Lump Sum Distribution From Swiss Retirement Account

The Switzerland - United States Tax Treaty (Article 18) states that all pensions are taxable only in the country where the recipient is resident. You need to report the lump-sum payment in the same manner as if you had received a 1099-R from a US source and pay the relevant tax. I imagine this involves converting the lump-sum to USD and reporting it on lines 5a, 5b, or 6a, 6b on Form 1040.

Ira Smilovitz, EA Leonia, NJ

Is he literally filing a Swiss tax return to obtain the refund of withheld taxes? Is making a return optional or mandatory under the tax treaty?

Just curious since you've already looked it up.

I have no idea. My initial thought, before looking at the treaty, was that he would file his US tax return and claim the foreign tax credit to reduce his US tax liability for the tax paid in Switzerland. The treaty seems to state otherwise. I don't know if the Swiss payor remitted the tax to the Swiss tax authorities or is just holding it in escrow pending receipt of proof of tax payment to the IRS. I do very little international tax work, but the little that I do has taught me where to begin to look for answers.

Ira Smilovitz, EA Leonia, NJ

The Swiss administrator remitted the withheld Swiss tax to the local Swiss tax authority. Once I figure out how to report the lump sum distribution on my U.S. 1040 return, I will have to send a copy of it to said local Swiss tax authority and I will get a refund of the Swiss tax that was withheld. There will be no need for me to file a Swiss tax return.

Ah. That certainly simplifies things for you.