New Zealand

KiwiSaver is a work-based retirement savings scheme run by independent providers.¹ Employers must pay a compulsory contribution for each employee member aged 16 or over and under 65 whose own contributions are deducted from pay, other than a member of a defined benefit scheme:^2,3 3.5% of gross pay from 1 April 2026 (3% before, and 16 and 17-year-olds included only from then), rising to 4% from 1 April 2028.^4,5,6 Employee members pay in 3.5% (3% before 1 April 2026), 4%, 6%, 8%, or 10% of their pay, as they choose, or 3% for 3 to 12 months at a time under a temporary rate reduction;^7,8,9 a new employee is enrolled automatically but may opt out in the first weeks of the job, and a member may apply for a savings suspension.^10,11,12

From the year starting 1 July 2025, the government adds 25 cents for each dollar a member contributes in the year to 30 June, up to NZ$260.72, unless the member's taxable income is over NZ$180,000;^13,14,15 for the years ended 30 June 2012 to 2025 it added 50 cents, up to NZ$521.43.¹⁶ Any New Zealand citizen or permanent resident living or normally living in New Zealand may join, including the self-employed and people not working,¹⁷ and members and others may pay into an account at any time.^18,19,20,21 So the employer pays in, the member pays in, and so do the government and anyone else who chooses to.

A foreign trust, on our reading.

Every KiwiSaver scheme must be a trust established and governed by a trust deed under New Zealand law, and its custodian holds the scheme property on trust,^22,23,24 which is what makes an arrangement a trust for U.S. purposes: trustees holding property to protect or conserve it for the beneficiaries.²⁵ A trust is domestic only if a U.S. court can exercise primary supervision over it and U.S. persons control its substantial decisions. A scheme governed by New Zealand law and run in New Zealand meets neither test, so it is foreign.^26,27

No IRS guidance addresses KiwiSaver's classification, and its legal form is the same as an ordinary managed fund's: a scheme in which people contribute money for returns produced by someone else's efforts.²⁸ An investment trust whose manager can vary its investments is not classified as a trust,²⁹ but we read KiwiSaver as one. The law fixes its purpose as providing retirement benefits, locks members' savings in until retirement age, and bars assigning or charging them,^30,31,32 and those are features of the funds the IRS has ruled privately are trusts, one of them a fund whose members chose their own investments.^33,34

We read the employer-paid part as a §402(b) employees' trust.

No IRS ruling addresses KiwiSaver, though the IRS has ruled privately that a similar foreign fund, with mandatory employer contributions and personal accounts, is a §402(b) trust.³⁵ We read the employer-paid part as a §402(b) employees' trust: the compulsory employer contribution is a contribution by an employer to a trust for its employees,² and a trust created outside the United States cannot be exempt under U.S. §501(a).³⁶ §402(d) treats a foreign trust as exempt only if it would otherwise qualify,³⁷ 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,^38,39 and the foreign earned income exclusion cannot cover them.⁴⁰ Compulsory employer contributions vest in you as soon as they are paid to the provider.⁴¹ You are not treated as owner of the part they fund.⁴² We read your own contributions as made at your election, since you choose the rate and could opt out or suspend them,^10,11,12 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.⁴³ The U.S. rules for §401(k) plans, which do not govern a foreign plan, point the same way by analogy: automatic enrollment with a right to opt out still counts as an election,⁴⁴ though a one-time choice made on first becoming eligible that can never be changed does not;⁴⁵ KiwiSaver contributions can be suspended after 12 months, so they are not that kind of choice.¹² 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.⁴⁶ Unless you and your employer agree to have its contribution taxed as your salary under the PAYE rules, the contribution reaches the scheme net of employer superannuation contribution tax (ESCT), at a rate set by your earnings.^47,48 ESCT is your employer's tax, not yours: New Zealand law makes your employer pay it,⁴⁹ and the U.S. foreign tax credit goes to the person a foreign law makes liable for a tax.⁵⁰ So the ESCT is not a contribution for you. We count your employer's contribution as the scheme receives it, after ESCT, and the ESCT is neither added to your U.S. income nor a tax you can credit. At the same rate as your employer, your contributions therefore exceed your employer's from your first payday, and you are treated as owner of the part they fund from then on, if the grantor trust rules are otherwise met. If you and your employer agree instead to have its contribution taxed as your salary,⁵¹ it is added to your gross pay for the pay period and taxed under PAYE at your tax code, and your employer pays the scheme either the whole contribution or the contribution less the income tax on it.⁵² That tax is then your own, so it counts with the rest of the New Zealand tax on your pay for the U.S. foreign tax credit, and the whole contribution, before that tax, is U.S. income to you. Because it is also in your New Zealand gross pay, make sure it is counted only once, and that you don't exclude what reaches the scheme under the foreign earned income exclusion, which can't cover it.⁴⁰ No contribution to a §402(b) trust is a Part I event, your own included.⁵³ Payouts are taxed under §72 when they are paid or made available to you,^54,55 and an amount you could withdraw just by asking counts as made available, which for KiwiSaver is the whole account from the New Zealand superannuation age;^56,57,58 they stay off Part III if you report them as compensation income,^59,60 unlike payouts from a part you own.⁶¹

The government contribution comes from neither you nor your employer, so §402(b)(1), which reaches only an employer's contributions, does not cover it,³⁸ and no IRS guidance addresses it or any other foreign government's contribution. There are two readings, and neither is settled. One is that it counts as your own contribution: it is worked out on your own contributions and credited to you, vesting at once, and it can be paid to you directly if you have died, have no provider, or are seriously ill;^62,63 and someone who funds a trust on another person's behalf makes both of them grantors.⁶⁴ On that reading it counts with your own contributions when they are compared with your employer's, and it is likely income to you when it is paid in: the IRS treats a government program's payments as income unless an exclusion applies, judged under U.S. law, and the welfare exclusion needs a payment based on need,⁶⁵ which this one, open to anyone earning NZ$180,000 or less, is not.¹⁴ The other is that the government is the contributor: New Zealand law gives the tax credit itself to your provider and calls the amount a Crown contribution for you.^66,67 On that reading it is left out of the comparison and taxed only when paid out; when the United States made its own government match, the Saver's Match, it treated the match as the saver's contribution but as pre-tax money, not income when contributed and taxed when paid out.^68,69 If you include it in your income for the year it is paid in, it is your basis; if you don't, it is taxed when it is paid out, so it is taxed once either way.⁷⁰ The NZ$1,000 kick-start the government paid to members who joined before 2pm on 21 May 2015, which vested at once, reads the same way.^71,72

If you are a highly compensated employee and one reason the scheme 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.⁷³

Rev. Proc. 2020-17: unlikely. The proposed regulations: possible, with open questions.

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)⁷⁴ from Forms 3520 and 3520-A for a retirement trust that meets its conditions.⁷⁵ KiwiSaver meets or points toward four of them. It is tax-favored: contributions earn the government contribution, which arises from a tax credit, and Rev. Proc. 2020-17 counts contributions that give rise to a tax credit or a government contribution.^76,77 Employers pay KiwiSaver deductions and employer contributions to Inland Revenue with payroll, and Inland Revenue works out each resident member's tax on scheme income at year end, which points to meeting the reporting condition.^78,79,80 Withdrawals wait until the New Zealand superannuation age, apart from first-home, death, hardship, serious-illness, and emigration withdrawals;^31,81 Rev. Proc. 2020-17 accepts withdrawals for hardship and buying a home, but moving abroad is not among its examples.⁸² And every employee member gets the compulsory employer contribution, which points to meeting the employer-plan condition.^83,2

Two conditions are not met on the face of New Zealand law. Condition (3) permits only contributions from earned income,⁸⁴ but any New Zealand citizen or resident living there may join, including people not working, and anyone may pay into a member's account.^18,19,20 Condition (4) needs contributions limited to a percentage of earned income, US$50,000 a year, or US$1,000,000 for life;⁸⁵ members may pay in voluntarily at any time, and the KiwiSaver Act sets no limit on those payments.²¹ With no IRS guidance on KiwiSaver, Rev. Proc. 2020-17 is unlikely to cover it.

The proposed regulations, which you may rely on now if you apply them in full and consistently with related persons,⁸⁶ loosen both conditions. Contributions need only “generally” come from earned income,⁸⁷ and a scheme qualifies without a contribution limit if your schemes in New Zealand together stay at or under US$600,000 at every point in the year (adjusted for inflation from 2026).⁸⁸ Every condition must be “established by the laws” of the scheme's country, and New Zealand law sets no limit on a balance,⁸⁹ but the preamble ties the value test to the Form 8938 thresholds, which measure an account's actual value.⁹⁰ We read it as the actual value, and the app's exemption check asks it that way. Whether “generally” covers KiwiSaver's open contributions is not settled.

No deferral, and no effect on reporting.

The U.S.–New Zealand treaty does not defer U.S. tax on a scheme's earnings or exclude contributions. Its pension article covers pensions, annuities, and social security payments once paid.⁹¹ For a U.S. citizen or resident, the saving clause leaves the United States free to tax as if the treaty did not apply, and of the pension article it keeps only the rule for social security payments.^92,93 There is no treaty position to claim, with one exception: a green card holder who is also resident in New Zealand under its law, and whom the treaty's tie-breaker rule treats as resident only in New Zealand,⁹⁴ is not a U.S. resident for the treaty, so the saving clause does not reach them.⁹² Such a person can figure their U.S. tax as a nonresident, filing Form 1040-NR with Form 8833,⁹⁵ 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.^97,86 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 The IRS has said of Canadian plans that Forms 3520 and 3520-A still apply even where a treaty defers tax.¹⁰⁰ Treasury officials told GAO few treaties address moves between plans,¹⁰¹ 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.¹⁰²

Part II and 3520-A for your part: at equal rates, from the first payday, or the first government contribution if paid in gross.

Read as a §402(b) trust: no Part I for any contribution.⁵³ No Part II or Form 3520-A for the employer-funded part; once your own contributions exceed your employer's, Part II and Form 3520-A each year for the part they fund.^42,46,103 At the same rate as your employer, that is from your first payday, because tax comes off your employer's contribution before it reaches the scheme: ESCT,⁴⁷ or, if you and your employer agree to have it taxed as your salary under the PAYE rules, the income tax on it, unless your employer pays the scheme the gross amount and takes that tax from your pay.^51,52 Then your contributions equal your employer's only until a government contribution is paid in for you; on the reading above, which counts that contribution as yours and is not settled, yours exceed your employer's from then on, and the cautious course follows that reading. No Part III for payouts from the employer-funded part that you report as compensation income;⁵⁹ payouts from a part you own go on Part III, lines 24 and 27.⁶¹ An amount made available to you, as the §402(b) step reads it, is taxed in the year it is made available.⁵⁴ 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.^104,105,59 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.^104,59 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.^54,106,107

A member whose employer never pays in, such as a self-employed member, funds the whole account, so it is reported as a personal superannuation scheme (below). We treat it this way as the cautious course: no IRS guidance says whether a KiwiSaver member with no employer money is within an employees' trust. 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.^{108,109,103,110} 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.¹¹¹ Either way, an eligible individual whose scheme qualifies under Rev. Proc. 2020-17 or the proposed regulations files none of them.^75,86 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 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^116,117

Outside KiwiSaver, an employer's scheme is registered either as a workplace savings scheme, which provides retirement benefits and benefits on leaving the employer, or as a superannuation scheme, which is either a defined benefit scheme or one that allocates contributions to each member.^118,119 An employer may pay its compulsory contribution into a complying superannuation fund instead of a KiwiSaver scheme.¹²⁰

A foreign trust, on our reading.

Every workplace savings scheme and superannuation scheme must be a trust established and governed by a trust deed under New Zealand law.^118,121,25 Governed by New Zealand law and run in New Zealand, it meets neither test for a domestic trust.^26,27

The employer-paid part reads as a §402(b) employees' trust, as for KiwiSaver.

Where the employer pays in, read the employer-paid part as a §402(b) employees' trust, as in the KiwiSaver block above: employer contributions are U.S. income when paid, to the extent vested, and you are not treated as owner of the part they fund;^38,39,42 once your own contributions exceed your employer's, you are treated as owner of the part yours fund, if the grantor trust rules are otherwise met.⁴⁶ Employer's superannuation contribution tax (ESCT) is taken from your employer's cash contributions to any superannuation fund, not only KiwiSaver,¹²² so, as in the KiwiSaver block, we count them as the scheme receives them, after ESCT; a defined benefit scheme's employer may use a flat 33% rate instead.¹²³ As there, ESCT is your employer's tax, not U.S. income to you and not a tax you can credit,^49,50 and if you and your employer agree to have its contributions taxed as your salary under PAYE instead, the tax is yours and the whole contribution is U.S. income to you, as the KiwiSaver block describes.⁵¹ 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,¹²⁴ so whether your contributions exceed it depends on the scheme. No contribution is a Part I event,⁵³ and payouts are taxed under §72.⁵⁴ No IRS guidance addresses New Zealand workplace schemes.

It turns on each scheme's trust deed; no IRS guidance.

Rev. Proc. 2020-17 turns on each scheme's rules.⁷⁵ A workplace savings scheme pays benefits on leaving the employer, not only at a retirement age,¹¹⁸ so condition (5) is met only if those payments carry penalties.⁸² A superannuation scheme must restrict withdrawals to those the superannuation scheme rules in the regulations permit,¹²⁵ so condition (5) turns on those rules. Conditions (3) and (4) turn on whether the trust deed takes contributions only from earned income and limits them.^84,85 The proposed regulations may help where your schemes in New Zealand stay at or under the value threshold.^88,86

No deferral, and no effect on reporting.

Same as KiwiSaver: no deferral, and no effect on reporting.^91,92,100

As for KiwiSaver, on the §402(b) reading.

No Part I;⁵³ Part II and Form 3520-A only for a part your own contributions fund;^46,103 no Part III for payouts from the employer-funded part that you report as compensation income;⁵⁹ payouts from a part you own go on Part III, lines 24 and 27;⁶¹ and no Form 4970, because payouts are taxed under §72.^54,106 An eligible individual whose scheme qualifies under Rev. Proc. 2020-17 or the proposed regulations files none of them.^75,86 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^116,117

Individuals can join a superannuation scheme directly, outside an employer: the scheme must provide retirement benefits and may admit individuals as members.¹²¹ A KiwiSaver account that no employer pays into, such as a self-employed member's, is funded the same way: by the member and anyone else who chooses to pay in.^19,20

A foreign trust, on our reading.

A superannuation scheme, like a KiwiSaver scheme, must be a trust established and governed by a trust deed under New Zealand law.^121,22,25 It meets neither test for a domestic trust.^26,27

Does not apply where no employer pays in.

§402(b) reaches only an employer's contributions to an employees' trust,³⁸ so it does not apply to a scheme only you pay into.

Rev. Proc. 2020-17: unlikely for a scheme open to any contribution. The proposed regulations: possible under the value test.

Rev. Proc. 2020-17 needs contributions only from earned income, limited by a percentage of earned income or a dollar cap, and withdrawals tied to retirement, disability, or death or penalized before them.^84,85,82 A scheme that takes any contribution at any time, as KiwiSaver does, is unlikely to qualify.²¹ The employer-plan condition does not apply to a scheme no employer maintains.⁸³ The proposed regulations may cover a scheme whose value stays at or under the threshold, with the same open questions as KiwiSaver.^88,86

No deferral, and no effect on reporting.

Same as KiwiSaver: no deferral, and no effect on reporting.^91,92,100

Full reporting for a scheme only you pay into.

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,^126,109 so Part II and Form 3520-A are due each year,¹⁰³ and payouts go on Part III.¹¹⁰ Each contribution you make as a U.S. person is a Part I transfer,¹⁰⁸ 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.¹²⁷ 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.¹¹¹ If the scheme does not file Form 3520-A, you attach a substitute to your Form 3520.¹²⁸ No Form 4970, because the income is taxed to you each year.¹⁰⁷ An eligible individual whose scheme qualifies under Rev. Proc. 2020-17 or the proposed regulations files none of these.^75,86 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 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 trust set up under New Zealand law, during someone's life or by their will, in which a trustee holds investments or a business for family members.²⁵ 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.¹²⁹

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,²⁵ and a foreign trust where a trustee in New Zealand administers it under New Zealand law, since it then fails the court test, which alone makes it foreign, even where the trustee is a U.S. citizen.^26,27 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.¹³⁰ 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.^131,132 A bare trust whose trustee only holds title for an adult entitled to the property may not be a trust for U.S. purposes,¹³³ but that ruling is narrow,¹³⁴ 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.¹³³

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.¹⁰⁹ 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.¹²⁷ 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.¹³⁵ Otherwise, unless another grantor trust rule makes a U.S. person owner,¹²⁶ no one is owner, and the trust is taxed as a separate, non-grantor trust.¹³⁶

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,¹³⁷ even if nothing is paid to a U.S. person that year;¹³⁸ 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.¹³⁹ 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.¹⁴⁰ A beneficiary who first became a U.S. person more than 5 years after the transfer is not counted,¹⁴¹ 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.^142,143 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.^144,145 Once the exception fails for a year it is lost for good.¹⁴⁶ 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.¹⁴⁷ 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,¹⁴⁸ and a U.S. beneficiary who alone can take the property is owner of it.^149,135

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;¹⁵⁰ 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.^149,109,136 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.¹⁵¹ 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;¹⁵² otherwise the owner is treated as transferring it immediately before death and recognizes the gain.¹⁵³

No relief.

The saving clause leaves the United States free to tax its citizens and residents as if the treaty did not apply,⁹² and none of the provisions it spares concerns foreign trust reporting.⁹³

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.¹⁰⁸ A transfer to a foreign trust is treated as a sale, and you recognize any gain on what you transfer;¹⁵⁴ a transfer is not, to the extent anyone is treated as owning the part it funds.¹⁵⁵ 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.¹¹¹ 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).¹⁵² A U.S. owner files Part II and makes sure Form 3520-A is filed, or files a substitute, each year.^103,128 A U.S. beneficiary who receives a distribution files Part III for that year.¹¹⁰ 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 4970.¹⁵⁶ Form 4970 can also apply to a transferor taxed when the trust gains a U.S. beneficiary, as the owner step says.¹⁴³ Rev. Proc. 2020-17 does not apply: it covers only retirement trusts and medical, disability, or educational savings trusts.¹⁵⁷

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.¹⁵⁸ 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.^159,86 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;¹⁶⁰ 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,^{161,162,163,164} and where a U.S. person funded the trust, the loan instead makes it a grantor trust, and it still goes on Part III.¹⁶⁵

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.⁶¹ 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;¹⁶⁶ without one, the default method applies even to a distribution from a grantor trust.¹⁶⁷ From a non-grantor trust you may use the actual method if you have a Foreign Nongrantor Trust Beneficiary Statement,¹⁶⁸ 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,^169,156,170 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.¹⁷¹ 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.¹⁷² The statute treats the whole distribution as an accumulation distribution where adequate records are not given;¹⁷³ the default method is the IRS's relief from that, open if you can give the trust's distributions for the three years before,¹⁷⁴ and where there were none, it too makes the whole distribution an accumulation distribution.¹⁶⁹ A foreign trust's distributable net income, the income its distributions carry out, includes its capital gains,¹⁷⁵ and the exception for income kept before a beneficiary was born or turned 21 does not apply to it.¹⁷⁶ FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.¹⁷⁷

A trust with a New Zealand resident trustee whose settlors have not been New Zealand residents can be a foreign exemption trust, which New Zealand exempts from tax on its foreign income if the trustee registers it with Inland Revenue and files its annual returns.^178,179

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

A trust, since a trustee holds property for the beneficiaries,²⁵ and a foreign one unless a U.S. court supervises it and U.S. persons control its substantial decisions: one administered by a New Zealand trustee under New Zealand law meets neither test.^26,27 Check the trust deed for its governing law.

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

As for a family trust. A U.S. person who transfers property to the trust is treated as owner of the part it funds for any year in which it has a U.S. beneficiary,¹⁰⁹ and someone who funds it and becomes a U.S. resident within 5 years is treated as transferring that part on the day their residency starts.¹²⁷ 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.¹³⁵

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,¹³⁷ even if nothing is paid to a U.S. person that year;¹³⁸ 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.¹³⁹ 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.¹⁴⁰ A beneficiary who first became a U.S. person more than 5 years after the transfer is not counted,¹⁴¹ 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.^142,143 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.^144,145 Once the exception fails for a year it is lost for good.¹⁴⁶ 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.¹⁴⁷ 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,¹⁴⁸ and a U.S. beneficiary who alone can take the property is owner of it.^149,135

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;¹⁵⁰ 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.^149,109,136 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.¹⁵¹ 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;¹⁵² otherwise the owner is treated as transferring it immediately before death and recognizes the gain.¹⁵³

No relief.

As for a family trust.^92,93

The same as a family trust; registering in New Zealand files nothing in the United States.

The same as a family trust: Part I for a U.S. person who funds it, or for the executor on the death of a U.S. owner, Part II and Form 3520-A for a U.S. owner, Part III for a U.S. beneficiary who receives a distribution, and Form 4970 on an accumulation distribution from a non-grantor trust.^{108,111,103,110,156} Form 4970 can also apply to a transferor taxed when the trust gains a U.S. beneficiary, as the owner step says.¹⁴³ A transfer to a foreign trust is treated as a sale, and you recognize any gain on what you transfer;¹⁵⁴ a transfer is not, to the extent anyone is treated as owning the part it funds.¹⁵⁵ Registering the trust and filing its returns in New Zealand does not file anything in the United States.

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.¹⁵⁸ 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.^159,86 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;¹⁶⁰ 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,^{161,162,163,164} and where a U.S. person funded the trust, the loan instead makes it a grantor trust, and it still goes on Part III.¹⁶⁵

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.⁶¹ 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;¹⁶⁶ without one, the default method applies even to a distribution from a grantor trust.¹⁶⁷ From a non-grantor trust you may use the actual method if you have a Foreign Nongrantor Trust Beneficiary Statement,¹⁶⁸ 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,^169,156,170 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.¹⁷¹ 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.¹⁷² The statute treats the whole distribution as an accumulation distribution where adequate records are not given;¹⁷³ the default method is the IRS's relief from that, open if you can give the trust's distributions for the three years before,¹⁷⁴ and where there were none, it too makes the whole distribution an accumulation distribution.¹⁶⁹ A foreign trust's distributable net income, the income its distributions carry out, includes its capital gains,¹⁷⁵ and the exception for income kept before a beneficiary was born or turned 21 does not apply to it.¹⁷⁶ FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.¹⁷⁷

Outside KiwiSaver, New Zealanders invest through managed funds, including unit trusts, and some are portfolio investment entities (PIEs), taxed at each investor's prescribed investor rate.¹⁸⁰ Like a KiwiSaver scheme, a managed fund is a scheme in which investors contribute money for returns produced by someone else's efforts, and its custodian holds the property on trust.^28,24

Not a trust where its manager can vary its investments; then a foreign corporation if all investors have limited liability.

Not a trust for U.S. purposes where its manager can vary its investments: an investment trust with that power is not classified as a trust,²⁹ and a managed fund has none of KiwiSaver's statutory retirement purpose or lock-in. As a foreign entity, it is treated as a corporation if all its investors have limited liability, unless it elects otherwise.¹⁸¹ A fund that cannot change its investments may be a trust; check the trust deed.

No owner: the grantor trust rules do not reach a corporation.

The grantor trust rules apply to trusts, so no one is treated as owner of a fund treated as a corporation; its investors hold shares in a foreign corporation.¹⁸¹ The PFIC rules may apply to them; this site does not determine PFIC status.

No effect.

No treaty provision changes how the fund is classified or reported.⁹²

No Form 3520 or 3520-A for a fund treated as a corporation.

For a fund treated as a corporation: no Part I, Part II, Part III, or Form 3520-A, and no Form 4970, because Forms 3520 and 3520-A report foreign trusts.^108,103,110 A fund that is a trust is reported under the trust rules above.²⁹ FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.¹⁷⁷