Is my French assurance vie policy classified as a PFIC or foreign trust for U.S. taxes?

A French Assurance Vie (investment-linked life insurance policy) is classified under U.S. tax law as either a Passive Foreign Investment Company (PFIC) if the underlying investments are diversified, or as a foreign grantor trust if you have significant control over the policy. Either classification requires annual Form 8621 or Form 3520-A reporting. The U.S.-France tax treaty does not exempt Assurance Vie from U.S. taxation.

How Assurance Vie is treated in the U.S. tax system:

• Contributions: Not deductible; treated as basis additions
• Annual earnings and gains: Taxable to the U.S. annually, not deferred (the policy is not a qualified contract)
• Surrender and partial withdrawals: Taxed as a distribution of earnings first; basis recovery follows
• Death benefit: Generally includible in your estate; taxable to heirs at stepped-up basis

PFIC vs. foreign trust classification:

Assurance Vie treated as PFIC (most common):

• Form 8621 must be filed annually
• Excess distribution rules apply when you surrender or withdraw
• Deferred PFIC tax (interest charge) compounds annually if MTM election not made
• Mark-to-market election can simplify taxation to ordinary income annually

Assurance Vie treated as foreign grantor trust:

• Form 3520-A filed by the issuer; Form 3520 filed by you
• Annual reportable events trigger Form 3520 filing
• Penalties start at $10,000 per form, per year if missed

Reporting mechanics:

Minimizing tax on Assurance Vie:

• Mark-to-market election on Form 8621: Simplifies taxation to ordinary income annually; prevents deferred tax compounding
• Surrender planning: Withdrawals in years of low other income reduce rate pressure
• Foreign Tax Credit: France may tax distributions; claim credit on Form 1116

For a full breakdown of Assurance Vie tax obligations, see Assurance Vie Taxation Guide for U.S. Expats in France.