French Assurance Vie: IRS Treatment for US Expats

Assurance Vie is one of France's most popular long-term savings and investment products — a life insurance-based account with favorable French tax treatment on withdrawals after eight years. For US tax purposes, the IRS does not recognize the tax-favored status of Assurance Vie, and the account creates a complex mix of potential issues. Income and gains inside the account (dividends, interest, capital appreciation) are likely currently taxable in the US, even though they're deferred in France. Depending on how the account is structured, it may be treated as a PFIC if it holds units of foreign funds, or as a foreign insurance contract with its own complex reporting rules. The account must be reported on FBAR and Form 8938, and potentially on Form 720 (for foreign life insurance contracts subject to the excise tax on premiums). US citizens in France should generally avoid Assurance Vie or take professional advice before investing, as the combination of PFIC and foreign insurance rules can result in very unfavorable US tax treatment.