Surprise! Your CPF Closed & You Received Payment, What Next?

Surprise! Your CPF Closed & You Received Payment, What Next?

Surprise! Your CPF Closed

U.S. Taxpayers who previously worked in Singapore for a Singaporean employer will likely have a CPF (Central Provident Fund) account. A Central Provident Fund account is similar to a U.S. hybrid 401K and Social Security type of account. For taxpayers who live and work in Singapore, the CPF is mandatory. And, depending on how much income a person earns as well as how the money is invested, the taxpayer may have a significant amount of CPF accumulated over the lifetime of the investment. This is one key feature that distinguishes the CPF from a social security payment in the United States — because the individual can choose how they want to invest their CPF and if they want (and sometimes even if they do not choose to) they will receive a full distribution of the amount in their CPF. For many taxpayers who no longer reside in Singapore and are not Singaporean citizens, the Singaporean government has mandated the payout of CPF accounts. As a result, many U.S. persons may be receiving a significant distribution of CPF in 2023, 2024, or 2025 — which in turn will result in a significant U.S. tax liability (since the distributions are typically not taxed in Singapore). In addition, many U.S. persons may be out of compliance for failing to properly report their CPF in prior years on the FBAR, Form 8938 (FATCA) — as well as taxes due on the undistributed growth within the fund (taxable under U.S. tax law). 

New Singapore CPF Law

As provided by the Ministry of Foreign aAfairs:

• • • “The Central Provident Fund (CPF) Board announced on 8 March 2023 that CPF members who are not Singapore Citizens (SC) or Permanent Residents (PR) have up to 31 March 2024 to close their CPF accounts and transfer their CPF savings to their personal bank account. Failing which, their CPF accounts would be automatically closed, and any remaining savings would cease to earn the prevailing CPF interest rate. The remaining savings can still be transferred to their bank accounts at any time after that.

    • CPF Board would individually notify non-SC/PR from March 2023, using the contact details that they have provided to the Board.”

An Example of CPF/U.S. Non-Compliance

Peter is a lawful permanent resident living in the United States. For many years prior, he worked in Singapore and accumulated a CPF. He left Singapore in 2005 and has not thought about his CPF since because he has not made any contributions to the fund and has not received any distributions from it either.

In 2024, he receives a notice from CPF letting him know that his CPF is worth SGD 300,000, the account(s) will be closed, and the money will be transferred to the personal bank account that he provides. Peter realizes that he should have been reporting the CPF each year on various international information reporting forms and he has also not properly reported the tax on his U.S. tax return for the prior years.

What Next For Your CPF?

For Taxpayers who did not report their CPF growth on their U.S. tax returns and/or timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.