious: a foreign employees' trust.

Not settled, and no IRS guidance addresses the scheme. For a trust: a segregated fund the Committee invests as if it were absolutely and beneficially entitled to it, whose benefits are forfeited if assigned, and whose Rules speak of a breach of duty or trust,^{170,182,179,183} and the IRS Chief Counsel read Singapore's statutory fund as a §402(b) employees' trust.¹⁸⁴ Against: the Rules vest the scheme's administration in a States committee and, in the parts we read, do not declare a trust, and the Law deems the scheme approved rather than approving it as a trust.^171,169 Trustees who take title to protect or conserve property for beneficiaries make a trust for U.S. purposes,⁴¹ and with the question open the cautious course reads the scheme as a foreign employees' trust, as for approved schemes; run in Guernsey under Guernsey rules, it meets neither test for a domestic trust.^45,46

Cautious: a §402(b) employees' trust; your required contributions count as your employer's.

On the cautious reading, an employees' trust the States fund for their employees, described in §402(b), which a trust created outside the United States cannot escape unless it would otherwise qualify.^53,52 Your contributions are required while you are in service, and you cannot opt out,^173,174 so on the IRS Chief Counsel's reasoning, which is not precedent, they count as your employer's;⁶⁷ your employer must also pay the Committee an amount equal to them, and the Rules do not say whether that is a further contribution or yours passed on.¹⁷⁷ AVCs are your own,^178,64 and you are treated as owner of a part only if your own money ever exceeds everything counted as the States', your required contributions included, if the grantor trust rules are otherwise met.⁷² Employer money is income when vested,^53,54 which the foreign earned income exclusion cannot cover;⁵⁵ in the defined benefit part the employer's contribution for you is worked out by actuarial methods where it is not known,⁶¹ and on our reading it vests once you have more than two years' pensionable service, when a leaver keeps preserved benefits.¹⁸⁰ Payouts are taxed under §72, with what was already taxed to you as basis.^77,79

A leaver with more than two years' pensionable service keeps preserved benefits, and on our reading a refund, which a leaver may elect at any time, takes their place,^180,181 so it is not made available before you take it, since giving those up is a substantial limitation;⁸⁴ it goes on Part III when paid. A leaver with less than two years keeps no preserved benefits and is entitled only to the refund or a transfer,¹⁸⁰ so on the cautious course the refund is made available once you leave, and goes on Part III for that year unless you report it as compensation income.^83,129,80

At retirement, before your pension starts, you may by written notice commute up to 30% of it for a lump sum,¹⁸⁵ and a member who joined on or after 1 May 2015 also has a Terminal Grant, a lump sum of three times the pension payable at Normal Pension Age.¹⁸⁶ On the cautious course, the 30% lump sum is made available once you have left service at an age when the Rules entitle you to draw your pension: Normal Pension Age, or from the Normal Minimum Pension Age on three months' notice;^187,188,83 for a deferred member, who needs the Committee's consent to draw a pension early, it is not made available before Normal Pension Age.^189,84 On leaving, you may also take your DC Account as a lump sum by notice if it is no more than £15,000, which on the cautious course is made available once you leave; taking up to 30% of a larger account needs the Committee's approval, so that is not made available before it is paid.^190,178 Count only what is first made available in a year, not the whole balance again each year.⁷⁷

Rev. Proc. 2020-17 is unlikely: no annual return was found, and leavers can take back contributions at a reduced rate.

Rev. Proc. 2020-17 is unlikely, and so are the proposed regulations. The Rules require the Committee to keep accounts and records and have the accounts audited,¹⁹¹ but we found no annual information return on the scheme to the Revenue Service, so on our reading the reporting condition is not met.^100,192 And a leaver may at any time elect a refund of contributions,¹⁸¹ which Guernsey taxes at half the standard rate,¹⁹³ a reduced rate rather than a penalty on early withdrawal.^103,114,109

No treaty; Guernsey taxes the pension of someone living abroad.

No treaty: the United States has no income tax treaty with Guernsey.¹¹⁷ Guernsey taxes a pension from an approved scheme paid to someone living anywhere but the United Kingdom at 20%, with allowances,^121,122 and whether the U.S. foreign tax credit covers that tax follows the general rules.¹²⁴

As for approved schemes: Part III for payouts, moves and money made available; Part II only for your own voluntary money.

No Part I for any contribution: on the cautious course the scheme is read as a §402(b) trust.⁷³ No Part II or Form 3520-A for the part funded by the States' money and your required contributions; Part II and Form 3520-A can apply if your additional voluntary contributions come to exceed everything counted as the States', your required contributions included, and are then due each year for the part they fund.^56,72,128 Part III can apply if you receive a pension, a contribution refund or another payout you do not report as compensation income, or if money moves out of the scheme,^86,80 or, on the cautious course, once a lump sum or a short-service refund is made available to you, as the §402(b) step says, counting only what is first made available in a year: an amount made available is received constructively.^129,83,77 Money counted as made available in an earlier year and paid out later goes on Part III when it is paid, with a statement naming the year it was counted, whether or not it went on Part III that year: the count was a constructive receipt and the payout is the actual one, and line 24 covers what you receive actually or constructively, whether or not it is taxable; what was taxed when it was made available is basis by then, not compensation income you report, so the compensation exception does not take it off.^129,130,80 On the cautious course, a payout that mixes that money with growth or other money taxed only when it is paid goes on Part III in full, the part you report as compensation income included, since the exception covers a distribution you report as compensation income and part of this one is not.^129,80 No Form 4970: payouts from a §402(b) trust are taxed under §72, not under the trust distribution rules.^77,131 If the Committee does not file Form 3520-A for a part you own, you attach a substitute to your Form 3520.¹³³

A death benefit paid to you as the U.S. beneficiary of a member is, on the cautious course, a payout from a foreign trust that goes on Part III.⁸⁶ Paid to the member's estate: if the estate is a U.S. person, which it is unless it is a foreign estate, the executor reports it on Part III, as the gifts section says.^140,141 If it is a foreign estate and passes it on to you, whether it is a bequest from a foreign estate, on Part IV, or a distribution from the scheme, on Part III, is not settled; the cautious course reports the whole payment on Part III, however it was funded, as the gifts section says.^142,143 If the scheme is not a trust, none of these forms apply.⁷⁶ FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^149,150

The States pension is a Social Security benefit payable when you reach pension age, and its amount depends on the number of Social Security contributions you have made.¹⁹⁴ It is funded through those contributions and paid by the States under the Social Insurance (Guernsey) Law, 1978,¹⁹⁵ which this guide did not read.

Not a trust: a contributory Social Security benefit, with no account for you.

Not a trust: a statutory benefit that depends on your contribution record, with no account of your own,¹⁹⁴ and a trust for U.S. purposes needs trustees holding property for the beneficiaries.⁴¹

Does not apply: there is no employees' trust.

§402(b) reaches an employer's contributions to an employees' trust,⁵³ and there is none here.¹⁹⁵

Not needed.

§6048 reaches only foreign trusts.⁷⁶

No treaty: taxed in the United States as an annuity, and by Guernsey if you live abroad.

No treaty: the United States has no income tax treaty with Guernsey,¹¹⁷ and foreign social security benefits are taxable as annuities unless a treaty exempts them or treats them as U.S. social security.¹⁹⁶ Since 1 January 2023 Guernsey has taxed the States pension of someone living abroad, who may claim personal allowances against it;¹⁹⁷ whether the U.S. foreign tax credit covers that tax follows the general rules.¹²⁴

Nothing on Form 3520 or 3520-A, and Form 8938 does not count it.

No Part I, Part II, Form 3520-A, Part III, or Form 4970: Forms 3520 and 3520-A report foreign trusts, and the States pension is not one.^76,128,86 Form 8938 does not count a foreign government's social security.¹⁹⁸ FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^149,150

A retirement annuity trust scheme (RATS) is a trust scheme the Director approves for providing retirement annuities for individuals, established under United Kingdom or Guernsey law and administered there, under irrevocable trusts.⁴² A member need not contribute and may pay in more than the relief limit, and an employer may pay in too;^199,200 a member and the member's relatives may not be its trustees, and its accounts are lodged with the Revenue Service each year.^201,202 Benefits may start from 50, earlier on incapacity, and by 75; from 50 a member may take up to 30% of the fund value as a lump sum,^203,204 and the trustees may lend a member up to 30% of the fund value.²⁰⁵ A RATS an employer uses for secondary pensions is in the first employer block, with the count of your own money against your employer's.⁴⁰

A trust scheme established under irrevocable trusts under Guernsey law and administered in Guernsey pays its annuities and lump sums free of Guernsey tax to someone who was never resident in Guernsey or Jersey (section 40(ee)).²⁰⁶ An exempt pension trust (section 157E) is established under irrevocable trusts under Guernsey law and run in Guernsey,²⁰⁷ and since 27 June 2012 none can be approved and none can take new contributions or transfers.²⁰⁸ Your Island Pension's Individual Section, into which its members move at retirement, and its self-employed and non-employed members, who have no employer money, are in this block; YIP describes itself as a trust-based arrangement approved under sections 150 and 157A.^17,137 Guernsey law and the public scheme's Rules use the UK's term for a scheme abroad that takes transfers of UK pension savings, a qualifying recognised overseas pension scheme (QROPS);^209,210 such a scheme is in the block for the kind of scheme it is: this block for a RATS, section 40(ee) scheme or exempt pension trust, the first employer block for an occupational scheme, and the public scheme block for the Public Servants' Pension Scheme.

A foreign trust: Guernsey approves a RATS only if it is established under irrevocable trusts.

A foreign trust: a RATS, a section 40(ee) trust scheme and an exempt pension trust are each established under irrevocable trusts,^42,206,207 trustees holding the scheme's assets for its members is what makes an arrangement a trust for U.S. purposes,⁴¹ and governed by Guernsey or UK law and administered there, it meets neither test for a domestic trust.^45,46 Choosing your own investments doesn't change that, on our reading, though it goes beyond the facts of the IRS's private ruling.⁴⁴

Does not apply to what you pay in; an employer's payments are reported as yours on the cautious course.

§402(b) reaches only an employer's contributions to an employees' trust,⁵³ so it does not apply to what you pay in yourself. An employer may also pay into a RATS,²⁰⁰ and whether that part is an employees' trust is not settled: on one reading it is, with no Part I, as in the first employer block; on the other, a RATS is your own scheme, as this site reads Ireland's custodian PRSAs. The cautious course reports an employer's payments as made for you, as your own money; on a §402(b) reading the foreign earned income exclusion would not cover them.⁵⁵

YIP is one scheme, approved under sections 150 and 157A and used by employers,¹⁷ so for its self-employed and non-employed members the exception for a §402(b) trust may reach it. The exception tests the trust, not the member,⁷³ and a private ruling found that a fund individuals could also join was a §402(b) trust,⁷⁴ but it ruled only for members whose employer paid in more than they did.⁷⁵ No IRS guidance says a member with no employer money is within the exception, so the cautious course reports each contribution you make;⁷⁶ a missed Part I can cost the greater of $10,000 or 35% of it, capped at the amount.^211,212

Rev. Proc. 2020-17: unlikely, as contributions need not come from earnings. Proposed regulations: possible, not settled.

Rev. Proc. 2020-17 is unlikely: it needs contributions only from earned income,¹⁰⁶ while a member may pay in any amount, and the Revenue Service's own example is an inheritance paid into a RATS.^9,213 RATS accounts are lodged with the Revenue Service each year,^202,100 and benefits wait for 50 or incapacity,^203,103 but a small fund may be paid out at any age.³² The employer condition does not apply to a scheme no employer maintains.¹¹⁶

The proposed regulations, which you may rely on as the Form 3520 instructions describe,¹⁰⁹ need contributions only "generally" from personal services, allowing for limited contributions by people who are not working,¹¹³ and let a value test stand in for a contribution limit: your Guernsey trusts together at no point in the year above US$600,000 (adjusted for inflation from 2026), £438,000 at the Treasury rate for 1 July 2025.^110,111 They keep the payout condition in the same words,¹¹⁴ and a small-fund payout under 50, taxed at the standard rate, leaves it open,³² so they are possible, and not settled.

No treaty, and the information agreements change neither U.S. tax nor these forms.

No treaty: the United States has no income tax treaty with Guernsey,¹¹⁷ and its treaty with the United Kingdom covers only Great Britain and Northern Ireland.¹¹⁸ The tax information exchange agreement and the FATCA agreement (under the U.S. Foreign Account Tax Compliance Act) between the United States and Guernsey change neither U.S. tax nor these forms: they provide for the two governments to exchange information.^119,120 Guernsey taxes a Guernsey pension paid to someone living anywhere but the United Kingdom at 20%, with allowances, while a section 40(ee) scheme pays someone never resident in Guernsey or Jersey free of Guernsey tax;^121,206 whether the U.S. foreign tax credit covers Guernsey tax follows the general rules.¹²⁴ A UK pension moved into a Guernsey scheme leaves the UK treaty's deferral behind: a scheme established in a third country is not a pension scheme for that treaty.¹²⁵ For a RATS established and administered in the United Kingdom, see the UK guide's treaty step.⁴²

Full reporting, as for a foreign trust you own, with Part I for money that goes in.

You are treated as owner of the part your contributions fund, including contributions made before you became a U.S. person, because its income is held for you,^166,144 and on the cautious course of the part an employer's payments fund too, so Part II and Form 3520-A are due each year,¹²⁸ and payouts, money you move out to another scheme included, go on Part III, lines 24 and 27, as payouts to an owner.^86,82 Part I can apply if money goes in: each contribution you make as a U.S. person is a Part I transfer, an employer's included as made for you on the cautious course, and so is money moved in from an approved scheme, from a scheme abroad or from YIP's employer section;⁷⁶ one made within 5 years before your U.S. residency started is treated as made on your residency starting date and goes on Part I for that year,¹²⁶ though the exception for a §402(b) trust may reach YIP's members and an employer's payments, as the §402(b) step says.⁷³ Part I also applies at your death as a U.S. citizen or resident, if any part of the scheme is then treated as owned by you or is in your gross estate: your executor reports it, whether or not the executor is a U.S. person.¹²⁷ For a RATS an employer has paid into, and for YIP's members, that report rests on the cautious course, since the exception for a §402(b) trust may reach the scheme.⁷³ A loan the trustees make you goes on Part III whether or not it is taxable.^205,167 If the trustees do not file Form 3520-A, you attach a substitute to your Form 3520, starting from the accounts lodged with the Revenue Service.^133,202 No Form 4970 for what you own, because its income is taxed to you each year.¹³²

On a member's death before benefits start, the scheme may pay a lump sum and annuities to dependants from the fund value;²¹⁴ where an annuity had started, Guernsey taxes a lump sum paid after death as the member's income for that year.²¹⁵ Paid to you as a beneficiary, it is a payout from a foreign trust that goes on Part III, on the cautious course; for a U.S. heir of a member who was not a U.S. person, whether it can carry out income kept in earlier years, with Form 4970, is not settled.^86,216 Paid to the member's estate: if the estate is a U.S. person, which it is unless it is a foreign estate, the executor reports it on Part III, as the gifts section says.^140,141 If it is a foreign estate and passes it on to you, whether it is a bequest from a foreign estate, on Part IV, or a distribution from the scheme, on Part III, is not settled; the cautious course reports all of it on Part III, since this block counts an employer's payments as the member's own.^142,143 An eligible individual whose scheme qualifies under the proposed regulations files none of these.¹⁰⁹ On our reading the exemption also spares your executor the report of your death, if you were an eligible individual and the plan qualified: it covers an eligible individual's transactions with, or ownership of, the trust, and an eligible individual can be someone who at any time was a U.S. citizen or resident.^147,217 No IRS guidance names executors. PFIC rules may apply to what the scheme invests in; this guide does not decide that. FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^149,150

A retirement annuity contract is a contract the Director approves between an individual and a company, resident or with a permanent establishment in Guernsey, that carries on there the business of granting annuities on human life;⁴⁹ one made with such a company by someone never resident in Guernsey or Jersey pays its annuities and lump sums free of Guernsey tax.²⁰⁶ This block also covers an international savings plan written as a contract with an insurer,¹⁵⁴ an annuity a scheme buys for you, savings and investment policies you buy from an insurer, and bank deposits and securities held in your own name, or by a bank, broker or trust company only to act on your instructions.²¹⁸

Not a trust: a contract with an insurer, or property that is yours. Unclear documents: read as a trust (RATS or employer block).

Not a trust, on our reading, resting on legal form, and no IRS guidance addresses Guernsey contracts. A trust needs trustees who take title to protect or conserve property for beneficiaries,⁴¹ and an insurer owns its assets and owes you a contract; the Code treats insurance companies as corporations.²¹⁹ The strongest authority the other way is the IRS's private ruling that a foreign pension entity was a trust,⁴³ but that entity held assets for covered employees who could not assign their interests, not policies an insurer sells. Under an investment-linked policy you may be treated as owning the assets behind it for U.S. tax, which makes no trust.²²⁰ A deposit or a security in your own name has no trustee at all,⁴¹ and where a bank, broker or trust company holds title to your securities only to transfer it at your direction, that is not a trust either.²¹⁸ Check the documents: if they don't make clear that the contract is with an insurer and there is no trust, the cautious course is the RATS block, or the first employer block where an employer uses the arrangement for secondary pensions. Whether a policy meets the U.S. definition of life insurance, or is an annuity, is a separate question this guide does not decide.

Does not apply to a contract; an employer's premiums for an annuity contract are pay under §403(c).

§402(b) reaches only an employer's contributions to an employees' trust,⁵³ so it doesn't apply to a contract. An employer's premiums for an annuity contract are your income under the rules for property transferred for services,²²¹ and an annuity a scheme buys in your name is a payout of its whole value from the scheme, as that scheme's block says.⁹¹

Not needed.

Since §6048 reaches only foreign trusts.⁷⁶

No effect on these forms.

The United States has no income tax treaty with Guernsey.¹¹⁷

Nothing for the policy itself; an annuity a scheme buys you is that scheme's payout, on the scheme's forms.

No Part I, Part II, Form 3520-A, Part III, or Form 4970: Forms 3520 and 3520-A report foreign trusts.^76,128,86 How a foreign policy is taxed in the United States is not decided here. PFIC rules may apply to funds held under a policy, or in your own name; this guide does not decide that. FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^149,150

A trust under the Trusts (Guernsey) Law, 2007 exists where a trustee holds property that is not part of the trustee's own estate, for beneficiaries, for purposes, or both.²²² A settlor may keep, or give others, powers without invalidating the trust, among them a power to revoke, vary or amend it, to direct the trustee on investments, to appoint or remove any trustee, enforcer or beneficiary, and to change its governing law or the forum for its administration.²²³ There is no limit on how long a trust may last, though one created before the Law ends after 100 years;²²⁴ a trust that lasts longer can keep accumulating income, which bears on the throwback (the tax, with interest, on an accumulation distribution, on Form 4970) described below.²¹⁶

A trustee must keep accurate accounts and records,²²⁵ and must give full and accurate information on the state and amount of the trust property on written request to an enforcer and, subject to the trust's terms, to a beneficiary or the settlor; where the terms restrict that, the Royal Court can order it.²²⁶ Subject to the trust's terms, a trustee need not disclose a letter of wishes.²²⁷ A private trust company must hold a licence or a permission from the Guernsey Financial Services Commission.²²⁸ This guide does not cover employee benefit trusts or charitable trusts.

A foreign trust unless a U.S. court can supervise it and U.S. persons control all its substantial decisions.

An ordinary trust where the trustee holds property for the beneficiaries,⁴¹ and a foreign trust where a trustee in Guernsey administers it under Guernsey law, since it then fails the court test, which alone makes it foreign, even where the trustee is a U.S. citizen.^45,46 A trust is domestic only on a day a U.S. court can supervise its administration and U.S. persons control all of its substantial decisions, counting everyone who can make one, not only the trustees.²²⁹ Powers a settlor keeps, or a protector's consent rights, do not on our reading stop it being a trust; they go to who is owner, below, and where a foreign person holds one that is a substantial decision, such as a power to revoke the trust or to replace the trustee, it also keeps the trust foreign, even with a U.S. trustee.^230,231 A bare trust whose trustee only holds title for an adult entitled to the property may not be a trust for U.S. purposes,²¹⁸ but that ruling is narrow,²³² so whether a bare trust is one is not settled, and the cautious course reports it as a trust. A bank or trust company that holds your own investments only to act on your instructions is not that kind of bare trust; it is an account, not a trust.²¹⁸ The block on deposits, securities and policies above covers such an account. A trust with a U.S. trustee, protector or adviser has its own block below.²²⁹ On our reading, a private trust company as trustee changes none of this, since it does not move the trust's administration or decisions to the United States.^228,45 A trust that mainly runs a business, rather than holding property for its beneficiaries, may be a business entity rather than a trust.²³³

A U.S. person who funds it is owner when it has a U.S. beneficiary; a foreign settlor only in two narrow cases.

Who is treated as owner decides who files Part II and Form 3520-A. A U.S. person who transfers property to the trust is treated as owner of the part it funds for any year in which the trust has a U.S. beneficiary.¹⁴⁴ Someone who funds the trust while not a U.S. resident and becomes one within 5 years is treated, for this rule and for Part I, as transferring that part of the trust on the day their U.S. residency starts.¹²⁶ A settlor who is not a U.S. person is treated as owner only if they can revoke the trust alone or with the consent of a related or subordinate party subservient to them, or if only they or their spouse can receive distributions during their life.²³⁴ Otherwise, unless another grantor trust rule makes a U.S. person owner,¹⁶⁶ no one is owner, and the trust is taxed as a separate, non-grantor trust.²³⁵

A trust has a U.S. beneficiary for the transferor rule if anyone has discretion to pay or benefit any person, unless its terms identify the class who may benefit and none of them is a U.S. person that year,²³⁶ even if nothing is paid to a U.S. person that year;²³⁷ a power to amend the trust to benefit a U.S. person counts, and so does a letter of wishes or other understanding that points to benefiting one, even one that says it is only a suggestion.²³⁸ Where a U.S. person funds the trust, the IRS may treat it as having a U.S. beneficiary unless that person shows it has none.²³⁹ A beneficiary who first became a U.S. person more than 5 years after the transfer is not counted,²⁴⁰ and a transferor whose trust gains a U.S. beneficiary is taxed that year on the income the trust kept for that part to the end of the year before, as an accumulation distribution with the interest charge.^241,242 A settlor who is not a U.S. person keeps the revocable-trust exception for a year only if they can take the property back alone, or with the consent of a related or subordinate party subservient to them, for at least 183 days of it; a power that needs anyone else's consent, such as an independent trustee's or protector's, does not count.^243,244 Once the exception fails for a year it is lost for good.²⁴⁵ Separately, a portion already treated as owned under §676, or under §677 other than its life insurance rule, on September 19, 1995 keeps that owner for the property it held that day, for as long as it stays so treated.²⁴⁶ A U.S. settlor of a trust with no U.S. beneficiary can still be owner under another rule, for example by keeping a power to take the property back,²⁴⁷ and a U.S. beneficiary who alone can take the property is owner of it.^248,234

When a settlor who was not a U.S. person dies, the revocable-trust and spouse-only exceptions end for that settlor's portion, because the person left with the power, even a surviving spouse, is not its grantor;²⁴⁹ a U.S. person who alone can take the property, or a U.S. person who funded the trust, can still be owner, and otherwise the portion is taxed as a non-grantor trust.^248,144,235 When a portion stops being owned by a U.S. person, the owner is treated, for the gain rule, as transferring it to a foreign trust that day.²⁵⁰ At death the gain is excused only if the trust's basis in the property is then reset to its value at death under section 1014(a), as where the owner could still revoke the trust;²⁵¹ otherwise the owner is treated as transferring it immediately before death and recognizes the gain.²⁵²

Guernsey law lets a settlor keep a power to revoke or amend the trust, to appoint and remove beneficiaries and to direct its investments without invalidating it;²²³ the U.S. rules above, not Guernsey law, decide whether such a power makes anyone owner.^234,247

No relief: no income tax treaty, and the information agreements change neither U.S. tax nor these forms.

No treaty: the United States has no income tax treaty with Guernsey,¹¹⁷ and its treaty with the United Kingdom covers only Great Britain and Northern Ireland.¹¹⁸ The tax information exchange agreement and the FATCA agreement (under the U.S. Foreign Account Tax Compliance Act) between the United States and Guernsey change neither U.S. tax nor these forms: they provide for the two governments to exchange information.^119,120

Part I for whoever funds it, Part II and Form 3520-A for an owner, Part III for whoever receives a distribution.

Part I can apply if a U.S. person transfers property to the trust, for the year of the transfer.⁷⁶ A transfer to a foreign trust is treated as a sale, and you recognize any gain on what you transfer;²⁵³ a transfer is not, to the extent anyone is treated as owning the part it funds.²⁵⁴ Part I also applies on the death of a U.S. citizen or resident who was treated as owner of any part of the trust, or whose gross estate includes part of it, and to property that passes to the trust by reason of a U.S. person's death; the executor reports it, whether or not the executor is a U.S. person.¹²⁷ The gain rule does not apply to property that passes to the trust by reason of a U.S. person's death, if its basis in that property is set under section 1014(a).²⁵¹ Part II and Form 3520-A can apply if a U.S. person is treated as owner: the owner files Part II and makes sure Form 3520-A is filed, or files a substitute, each year.^128,133 Part III can apply if a U.S. person receives a distribution, for that year.⁸⁶ Form 4970 can apply if a distribution from a non-grantor trust carries out income the trust kept in earlier years: that is an accumulation distribution, taxed with an interest charge.²¹⁶ It can also apply to a transferor taxed when the trust gains a U.S. beneficiary, as the owner step says.²⁴² Rev. Proc. 2020-17 does not apply: it covers only retirement trusts and medical, disability, or educational savings trusts.²⁵⁵

A distribution is any gratuitous transfer from the trust, whether or not it is a grantor trust and whether or not you are named as a beneficiary, including a credit card bill it pays or guarantees and a check written on its account.²⁵⁶ On the proposed rules, a payment from a company the trust owns to a U.S. person who is a grantor, owner or beneficiary of the trust, or related to one, is treated as a distribution from the trust, unless that person shows it is properly attributable to their own interest in the company.^257,109 A loan of cash or marketable securities, or use of trust property, to you or a related U.S. person goes on Part III whether or not it is taxable;¹⁶⁷ it is treated as a distribution for income tax, except a loan made on a qualified obligation (a written loan in U.S. dollars, for 5 years or less, at an interest rate tied to the federal rate, for which you extend the IRS's time to assess and that you report each year) or use you pay the fair market value for within a reasonable time,^{258,259,260,261} and where a U.S. person funded the trust, the loan instead makes it a grantor trust, and it still goes on Part III.²⁶²

If you are the U.S. owner of the part that pays you, you complete only lines 24 and 27, and the rest of this paragraph does not apply to you.⁸² Otherwise, with a complete Foreign Grantor Trust Beneficiary Statement you treat a payment as coming from the owner, so a gift from the owner is not your income;²⁶³ without one, the default method applies even to a distribution from a grantor trust.²⁶⁴ From a non-grantor trust you may use the actual method if you have a Foreign Nongrantor Trust Beneficiary Statement,²⁶⁵ and without one the default method applies: the part of this year's distributions above 1.25 times the average of the three years before is an accumulation distribution, taxed on Form 4970 with an interest charge figured on Form 3520's Schedule C, and the rest is ordinary income,^266,216,267 and once you use the default method you must keep using it in later years, except that in the year the trust ends you may use the actual method if you have the statement.²⁶⁸ In the trust's first year as a foreign trust, you stop Part III once you have entered how many years it has been foreign, so no accumulation distribution is figured that year.²⁶⁹ The statute treats the whole distribution as an accumulation distribution where adequate records are not given;²⁷⁰ the default method is the IRS's relief from that, open if you can give the trust's distributions for the three years before,²⁷¹ and where there were none, it too makes the whole distribution an accumulation distribution.²⁶⁶ A foreign trust's distributable net income, the income its distributions carry out, includes its capital gains,²⁷² and the exception for income kept before a beneficiary was born or turned 21 does not apply to it.²⁷³

A U.S. trustee, protector, enforcer or director of a private trust company files nothing on Form 3520 for the role alone,^76,128,86 but a U.S. person with signature or other authority over the trust's foreign accounts may owe an FBAR.²⁷⁴ FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.²⁷⁵

A trust for or including non-charitable purposes, created in writing, whose terms provide for an enforcer of those purposes and for a new one whenever there is none, is valid and enforceable for those purposes.²⁷⁶ It is the enforcer's fiduciary duty to enforce the trust for its purposes, and a trustee cannot also be its enforcer.²⁷⁷ An enforcer may ask the trustee in writing for full and accurate information on the state and amount of the trust property, while a beneficiary's right to it is subject to the trust's terms.²²⁶

A foreign trust; a purpose-only trust is not settled and is reported as a trust on the cautious course.

A foreign trust, on our reading, where its objects include persons; for a trust whose objects are only purposes, not settled, and the cautious course reports it as a trust. Either way it is property a trustee holds, not as part of the trustee's own estate, for its objects,²²² which is the form of a trust for U.S. purposes: trustees who take title to protect or conserve property.⁴¹ The strongest point against, for a purpose-only trust: the regulation speaks of conserving property for beneficiaries, and IRS advice lists designated beneficiaries among a trust's elements;^278,279 this site's Netherlands guide reads a purpose-only Dutch foundation as not a trust on that advice. But a Dutch foundation is a legal person that owns its assets, while a Guernsey purpose trust is property held by a trustee, so the reading that files less has no legal form behind it. No IRS guidance addresses Guernsey purpose trusts. A trustee in Guernsey administering it under Guernsey law makes it foreign, as for other Guernsey trusts.^45,46

A U.S. person who funds it is owner when it has a U.S. beneficiary; a foreign settlor only in two narrow cases.

Who is treated as owner decides who files Part II and Form 3520-A. A U.S. person who transfers property to the trust is treated as owner of the part it funds for any year in which the trust has a U.S. beneficiary.¹⁴⁴ Someone who funds the trust while not a U.S. resident and becomes one within 5 years is treated, for this rule and for Part I, as transferring that part of the trust on the day their U.S. residency starts.¹²⁶ A settlor who is not a U.S. person is treated as owner only if they can revoke the trust alone or with the consent of a related or subordinate party subservient to them, or if only they or their spouse can receive distributions during their life.²³⁴ Otherwise, unless another grantor trust rule makes a U.S. person owner,¹⁶⁶ no one is owner, and the trust is taxed as a separate, non-grantor trust.²³⁵

A trust has a U.S. beneficiary for the transferor rule if anyone has discretion to pay or benefit any person, unless its terms identify the class who may benefit and none of them is a U.S. person that year,²³⁶ even if nothing is paid to a U.S. person that year;²³⁷ a power to amend the trust to benefit a U.S. person counts, and so does a letter of wishes or other understanding that points to benefiting one, even one that says it is only a suggestion.²³⁸ Where a U.S. person funds the trust, the IRS may treat it as having a U.S. beneficiary unless that person shows it has none.²³⁹ A beneficiary who first became a U.S. person more than 5 years after the transfer is not counted,²⁴⁰ and a transferor whose trust gains a U.S. beneficiary is taxed that year on the income the trust kept for that part to the end of the year before, as an accumulation distribution with the interest charge.^241,242 A settlor who is not a U.S. person keeps the revocable-trust exception for a year only if they can take the property back alone, or with the consent of a related or subordinate party subservient to them, for at least 183 days of it; a power that needs anyone else's consent, such as an independent trustee's or protector's, does not count.^243,244 Once the exception fails for a year it is lost for good.²⁴⁵ Separately, a portion already treated as owned under §676, or under §677 other than its life insurance rule, on September 19, 1995 keeps that owner for the property it held that day, for as long as it stays so treated.²⁴⁶ A U.S. settlor of a trust with no U.S. beneficiary can still be owner under another rule, for example by keeping a power to take the property back,²⁴⁷ and a U.S. beneficiary who alone can take the property is owner of it.^248,234

When a settlor who was not a U.S. person dies, the revocable-trust and spouse-only exceptions end for that settlor's portion, because the person left with the power, even a surviving spouse, is not its grantor;²⁴⁹ a U.S. person who alone can take the property, or a U.S. person who funded the trust, can still be owner, and otherwise the portion is taxed as a non-grantor trust.^248,144,235 When a portion stops being owned by a U.S. person, the owner is treated, for the gain rule, as transferring it to a foreign trust that day.²⁵⁰ At death the gain is excused only if the trust's basis in the property is then reset to its value at death under section 1014(a), as where the owner could still revoke the trust;²⁵¹ otherwise the owner is treated as transferring it immediately before death and recognizes the gain.²⁵²

Two purpose-trust points. An enforcer's office is to enforce the trust's purposes,²⁷⁷ which on our reading gives no beneficial interest and so makes no one owner. And an object framed as a purpose does not take a trust outside these rules: the regulation's example treats a trustee's discretion to benefit anyone studying ancient Greek as giving the trust a U.S. beneficiary.²³⁷

No relief: no income tax treaty, and the information agreements change neither U.S. tax nor these forms.

No treaty: the United States has no income tax treaty with Guernsey,¹¹⁷ and its treaty with the United Kingdom covers only Great Britain and Northern Ireland.¹¹⁸ The tax information exchange agreement and the FATCA agreement (under the U.S. Foreign Account Tax Compliance Act) between the United States and Guernsey change neither U.S. tax nor these forms: they provide for the two governments to exchange information.^119,120

Part I for whoever funds it, Part II and Form 3520-A for an owner, Part III for whoever receives a distribution.

As for other Guernsey trusts: Part I can apply if a U.S. person transfers property to the trust.⁷⁶ A transfer to a foreign trust is treated as a sale, and you recognize any gain on what you transfer;²⁵³ a transfer is not, to the extent anyone is treated as owning the part it funds.²⁵⁴ Part I also applies on the death of a U.S. citizen or resident who was treated as owner of any part of the trust, or whose gross estate includes part of it, and to property that passes to the trust by reason of a U.S. person's death; the executor reports it, whether or not the executor is a U.S. person.¹²⁷ The gain rule does not apply to property that passes to the trust by reason of a U.S. person's death, if its basis in that property is set under section 1014(a).²⁵¹ Part II and Form 3520-A can apply if a U.S. person is treated as owner, each year;^128,133 Part III can apply if a U.S. person receives a distribution;⁸⁶ and Form 4970 can apply if a distribution from a non-grantor trust carries out income kept in earlier years.²¹⁶ Rev. Proc. 2020-17 does not apply.²⁵⁵

A beneficiary's right to information is subject to the trust's terms, which may restrict it, while an enforcer's is not;²²⁶ so, unless the terms give beneficiaries information or the Royal Court orders it, a Foreign Grantor or Nongrantor Trust Beneficiary Statement comes only if the trustee provides one, which an enforcer can press it to do; without one, the default method applies to a distribution, as the Guernsey trusts block above says.^264,280 The Form 3520 instructions say that a foreign trustee's or other fiduciary's reluctance to give information is not reasonable cause for a missing or incomplete form.²⁸¹ FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.²⁷⁵

A trust governed by Guernsey law, or under a deed that lets a settlor change its governing law or the forum for its administration,²²³ in which a U.S. person is trustee, protector or investment adviser, or which is run from the United States.²²⁹

Domestic only if a U.S. court can supervise it and U.S. persons control every substantial decision; otherwise foreign.

A trust is domestic only on a day it meets both tests: a U.S. court can exercise primary supervision over its administration, and U.S. persons control all of its substantial decisions, with no one else able to veto any of them.^45,229 Substantial decisions include whether and when to distribute, how much, to whom, and whether to remove, add or replace a trustee, and they count whoever holds them, not only the trustees.^282,229

Some cases, which do not cover every deed. A foreign trustee that holds any substantial decision, such as whether, when, how much or to whom to distribute, or investments not delegated to an adviser U.S. persons control, keeps the trust foreign, whatever U.S. protector or adviser it also has.^229,282 A foreign adviser's investment decisions count as made by the U.S. persons who hired it if they can end its powers at will,^283,284 and a U.S. adviser's decisions are a U.S. person's own. A foreign person's power to remove or replace the trustee keeps a trust with a U.S. trustee foreign,²³¹ and so does a power only to appoint a successor to a trustee who has died or resigned, unless it is limited so that it cannot change the trust's residency.²⁸⁵ A power a foreign settlor keeps to revoke the trust, or to have its assets paid to them, is itself a substantial decision, so it too keeps a trust with a U.S. trustee foreign.²³⁰

Where U.S. persons hold every substantial decision, the court test decides. Its safe harbor needs a deed that does not direct administration outside the United States, administration in fact only in the United States, and no clause that moves the trust if a U.S. court acts,²⁸⁶ and administration includes keeping the trust's books and records,²⁸⁷ so a foreign trustee or agent keeping them abroad takes the trust outside the safe harbor, though the court test can still be met on the facts.²⁸⁸ A clause that moves the trust if a U.S. court tries to supervise it means no U.S. court has primary supervision, unless the trust moves only on a foreign invasion of the United States or widespread confiscation or nationalization of property there.²⁸⁹ The control test has no such exception: if an attempt by any governmental agency or creditor to collect information from or make a claim against the trust would move any substantial decision out of U.S. hands, U.S. persons do not control it.²⁹⁰ So a narrowly drawn clause can pass the court test and still fail the control test; how either rule reads on a given clause is not settled, and no IRS guidance applies them to one.

An inadvertent change, such as the death, incapacity, resignation or move of a person with a substantial decision, gives the trust 12 months to restore its residence; otherwise its residence changes from the date of the change.²⁹¹ A trust that no one is treated as owning, and that becomes foreign, is treated, for the gain rule, as transferring all its assets to a foreign trust, and must also report under section 6048; on the proposed rules it reports the move on Part I.^292,293,294 A U.S. citizen or resident who funded any trust while it was domestic, and is alive when it becomes foreign, is treated as transferring their part to a foreign trust that day.²⁹⁵ A trust that becomes domestic is treated under the proposed rules as distributing all its corpus and income to the domestic trust, which reports that on Part III,^296,297 and because it was once foreign, the throwback (the tax, with interest, on an accumulation distribution) keeps reaching the income it accumulates, before and after the move.²⁹⁸ Where the deed or the facts leave unclear whether every substantial decision rests with U.S. persons, the cautious course reports the trust as foreign.