Japan

A corporate DC plan is a pension an employer sets up under Japan's Defined Contribution Pension Act, with rules approved by the Minister of Health, Labour and Welfare.^1,2 The employer pays in at least once a year.³ The rules can also let a member add contributions of their own (matching contributions), in an amount the member decides, and employer and member contributions together are capped.^4,5,6 For a member with no other plan the cap is ¥55,000 a month through November 2026 and ¥62,000 from December 1, 2026.^7,8,9 Each member has an individual account and gives investment instructions, and the benefit depends on contributions and returns.¹⁰

A foreign trust, on our reading: Japanese law makes the members the beneficiaries of the plan's trust contract.

A foreign trust, on our reading. The employer must hold the plan's reserve under one of four contracts, the first a trust contract with a trust company or a financial institution doing trust business.¹¹ That trust must have the members as its beneficiaries.¹² The trustee invests only on the record-keeper's instructions, money leaves the trust only to pay benefits or plan expenses, and the trust property does not go back to the employer outside a narrow return on leaving.^13,14,15 Trustees holding the plan's assets for its members is what makes an arrangement a trust for U.S. purposes,¹⁶ and a plan governed by Japanese law and run in Japan meets neither test for a domestic trust, so it is foreign.^17,18

No IRS guidance addresses the classification of Japanese plans. An investment trust whose trustee can vary its investments is not classified as a trust,¹⁹ but we read a pension plan held in trust as one, and one of the funds the IRS has ruled privately is a trust let its members choose their investments.²⁰ A plan held under an insurance contract instead is covered in its own block below.

A §402(b) trust on our reading; elective money under a choice you can remake is yours; a wholly elective plan is not settled.

No IRS ruling addresses Japanese plans, though the IRS has ruled privately that a similar foreign fund, with mandatory employer contributions and personal accounts, is a §402(b) trust;²¹ the request covered only members whose employer contributions exceeded their own.²² We read a corporate DC plan held in trust as a §402(b) employees' trust: the employer must pay in,³ and a trust created outside the United States cannot be exempt under U.S. §501(a).²³ §402(d) treats a foreign trust as exempt only if it would otherwise qualify,²⁴ and on our reading nothing suggests this plan 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,^25,26 and the foreign earned income exclusion cannot cover them.²⁷ They are vested from the start unless the plan rules let the employer take back its part from someone who leaves within three years.²⁸ You are not treated as owner of the part they fund.²⁹

Once your own contributions have come to exceed your employer's, you are treated as owner of the part your contributions fund, if the grantor trust rules are otherwise met.³⁰ In an individual account they are, on our reading, because the income of that part is held for you.³¹ Until March 31, 2026 Japanese law kept a member's contribution at or below the employer's.³² That limit has been abolished: from April 1, 2026, within the overall cap, a member may pay more than the employer, if the plan changes its rules to allow it.^33,34,35

Some employers offer an elective plan (sentakusei): pay is cut by agreement, and each employee chooses to take the difference as pay or have it paid in as an employer contribution.³⁶ Japan treats that money as an employer contribution, not wages,³⁷ but where you can remake the choice we read it as your own for this count. You could have had it as pay, 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,³⁸ and the U.S. rules for exempt plans, which do not govern a foreign plan, point the same way by analogy.³⁹ Money taxed as pay can be covered by the foreign earned income exclusion, unlike an employer contribution.⁴⁰ A one-time irrevocable choice made on first becoming eligible is different: under the U.S. rules for §401(k) plans, which apply here only as an analogy, it is not a cash or deferred election,⁴¹ so we read that money as the employer's. The Japanese sources we read don't say whether the choice can be remade, so check your plan's rules. Where it can, compare the totals: the yearly notice lists employer and member contributions separately,^42,43 but elective money is labelled the employer's, so keep your own record of what you chose.

A plan funded wholly by elective money, under a choice you can remake, is not settled. No IRS guidance says whether it is an employees' trust described in §402(b), which reaches an employer's contributions.²⁵ Japanese law calls the money an employer contribution that the employer must pay in,^3,37 which points toward one, but on our reading no employer money of its own goes in, which points away. Even read as a §402(b) trust, your contributions exceed your employer's, which are none, from the first payment, so you are treated as owner of the account.^30,31 Where the employer also pays an amount of its own, or the choice can't be remade, the plan stays a §402(b) trust on our reading.

Where the plan has employer money, no contribution to a §402(b) trust is a Part I event, your own included.⁴⁴ Payouts from the employer's part are taxed under §72 when they are paid or made available to you,^45,46 and they stay off Part III if you report them as compensation income,^47,48 unlike payouts from a part you own.⁴⁹ A payout traced to your own contributions that never exceeded the employer's is neither. No IRS guidance says whether it counts as compensation, so that is not settled, and the cautious course is Part III.^30,47,50

If you are a highly compensated employee and one reason the plan is not exempt is that it fails the U.S. coverage tests, you include your vested balance, less what has already been taxed to you, in income each year instead.⁵¹

Rev. Proc. 2020-17: possible, but open on yearly reporting, the lump sum on leaving, employer-plan facts and DB money.

Rev. Proc. 2020-17 exempts an eligible individual (one who has filed U.S. returns and reported the plan's income as U.S. law requires)⁵² from Forms 3520 and 3520-A for a retirement trust that meets its conditions.⁵³ A corporate DC plan points toward most of them. It is tax-favored: employer contributions are not employment income in Japan, a member's are deductible, and the plan's income is not taxed as it is earned: Japan taxes it neither to the beneficiary nor to the trustee, and its special tax on pension reserves is suspended for business years beginning through March 31, 2029.^{54,55,56,57,58} Only employers and their insured employees pay in.^59,60 The cap is ¥660,000 for the contribution year from December 2025 to November 2026, or ¥744,000 a year at the monthly rate from December 2026, about $4,411 or $4,972 at the IRS's 2025 average rate.^61,8,9,62,63 Benefits are old-age, disability and death benefits, with old-age benefits from age 60 on a service scale;^64,65,66 the only other way out is a lump sum after leaving, on narrow conditions: in 2026, a balance of ¥15,000 or less, or, for someone who can't join iDeCo, ¥250,000 or less or a contribution period of 5 years or less.^67,68,69 That period test has no balance limit, so the lump sum can be a whole balance, with no penalty, and leaving is not among the reasons the condition lists,⁶⁶ so whether the plan meets this condition is also open. The rules can't discriminate unfairly, and insured employees join unless a fair qualification applies, though whether a plan in fact gives significant benefits to a substantial majority of eligible employees depends on the plan.^70,71,72

The yearly reporting condition is open. Rev. Proc. 2020-17 wants annual information on the trust or its members provided or available to the tax authority.⁷³ In Japan, a payer of pensions or retirement allowances sends the tax office a statement,⁷⁴ and a member's own contributions appear on the withholding statement,⁷⁵ but plan reports go to the health and welfare minister,⁷⁶ and the yearly trust statement to the tax office leaves out pension trusts.⁷⁷ With no IRS guidance on Japanese plans, whether Rev. Proc. 2020-17 covers them is not settled.

The proposed regulations, which you may rely on now if you apply them in full and consistently with related persons,⁷⁸ set the same reporting condition and the same condition on payouts,⁷⁹ and let a value test stand in for a contribution limit: on our reading, all your trusts in Japan added together must be at or under US$600,000 at every point in the year (adjusted for inflation from 2026).⁸⁰

A corporate DC plan can also take in a lump-sum value moved from a DB plan,⁸¹ and Rev. Proc. 2020-17 protects a receiving trust only where the trust it came from qualifies too;⁸² a DB plan is unlikely to qualify, and no guidance says whether that affects a DC plan holding DB money.

No deferral: the treaty has no such article, and Article 17 is under the saving clause.

No deferral. The U.S.-Japan treaty has no article that defers U.S. tax on a plan's income or relieves contributions: its pension article covers only how payments are taxed.⁸³ Article 17(1) taxes a pension, lump sums included, only in the country where you live,^84,85 but the saving clause lets the United States tax its citizens and residents as if the treaty did not apply, and of Article 17 it spares only paragraph 3, on support payments.^86,87 The Technical Explanation says a U.S. citizen living in Japan is taxed by the U.S. on a pension.⁸⁸ Relief comes through the foreign tax credit for Japanese tax,⁸⁹ though Japan does not tax employer contributions when they are paid,⁵⁴ so the credit may give little relief in the year the U.S. taxes them. There is no treaty position to disclose on Form 8833 for a citizen; a treaty position on pensions would be waived in any case.⁹⁰

There is one exception. A green card holder who is a resident of Japan is not a U.S. resident under Article 4(2),⁹¹ so on our reading the saving clause does not reach them and Article 17(1) can apply. Treasury's explanation says someone resident in both countries is placed by the Article 4(3) tie-breaker,⁹² though by its words Article 4(3) covers individuals not described in Article 4(2),⁹³ so check that test before relying on this. Such a person can figure their U.S. tax as a nonresident, filing Form 1040-NR with Form 8833,⁹⁴ which may affect their green card,⁹⁵ but is still treated as a U.S. resident for other purposes,⁹⁶ so the cautious course is to keep filing Forms 3520 and 3520-A unless you rely on the proposed regulations, which treat you as not a U.S. person for that time.^97,78 For a long-term resident, starting to be treated as resident abroad under a treaty, without waiving its benefits, ends lawful permanent residence for tax purposes once the IRS is notified, and that is an expatriation.^98,99 Treasury officials told GAO few treaties address moves between plans,¹⁰⁰ and this one has no rule on whether a move is taxed. Where a treaty is silent, IRS officials said, there is generally no form of transfer that gets deferral.¹⁰¹

Part II and Form 3520-A once your own money exceeds the employer's; a wholly elective plan: Part I too, on the cautious course.

Read as a §402(b) trust with employer money in the plan: no Part I for any contribution.⁴⁴ No Part II or Form 3520-A for the employer-funded part; once your own contributions, including elective ones under a choice you can remake, exceed your employer's, Part II and Form 3520-A each year for the part they fund.^29,30,31,102 No Part III for payouts from the employer-funded part that you report as compensation income;⁴⁷ payouts from a part you own go on Part III, lines 24 and 27.⁴⁹ A payout traced to your own contributions that never exceeded the employer's is not settled, so the cautious course is Part III.^47,50 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.^45,103,104

A plan funded wholly by elective money, under a choice you can remake, takes the cautious course, with no IRS guidance: each year's contributions go on Part I, because the exception for employees' trusts may not reach a trust no employer pays into.^105,44 You are treated as owner of the account, so Part II and Form 3520-A are due each year,^{30,31,106,102} and payouts go on Part III, lines 24 and 27, as payouts to an owner.^50,49 On the same cautious course, Part I also applies at your death as a U.S. citizen or resident, if any part of the account is then treated as owned by you or is in your gross estate, unless the exception for a §402(b) trust reaches the account, as it may: your executor reports it, whether or not the executor is a U.S. person.^107,44 No Form 4970: the account's income is taxed to you each year as its owner.¹⁰⁴ If that plan is a §402(b) trust after all, the paragraph above applies.

If any other plan 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.^{105,106,102,50} 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: your executor reports it, whether or not the executor is a U.S. person.¹⁰⁷

When you leave, you can ask for your balance to be moved to iDeCo.¹⁰⁸ A balance not moved to another plan within six months from the month after you leave must be transferred to the National Pension Fund Association, which runs iDeCo, unless you stay in the plan only to give investment instructions.^109,110 No IRS guidance says how either move is reported on Form 3520. Once the balance is with the Association, the iDeCo block below applies, on its cautious course.¹¹¹

Either way, an eligible individual whose plan qualifies under Rev. Proc. 2020-17 or the proposed regulations files none of them.^53,78 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.^112,113,114 No IRS guidance names executors, and the revenue procedure's scope speaks of the eligible individual who would otherwise report.¹¹⁵ The funds a plan holds may be subject to the PFIC rules; 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.^116,117

A defined benefit corporate pension comes in two forms, contract-type and fund-type.¹¹⁸ In the contract type the employer runs the plan itself, with assets held outside the company under contracts with trust and life insurance companies, under rules agreed with its workforce.¹¹⁹ The employer must pay in,¹²⁰ and a member may bear part of the contribution, with consent, up to half.^121,122 The plan must provide an old-age benefit and a lump sum on leaving, and may add disability and survivor benefits.¹²³ The employer must keep a reserve at the end of each business year.¹²⁴

A foreign trust, on our reading, where the employer's contract is a trust contract.

A foreign trust, on our reading, where the contract for the plan's reserve is a trust contract with a trust company or a financial institution doing trust business.¹²⁵ That trust must have the people entitled to benefits as its beneficiaries.¹²⁶ Trustees holding the plan's assets for its members is what makes an arrangement a trust for U.S. purposes,¹⁶ and a plan governed by Japanese law and run in Japan meets neither test for a domestic trust.^17,18 No IRS guidance addresses Japanese plans, though the IRS has ruled privately that a foreign pension fund paying benefits by a salary and service formula is a trust.¹²⁷ A plan held under an insurance contract instead is covered in its own block below.

A §402(b) trust on our reading; ordinary member contributions can't exceed the employer's; a wholly elective plan is not settled.

We read a contract-type DB plan held in trust as a §402(b) employees' trust: the employer must pay in,¹²⁰ and a trust created outside the United States cannot be exempt under U.S. §501(a).²³ §402(d) treats a foreign trust as exempt only if it would otherwise qualify,²⁴ and on our reading nothing suggests this plan meets §401(a). No IRS ruling addresses Japanese plans; the IRS has ruled privately on a similar foreign fund.²¹

On that reading, employer contributions are U.S. income to you as they vest,^25,26 and the foreign earned income exclusion cannot cover them.²⁷ Plan rules can delay vesting, but not beyond 3 years of membership for the lump sum on leaving or 20 years for the old-age benefit.^128,129 A DB plan pools its money, so the employer's contribution for you may not be known; where it is not, the regulations use an amount worked out by a formula or by recognized actuarial principles.¹³⁰ Ask the plan for its figures. You are not treated as owner of the part the employer funds.²⁹

Ordinary member contributions can't be more than half of the contribution for you,¹²² so they can at most equal the employer's, and you become owner of a part only when yours exceed the employer's and the grantor trust rules are otherwise met.³⁰ In a pooled plan paying benefits by formula, whether income is held for you under those rules is not settled,³¹ so the cautious course is to treat yourself as owner of that part once yours exceed the employer's. Elective DB plans (sentakusei) are how yours can exceed the employer's. Employees choose whether to join: for those who join an employer contribution is paid in, and those who don't receive that amount as pay, and Japan does not treat the contribution as wages.^131,37 As for corporate DC, where you can remake the choice we read that money as your own for this count, taxed as pay, which the foreign earned income exclusion can cover,^38,39,40 and a one-time irrevocable choice made on first becoming eligible we read as the employer's.⁴¹

A plan funded wholly by elective money, under a choice you can remake, is not settled, as for corporate DC. No IRS guidance says whether it is an employees' trust described in §402(b), which reaches an employer's contributions,²⁵ though Japanese law calls the money an employer contribution.^120,37 Even read as a §402(b) trust, your contributions exceed your employer's, which are none, from the first payment.³⁰

Where the plan has employer money, no contribution to a §402(b) trust is a Part I event, your own included.⁴⁴ Payouts from the employer's part are taxed under §72 when they are paid or made available to you,^45,46 and they stay off Part III if you report them as compensation income,^47,48 unlike payouts from a part you own.⁴⁹ A payout traced to your own contributions that never exceeded the employer's is neither: no IRS guidance says whether it counts as compensation, so that is not settled, and the cautious course is Part III.^30,47,50 If you are a highly compensated employee and one reason the plan is not exempt is that it fails the U.S. coverage tests, you include your vested accrued benefit, less what has already been taxed to you, in income each year instead.⁵¹

Rev. Proc. 2020-17: unlikely: no contribution limit, and a lump sum on leaving at any age with no penalty.

Unlikely. Rev. Proc. 2020-17 exempts an eligible individual⁵² from Forms 3520 and 3520-A for a retirement trust that meets its conditions.⁵³ A DB plan is tax-favored: employer contributions are not employment income in Japan, and the plan's income is not taxed as it is earned.^{54,56,57,132,58} Its contributions can't discriminate unfairly.^133,72 The yearly reporting condition is open, as for corporate DC.^73,74,134

But on our reading two conditions don't fit. Rev. Proc. 2020-17 wants contributions limited by a percentage of earned income, an annual cap, or a lifetime cap.⁶³ The Ministry of Health, Labour and Welfare says there is no contribution limit for DB plans:¹³⁵ contributions are worked out actuarially to keep the plan in balance,¹³⁶ and though the law asks for a fixed amount, a percentage of pay, or another reasonable method, it sets no ceiling.¹³⁷ And Rev. Proc. 2020-17 wants payouts tied to a retirement age, disability or death, or a penalty on earlier ones.⁶⁶ The lump sum on leaving is a required benefit,¹²³ payable on leaving the employer at any age,^138,139 and Japan treats it as retirement income rather than penalizing it.¹⁴⁰ No IRS guidance addresses Japanese DB plans.

The proposed regulations, which you may rely on now if you apply them in full and consistently with related persons,⁷⁸ let a value test stand in for a contribution limit: on our reading, all your trusts in Japan added together at or under US$600,000 (adjusted for inflation from 2026), which a pooled plan may fail if the whole trust's value counts.⁸⁰ They keep the same condition on payouts,⁷⁹ so they are unlikely to help either.

No deferral: the treaty has no such article, and Article 17 is under the saving clause.

As for corporate DC: no article defers U.S. tax on the plan or relieves contributions,⁸³ and the saving clause leaves Article 17(1) out of reach for a U.S. citizen or resident,^86,87,84 so relief comes through the foreign tax credit,⁸⁹ which may give little relief in the year the U.S. taxes employer contributions, since Japan does not tax them when they are paid.⁵⁴

Part II and Form 3520-A only if elective money exceeds the employer's; a wholly elective plan: Part I too, on the cautious course.

Read as a §402(b) trust with employer money in the plan: no Part I for any contribution.⁴⁴ No Part II or Form 3520-A for the employer-funded part or for ordinary member contributions, which can't exceed it; if elective contributions under a choice you can remake take yours above the employer's, on the cautious course Part II and Form 3520-A each year for the part they fund.^29,30,31,102 No Part III for payouts from the employer-funded part that you report as compensation income;⁴⁷ payouts from a part you own go on Part III, lines 24 and 27.⁴⁹ A payout traced to ordinary member contributions is not settled, so the cautious course is Part III.^47,50 No Form 4970: payouts from a §402(b) trust are taxed under §72, not under the trust distribution rules.^45,103

A plan funded wholly by elective money, under a choice you can remake, takes the cautious course, with no IRS guidance: each year's contributions go on Part I, because the exception for employees' trusts may not reach a trust no employer pays into.^105,44 You are treated as owner of what your contributions fund, so Part II and Form 3520-A are due each year,^{30,31,106,102} and payouts go on Part III, lines 24 and 27, as payouts to an owner.^50,49 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.^107,44 No Form 4970: the income of that part is taxed to you each year.¹⁰⁴ If that plan is a §402(b) trust after all, the paragraph above applies.

Someone who leaves can ask to move the lump-sum value to another DB plan, a DC plan, iDeCo, or the Pension Fund Association where the rules allow;^141,142,143 no IRS guidance says how such a transfer is reported on Form 3520. FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^116,117

In the fund type, a separate corporate pension fund runs the plan and pays the benefits.¹⁴⁴ The fund is an association and a juridical person, made up of the employers and the plan's members.^145,146,147 The benefits and contribution rules are those of the contract type,^123,120,122 and the fund places its reserve through contracts with trust banks and insurers, or invests it itself.¹⁴⁸

Employees' Pension Funds are the older form: special corporations that also pay part of the public Employees' Pension, with contributions borne by employers and members.¹⁴⁹ None can be set up since April 1, 2014, and four remained in fiscal 2023.^150,151

Not settled: a corporate body in Japan; on the cautious course a foreign trust, resting on one private ruling.

Not settled. On the cautious course this guide reads it as a foreign trust, though it is a corporate body in Japan. In its contract with a trust bank, the fund itself is the beneficiary, not the members.¹⁵² But federal law, not local law, decides how an organization is classified.¹⁵³ An arrangement is a trust if its purpose is to vest in trustees the responsibility for protecting and conserving property for beneficiaries who cannot share in that responsibility,¹⁵⁴ and a fund whose purpose is to pay its members' benefits, governed by Japanese law and run in Japan, reads that way.^145,17 Its employers and members make up the fund,¹⁴⁷ which points the other way, since members may share in running it, but it carries on no business for profit. The IRS has ruled privately that a foreign pension entity, with employer and employee contributions and benefits by a salary and service formula, is a trust.¹²⁷ This rests on that one private ruling: no IRS guidance addresses Japanese funds. If a fund is not a trust, it is a foreign entity classified under the default rules,¹⁵⁵ and Forms 3520 and 3520-A don't reach it.

A §402(b) trust on that reading; ordinary member contributions can't exceed the employer's; wholly elective money is not settled.

On that reading, a fund-type plan is a §402(b) employees' trust like a contract-type plan: employer contributions are U.S. income as they vest,^25,26 the foreign earned income exclusion cannot cover them,²⁷ and vesting has the same limits.^128,129 Where the employer's contribution for you is not known, the regulations use a formula or actuarial value.¹³⁰

Ordinary member contributions in a DB fund can't be more than half of the contribution for you,¹²² so you become owner of a part only through elective contributions under a choice you can remake, which we read as your own, taxed as pay, which the foreign earned income exclusion can cover, and only if the grantor trust rules are otherwise met.^30,37,38,40 A one-time irrevocable choice made on first becoming eligible we read as the employer's.⁴¹ In a pooled fund paying benefits by formula, whether income is held for you under those rules is not settled,³¹ so the cautious course is to treat yourself as owner of that part once yours exceed the employer's. In an Employees' Pension Fund, compare your contributions with the employer's from the fund's own figures.¹⁴⁹

A fund with wholly elective money, under a choice you can remake, is not settled, as for corporate DC: no IRS guidance says whether it is an employees' trust described in §402(b), which reaches an employer's contributions.²⁵

Where the fund has employer money, no contribution to a §402(b) trust is a Part I event, your own included.⁴⁴ Payouts from the employer's part are taxed under §72,^45,46 and they stay off Part III if you report them as compensation income,⁴⁷ unlike payouts from a part you own.⁴⁹ A payout traced to your own contributions that never exceeded the employer's is neither: no IRS guidance says whether it counts as compensation, so that is not settled, and the cautious course is Part III.^30,47,50 The rule for highly compensated employees applies as in other §402(b) plans.⁵¹

Rev. Proc. 2020-17: unlikely, for the same reasons as a contract-type plan.

Unlikely, for the same reasons as a contract-type plan: no contribution limit,^135,63 and a required lump sum on leaving at any age, with no penalty.^123,138,66 The proposed regulations' value test does not change the condition on payouts.^79,80 An Employees' Pension Fund should be checked against the same two conditions.⁵³

No deferral: the treaty has no such article, and Article 17 is under the saving clause.

As for corporate DC: no article defers U.S. tax on the fund or relieves contributions,⁸³ and the saving clause leaves Article 17(1) out of reach for a U.S. citizen or resident,^86,87,84 so relief comes through the foreign tax credit,⁸⁹ which may give little relief in the year the U.S. taxes employer contributions, since Japan does not tax them when they are paid.⁵⁴

Part II and Form 3520-A only if your money exceeds the employer's; a wholly elective fund: Part I too, on the cautious course.

Read as a §402(b) trust with employer money in the fund: no Part I for any contribution.⁴⁴ No Part II or Form 3520-A for the employer-funded part; if your own contributions, including elective ones under a choice you can remake, exceed your employer's, on the cautious course Part II and Form 3520-A each year for the part they fund.^29,30,31,102 No Part III for payouts from the employer-funded part that you report as compensation income;⁴⁷ payouts from a part you own go on Part III, lines 24 and 27.⁴⁹ A payout traced to your own contributions that never exceeded the employer's is not settled, so the cautious course is Part III.^47,50 No Form 4970: payouts from a §402(b) trust are taxed under §72, not under the trust distribution rules.^45,103

A fund with wholly elective money, under a choice you can remake, takes the cautious course, with no IRS guidance: each year's contributions go on Part I, because the exception for employees' trusts may not reach a trust no employer pays into.^105,44 You are treated as owner of what your contributions fund, so Part II and Form 3520-A are due each year,^{30,31,106,102} and payouts go on Part III, lines 24 and 27, as payouts to an owner.^50,49 On the same cautious course, Part I also applies at your death as a U.S. citizen or resident, if any part of the fund is then treated as owned by you or is in your gross estate, unless the exception for a §402(b) trust reaches the fund, as it may: your executor reports it, whether or not the executor is a U.S. person.^107,44 No Form 4970: the income of that part is taxed to you each year.¹⁰⁴ If a fund is not a trust, none of these apply. FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^116,117

Japanese law lets a DC plan's reserve be held under a life insurance, mutual aid life insurance, or non-life insurance contract instead of a trust, with the members as the insured.^156,157 A contract-type DB plan may use a life insurance or mutual aid life insurance contract, with the people entitled to benefits as the payees.¹⁵⁸ Check your plan's documents for which kind of contract it uses.¹¹

Not a trust, on our reading; if the documents don't make clear which it is, treat it as held in trust.

Not a trust, on our reading: a trust for U.S. purposes needs trustees holding property for the beneficiaries,¹⁶ and an insurance contract creates no trustee. That holds on our reading for a DC contract too, where your instructions decide how the premiums are invested.¹⁵⁹ No IRS guidance addresses these contracts, so check the plan's documents; if they don't make clear that there is no trust, the cautious course is to treat the plan as held in trust.

§402(b) doesn't reach a contract; employer premiums for an annuity contract are pay under §403(c).

§402(b) reaches only an employer's contributions to an employees' trust,²⁵ 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,¹⁶⁰ and the foreign earned income exclusion cannot cover them;¹⁶¹ no IRS guidance says whether these contracts are annuity contracts. If one is instead a contract providing life insurance protection, its cash value and other rights, apart from current life protection, count as property under the same rules, so the result is much the same.¹⁶²

Not needed for a contract.

Since §6048 reaches only foreign trusts.¹⁰⁵

No deferral: Article 17 is under the saving clause.

No deferral. Payments from private retirement arrangements fall under Article 17(1),¹⁶³ which the saving clause leaves out of reach for a U.S. citizen or resident,^86,87 so relief comes through the foreign tax credit,⁸⁹ which may give little relief in the year the U.S. taxes employer premiums, since Japan does not tax them when they are paid.⁵⁴

Nothing on Form 3520 or 3520-A for a contract.

For a contract: no Part I, Part II, Form 3520-A, Part III, or Form 4970, since Forms 3520 and 3520-A report foreign trusts.^105,102,50 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^116,117

Under Japan's retirement mutual aid law for small and medium-sized employers, an employer contracts with a government corporation (the Workers' Retirement Allowance Mutual Aid Organization, our rendering of its name) to pay it a monthly premium for each employee, and the corporation pays the employee a retirement benefit on leaving.^164,165 The employee takes the benefit of the contract automatically.¹⁶⁶ A benefit needs at least 12 months of premiums, and the law sets its amount by formula.¹⁶⁷ Approved bodies run similar schemes.¹⁶⁸

Not a trust, on our reading: a contract between the employer and a government corporation.

Not a trust, on our reading. It is a contract in which a government corporation promises the employer to pay a benefit,¹⁶⁴ and no trustee holds property for you.¹⁶ No IRS guidance addresses it.

§402(b) doesn't reach a contract; even as a trust, only the employer pays in, so you would own no part.

§402(b) reaches only an employer's contributions to an employees' trust,²⁵ 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,¹⁶⁰ and the foreign earned income exclusion cannot cover them;¹⁶¹ no IRS guidance says whether this contract is one. Even if it were a trust, only the employer pays in, so you would not be owner of any part.²⁹

Not needed.

Since §6048 reaches only foreign trusts.¹⁰⁵

No deferral: Article 17 is under the saving clause.

No deferral. Payments from private retirement arrangements fall under Article 17(1),¹⁶³ which the saving clause leaves out of reach for a U.S. citizen or resident,^86,87 so relief comes through the foreign tax credit,⁸⁹ which may give little relief in the year the U.S. taxes employer premiums, since Japan does not tax them when they are paid.¹⁶⁸

Nothing on Form 3520 or 3520-A.

No Part I, Part II, Form 3520-A, Part III, or Form 4970: on our reading there is no foreign trust.^105,102,50 Even if this were a trust, it would be an employer-funded §402(b) trust, with no contribution from you to report and payouts reported as compensation.^44,29,47 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^116,117

An employer may pay a retirement allowance under its rules of employment.¹⁶⁹ Japanese law only asks the employer to try to protect the money,¹⁷⁰ and taxes the payment as retirement income.¹⁷¹ The older tax-qualified pension contracts were to move to DB plans or other schemes by March 31, 2012.¹⁷²

Not a trust, on our reading: nothing is set aside for you with a trustee.

Not a trust, on our reading: a trust for U.S. purposes needs trustees holding property for the beneficiaries,¹⁶ and an allowance the employer pays from its own funds has none. An employer that funds its allowance through a DC or DB plan comes under the block above that fits. This guide has no block for an allowance funded through any other trust or insurance contract: ask your employer how it is funded, then test whether trustees hold property for you¹⁶ and, if they do, whether it is a §402(b) employees' trust.²⁵

§402(b) doesn't apply: there is no employees' trust.

§402(b) reaches only an employer's contributions to an employees' trust,²⁵ and there is none here. An unfunded and unsecured promise to pay in the future is not property under §83,¹⁷³ so on our reading you are taxed when you are paid.

Not needed.

Since §6048 reaches only foreign trusts.¹⁰⁵

No deferral: Article 17 is under the saving clause.

No deferral. Payments from private retirement arrangements for past employment fall under Article 17(1),¹⁶³ which the saving clause leaves out of reach for a U.S. citizen or resident,^86,87 so relief comes through the foreign tax credit.⁸⁹

Nothing on Form 3520 or 3520-A.

No Part I, Part II, Form 3520-A, Part III, or Form 4970: there is no foreign trust.^105,102,50 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^116,117

iDeCo is a pension system run by one national body, the National Pension Fund Association, under the Defined Contribution Pension Act.^110,174 You join by request, pay in yourself, and choose the investments.^175,176,177 A small employer may add its own contributions for employees who pay in through payroll (iDeCo+).¹⁷⁸ The 2026 monthly cap is ¥68,000 for Category I members, such as the self-employed, and ¥23,000 for employees with no workplace plan, rising on December 1, 2026 to ¥75,000 and ¥62,000.^179,180,181 From the same date people aged 60 to under 70 can join or stay in, on conditions.^182,183

Not settled: the Act sets no trust contract for iDeCo, but no IRS guidance says it is not a trust.

Not settled, and no IRS guidance addresses iDeCo. A U.S. trust is an arrangement whose purpose is to vest in trustees the responsibility for protecting and conserving property for beneficiaries who cannot share in that responsibility.¹⁵⁴ Federal law, not Japan's label, decides whether iDeCo is one.¹⁵³

The argument that it is not a trust: unlike the corporate plan, the Act sets no trust contract for iDeCo. It is a pension system the Association runs,¹¹⁰ which may hand off the management and safekeeping of the reserve to others,¹⁸⁴ and the Act names no member as a trust beneficiary. The argument that it may be one: a single body holds the reserve to pay members' benefits on the Act's terms,^185,186 and the IRS has ruled privately that a foreign pension entity is a trust,¹²⁷ and one of the funds it has ruled on let its members choose their investments.²⁰ With the question open and the penalty for a missing Form 3520-A large,¹⁸⁷ this guide takes the cautious course of treating iDeCo as a foreign trust.

Does not apply where only you pay in; the employer's part of iDeCo+ is open.

§402(b) reaches only an employer's contributions to an employees' trust,²⁵ so it does not apply to an account only you pay into. Where a small employer adds contributions (iDeCo+),¹⁷⁸ how the employer's part is treated is open: no IRS guidance addresses it. On a §402(b) reading it would follow the corporate DC block above, with your contributions compared to the employer's.³⁰

Rev. Proc. 2020-17: unlikely, since contributions need not come from earnings. Proposed regulations: possible, but open.

Rev. Proc. 2020-17 needs contributions only from earned income,⁶⁰ while iDeCo takes dependent spouses (Category III) and Category I members such as students,^188,189 so it is unlikely to cover iDeCo. The employer-plan condition does not apply to a plan no employer maintains;⁷² whether iDeCo+ changes that is open.

The proposed regulations need contributions only "generally" from earned income, "with allowances made for limited contributions made by unemployed individuals",^190,78 so they may cover iDeCo. Its contributions are deductible and its income is not taxed as it is earned,^55,186,57 and its cap is far under the US$75,000 annual limit: ¥816,000 a year at the 2026 monthly rate, about $5,453 at the IRS's 2025 average rate.^180,62,191 Benefits generally start at 60,^192,185 but someone under 60 who has left and can't join iDeCo can take a lump sum within two years, for a balance of ¥250,000 or less or for a contribution period of 5 years or less at any balance, with no penalty.^68,69 Leaving is not among the reasons the condition on payouts lists,⁷⁹ so whether iDeCo meets it is open. The yearly reporting condition is open, as for corporate DC.^74,77,73

No deferral: the treaty has no such article, and Article 17 is under the saving clause.

As for corporate DC: no article defers U.S. tax on iDeCo or relieves contributions,⁸³ and the saving clause leaves Article 17(1) out of reach for a U.S. citizen or resident,^86,87,84 so relief comes through the foreign tax credit.⁸⁹ The Technical Explanation covers pension fund payments under Article 17,¹⁶³ and the exception for a green card holder living in Japan is in the corporate DC block above.⁹¹

On the cautious course, full reporting, as for a foreign trust you own.

On the cautious course, you report it as a foreign trust you own: 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,^31,106 so Part II and Form 3520-A are due each year,¹⁰² and payouts go on Part III, lines 24 and 27, as payouts to an owner.^50,49 Each contribution you make as a U.S. person is a Part I transfer,¹⁰⁵ and 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.¹⁹³ Part I also applies at your death as a U.S. citizen or resident, if any part of the account 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.¹⁰⁷ Money moved in from a corporate plan when you left it joins the same reserve: no IRS guidance says how the move is reported or whether you are treated as owner of the part your employer funded, so that is not settled, and the cautious course is to report the whole balance.^108,109,31 If the Association does not file Form 3520-A, you attach a substitute to your Form 3520.¹⁹⁴ No Form 4970, because the income is taxed to you each year.¹⁰⁴ If iDeCo is not a trust, none of these apply. An eligible individual whose plan qualifies under the proposed regulations files none of them.⁷⁸ 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.^114,195 No IRS guidance names executors. The funds iDeCo holds may be subject to the PFIC rules; 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.^116,117

A voluntary top-up to the National Pension for self-employed people and others in Category I.^196,197 The fund is a juridical person, with its members paying contributions that it uses to pay annuities and a lump sum on death.^198,199,200 It can place its money under contracts with trust banks and insurers.²⁰¹ Contributions are capped at ¥68,000 a month in 2026 and ¥75,000 from December 1, 2026,²⁰² and are deductible like social insurance premiums.²⁰³

Not settled: Japan treats its premiums like social insurance, but the fund is a separate body holding its own assets.

Not settled, and no IRS guidance addresses the National Pension Fund. A U.S. trust is an arrangement whose purpose is to vest in trustees the responsibility for protecting and conserving property for beneficiaries who cannot share in that responsibility.¹⁵⁴ Federal law, not Japan's label, decides whether the fund is one.¹⁵³

The argument that it is not a trust: it sits within the National Pension Act, Japan treats its premiums like social insurance,²⁰³ and it is a juridical person made up of its members,¹⁹⁸ so the fund itself has no trustee or trust beneficiary, though it may place money under trust contracts.²⁰¹ The argument that it may be one: it is separate from the government's own National Pension,²⁰⁴ holds members' contributions to pay their benefits,^199,200 and the IRS has ruled privately that a foreign pension entity is a trust.¹²⁷ With the question open and the penalty for a missing Form 3520-A large,¹⁸⁷ this guide takes the cautious course of treating it as a foreign trust.

Does not apply: no employer pays in.

§402(b) reaches only an employer's contributions to an employees' trust,²⁵ so it does not apply to a fund only you pay into.

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

Rev. Proc. 2020-17 needs contributions only from earned income,⁶⁰ while Category I takes people who may have none, such as students,¹⁸⁹ so it is unlikely to cover the fund. The proposed regulations need contributions only "generally" from earned income, "with allowances made for limited contributions made by unemployed individuals",^190,78 so they may cover it. Its contributions are deductible,²⁰³ its cap is ¥816,000 a year at the 2026 monthly rate, about $5,453 at the IRS's 2025 average rate,^202,62,191 and it pays annuities and a lump sum on death.^200,79 The yearly reporting condition is open, as for corporate DC.^74,73

No deferral: the treaty has no such article, and Article 17 is under the saving clause.

As for corporate DC: no article defers U.S. tax on the fund or relieves contributions,⁸³ and the saving clause leaves Article 17(1) out of reach for a U.S. citizen or resident,^86,87,84 so relief comes through the foreign tax credit.⁸⁹

On the cautious course, as for a foreign trust you own, unless an exemption applies.

On the cautious course, you report it as a foreign trust you own: you are treated as owner of the part your contributions fund, because its income is held for you, though in a fund paying annuities whether that test is met is not settled,^31,106 so Part II and Form 3520-A are due each year,¹⁰² and payouts go on Part III, lines 24 and 27, as payouts to an owner.^50,49 Each contribution you make as a U.S. person is a Part I transfer,¹⁰⁵ and one made within 5 years before your U.S. residency started goes on Part I for the year it started.¹⁹³ Part I also applies at your death as a U.S. citizen or resident, if any part of the fund 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.¹⁰⁷ If the fund does not file Form 3520-A, you attach a substitute to your Form 3520.¹⁹⁴ No Form 4970, because the income is taxed to you each year.¹⁰⁴ An eligible individual whose plan qualifies under the proposed regulations files none of them,⁷⁸ and if the fund is not a trust, none of these apply. 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.^114,195 No IRS guidance names executors. FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^116,117

Self-employed people and directors of small companies contract with a government corporation (the Organization for Small and Medium Enterprises and Regional Innovation, our rendering of its name) to pay it a monthly premium,^205,206 of at most ¥70,000 in 2026.²⁰⁷ It pays a benefit when the business closes, when a director leaves through illness, injury or death or at 65 or older, or on request at 65 after 180 months of premiums.²⁰⁸ You can cancel at any time.²⁰⁹ The premiums are deductible in Japan.²¹⁰

Not a trust, on our reading: a contract you choose and can cancel, unlike the pension entity the IRS ruled a trust.

Not a trust, on our reading. You are a party to a contract in which a government corporation promises to pay a benefit,²⁰⁵ and you can cancel it at any time, with a cancellation payment after 12 months of premiums.^209,211 No trustee holds property for you,¹⁶ and no IRS guidance addresses it.

The IRS has ruled privately that a foreign pension entity is a trust, where participation was mandatory, benefits followed a formula and members could not assign their interests.^127,212 Here too the rights can't be assigned and the law sets the amounts,^213,214 but on our reading the contract you choose to make, and your right to cancel it, set this apart from that ruling.

Does not apply: no employer pays in, and it is not a trust.

§402(b) reaches only an employer's contributions to an employees' trust,²⁵ and no employer pays into this contract.

Not needed.

Since §6048 reaches only foreign trusts.¹⁰⁵

No deferral: Article 17 is under the saving clause.

No deferral. Article 17 is under the saving clause, so the United States can tax a U.S. citizen or resident on what is paid,^86,87 and relief comes through the foreign tax credit.⁸⁹

Nothing on Form 3520 or 3520-A.

No Part I, Part II, Form 3520-A, Part III, or Form 4970, since Forms 3520 and 3520-A report foreign trusts.^105,102,50 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^116,117

NISA is Japan's tax exemption program for small investment,²¹⁵ an account opened by a resident aged 18 or older at a securities firm or other financial institution, with holdings recorded in the book-entry account or held in custody.^216,217 Since January 2024 the limits are ¥1.2 million a year for tsumitate investing and ¥2.4 million for growth investing, with ¥18 million in all.²¹⁸ From January 1, 2027 the age limit comes out of the definition.²¹⁹ Junior NISA took no new accounts after 2023.²²⁰

Not a trust, on our reading, for book-entry holdings: you are their presumed holder. Custody holdings turn on the terms.

Not a trust, on our reading, for holdings recorded in your own book-entry account. A participant is presumed the lawful holder of what is recorded in their account, for shares and, through the rule for bonds that also covers investment trust interests, for funds.^221,222,223 No trustee takes title for you,¹⁶ which is what sets such a holding apart from an arrangement where a manager holds title for the investor. No IRS guidance addresses NISA.

That presumption covers book-entry records only. A NISA can also hold securities in custody,²¹⁷ and the law we read does not say who holds title to those, so check the account terms. If they leave title with you, the same reading holds. If a firm or custodian holds title for you, whether that is a trust is not settled. The closest IRS ruling holds that an arrangement whose title-holder only holds and transfers title at the owner's direction is not a trust,²²⁴ but that ruling is narrow and does not apply where the title-holder does more than hold title.²²⁵ With the question open and the penalty for a missing Form 3520-A large,¹⁸⁷ the cautious course is to treat that holding as a foreign trust.

Zaikei savings (employee savings contracts for a deposit, securities, a pooled money trust or insurance) and private pension insurance are contracts with a financial institution or an insurer too;^226,227 a pooled money trust is the one to check, since it involves a trust. This guide does not cover a zaikei benefit contract, where an employer pays into a trust for its employees;²²⁸ the trust and §402(b) steps of the employer plan blocks are the tests to apply.

Does not apply: no employer pays in.

§402(b) reaches only an employer's contributions to an employees' trust,²⁵ and no employer pays into a NISA.

Not needed for a holding that is not a trust.

Since §6048 reaches only foreign trusts.¹⁰⁵ A holding reported on the cautious course gets no help from Rev. Proc. 2020-17, which covers only retirement trusts and medical, disability, or educational savings trusts,²²⁹ and on our reading a NISA is none of those.

No relief: a NISA is not a pension, and the U.S. taxes its income each year.

No relief. Article 17 covers pensions and annuities,⁸³ and a NISA is neither, so the United States taxes its income and gains each year for a U.S. citizen or resident.⁸⁶

Nothing on Form 3520 or 3520-A for book-entry holdings.

No Part I, Part II, Form 3520-A, Part III, or Form 4970 for book-entry holdings: Forms 3520 and 3520-A report foreign trusts.^105,102,50

For a holding in custody whose title a firm or custodian holds for you, the cautious course is to report it as a foreign trust you own: Part I for each payment in,¹⁰⁵ Part II and Form 3520-A each year,^31,106,102 and Part III, lines 24 and 27, for withdrawals.^50,49 Part I also applies at your death as a U.S. citizen or resident, if any part of the holding 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.¹⁰⁷ No Form 4970, because the income is taxed to you each year.¹⁰⁴ If the terms leave title with you, or the holding is not a trust, none of these apply. The funds a NISA holds may be subject to the PFIC rules; 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.^116,117

Japan has a general Trust Act: a trust can be made by agreement, by will, or by the owner's own declaration.^230,231 The Act provides for trusts in which a beneficiary takes on the settlor's death, and for successive beneficiaries.^232,233 Japan taxes a trust's income to its beneficiary,²³⁴ and treats a beneficiary who pays nothing as receiving a gift, or a bequest, when the trust takes effect.²³⁵ Tax law also provided for education fund trusts with a trust company, which let a lineal ascendant fund a trust for someone under 30, free of Japanese gift tax up to ¥15 million, for contracts from April 1, 2013 through March 31, 2026.²³⁶ If the trustee mainly runs a business for profit rather than holding property for the family, U.S. law may classify the arrangement as a business entity rather than a trust.²³⁷

A foreign trust, unless a U.S. court supervises it and U.S. persons control its substantial decisions.

An ordinary trust where the trustee holds property for the beneficiaries,¹⁶ and a foreign trust where a trustee in Japan administers it under Japanese law, since it then fails the court test, which alone makes it foreign, even where the trustee is a U.S. citizen.^17,18 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.²³⁸ 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.^239,240 A bare trust whose trustee only holds title for an adult entitled to the property may not be a trust for U.S. purposes,²²⁴ but that ruling is narrow,²²⁵ 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.²²⁴

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.¹⁰⁶ 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.¹⁹³ 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.²⁴¹ Otherwise, unless another grantor trust rule makes a U.S. person owner,³¹ no one is owner, and the trust is taxed as a separate, non-grantor trust.²⁴²

A Japanese trust can be ended by the settlor and the beneficiary together, unless its terms say otherwise.²⁴³ On our reading that meets the first test only where the settlor is the only beneficiary; a trust that pays only the settlor or the settlor's spouse during the settlor's life meets the second.²⁴¹

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,²⁴⁴ even if nothing is paid to a U.S. person that year;²⁴⁵ 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.²⁴⁶ 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.²⁴⁷ A beneficiary who first became a U.S. person more than 5 years after the transfer is not counted,²⁴⁸ 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.^249,250 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.^251,252 Once the exception fails for a year it is lost for good.²⁵³ 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.²⁵⁴ 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,²⁵⁵ and a U.S. beneficiary who alone can take the property is owner of it.^256,241

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;²⁵⁷ 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.^256,106,242 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.²⁵⁸ 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;²⁵⁹ otherwise the owner is treated as transferring it immediately before death and recognizes the gain.²⁶⁰

No relief.

The saving clause lets the United States tax its citizens and residents as if the treaty did not apply,⁸⁶ and none of the provisions it spares concerns foreign trust reporting.⁸⁷

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

A U.S. person who transfers property to the trust files Part I for that year.¹⁰⁵ A transfer to a foreign trust is treated as a sale, and you recognize any gain on what you transfer;²⁶¹ a transfer is not, to the extent anyone is treated as owning the part it funds.²⁶² 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.¹⁰⁷ 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).²⁵⁹ A U.S. owner files Part II and makes sure Form 3520-A is filed, or files a substitute, each year.^102,194 A U.S. beneficiary who receives a distribution files Part III for that year.⁵⁰ A distribution from a non-grantor trust that carries out income the trust kept in earlier years is an accumulation distribution, taxed with an interest charge on Form 4970.²⁶³ Form 4970 can also apply to a transferor taxed when the trust gains a U.S. beneficiary, as the owner step says.²⁵⁰ Rev. Proc. 2020-17 covers only retirement trusts and medical, disability, or educational savings trusts,²²⁹ so it does not reach an ordinary family trust.

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.²⁶⁴ 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.^265,78 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;²⁶⁶ 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,^{267,268,269,270} and where a U.S. person funded the trust, the loan instead makes it a grantor trust, and it still goes on Part III.²⁷¹

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.⁴⁹ 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;²⁷² without one, the default method applies even to a distribution from a grantor trust.²⁷³ From a non-grantor trust you may use the actual method if you have a Foreign Nongrantor Trust Beneficiary Statement,²⁷⁴ 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,^275,263,276 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.²⁷⁷ 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.²⁷⁸ The statute treats the whole distribution as an accumulation distribution where adequate records are not given;²⁷⁹ the default method is the IRS's relief from that, open if you can give the trust's distributions for the three years before,²⁸⁰ and where there were none, it too makes the whole distribution an accumulation distribution.²⁷⁵ A foreign trust's distributable net income, the income its distributions carry out, includes its capital gains,²⁸¹ and the exception for income kept before a beneficiary was born or turned 21 does not apply to it.²⁸² FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.²⁸³