Brazil

Tax-deferred employer plans

INSS: Pay-as-you-go social insurance. Not a funded trust: no segregated individual accounts. Not a foreign trust for §6048 purposes.

Closed pension funds (entidades fechadas de previdência complementar): Large employer pension funds (Petros/Petrobras, Valia/Vale, Previ/Banco do Brasil) hold segregated assets in trust-like structures. Likely foreign trusts.

§301.7701-7 classification: Closed pension funds fail the court test, which alone makes them foreign trusts (segregated assets, Brazilian supervision). INSS is not a trust.

Rev. Proc. 2020-17 analysis: Rev. Proc. 2020-17 does not require a treaty, so the absence of a U.S.–Brazil income tax treaty does not by itself disqualify closed pension funds. Whether they qualify instead depends on whether they independently satisfy the revenue procedure's conditions (including nondiscrimination, contribution limits, and withdrawal restrictions tied to retirement age, disability, or death), which requires fund-specific analysis. The exemption is available only to an ‘eligible individual’ under §5.02: someone who is compliant (or comes into compliance) with U.S. income-tax filing and has reported the plan’s contributions, earnings, and distributions as income to the extent U.S. law requires; a participant who never reported plan earnings cannot rely on it until they do.

3520/3520-A treatment: For closed pension funds treated as trusts, file Form 3520-A and Form 3520 Part II annually for the part your own contributions fund, once your own contributions exceed the employer’s, counted as the note at the end of this section explains (Treas. Reg. §1.402(b)-1(b)(6)), or for any part you otherwise own. For INSS, no filing required.

For a plan an employer contributes to, a trust holding it is generally a nonexempt employees’ trust described in §402(b). §6048(a)(3)(B)(ii) excepts transfers to §402(b), §404(a)(4), and §404A trusts from Part I, the participant’s own contributions included, and §679 does not make the participant the owner (see the Reporting Guide’s employer-plan section). Payouts the participant reports as compensation income are excepted from Part III. If the participant’s own contributions ever exceed the employer’s, the participant is treated as the owner of the part those contributions fund (Treas. Reg. §1.402(b)-1(b)(6)), reports it on Part II and Form 3520-A each year it is owned, and is taxed on its income each year. In that count, what the participant chose to put in, salary sacrifice included, is the participant’s, and anything the plan’s rules required taken from pay is the employer’s, as the IRS chief counsel read a national retirement fund in 1997. The rest is taxed when it vests and, after that, when paid out (§402(b)(1), (2)).

Tax-deferred individual plans

PGBL (Plano Gerador de Benefício Livre): Tax-deductible retirement savings (up to 12% of gross income). Holds segregated investment assets managed by a financial institution. If classified as a foreign trust (the conservative position), filing is required.

VGBL (Vida Gerador de Benefício Livre): Life insurance product with segregated assets. Weaker trust argument (insurance contract, similar to French assurance vie).

§301.7701-7 classification: PGBL, likely a foreign trust if managed by a fund company with segregated assets. VGBL: debated; the insurance structure makes the trust classification weaker.

Rev. Proc. 2020-17 analysis: PGBL and VGBL are individual plans; §5.03(6) (the employer-plan nondiscrimination condition) does not apply. Whether they meet §5.03(1)–(5) requires plan-specific analysis. VGBL is structured as a life insurance product, raising a threshold question about whether it constitutes a retirement trust at all.

3520/3520-A treatment: If classified as trusts, file Form 3520-A and Form 3520 Part II.

Gifts and inheritances

Brazil is a common source of gifts and inheritances for U.S. persons, particularly among the Brazilian-American community. If a U.S. person receives more than $100,000 in gifts or bequests in a year from one nonresident alien individual or foreign estate (adding together gifts from donors related to each other), Form 3520 Part IV reporting is required. Gifts from foreign corporations or foreign partnerships exceeding $20,573 (for 2026, indexed for inflation) are also reportable.

Brazil imposes a state-level inheritance and gift tax (ITCMD) at rates varying by state (typically 4%–8%). These are Brazilian obligations and do not affect the U.S. reporting requirement.

Common scenarios include inheritance of Brazilian real estate, bank accounts, and investments, as well as cash gifts from family members in Brazil.

Brazilian inheritance proceedings (inventário) can be lengthy, and the date of receipt for U.S. purposes (when the U.S. person obtains control of the assets) may differ from the date of death.

Penalties and practical notes

Failure to file Forms 3520/3520-A carries penalties under §6677: the greater of $10,000 or 35% of the gross reportable amount for certain Form 3520 failures (§6677(a)); 5% or $10,000 for Part II and 3520-A (§6677(b)).

The Brazilian tax year is the calendar year, aligning with the U.S. No fiscal year conversion is needed.

PGBL and VGBL providers issue annual statements (informe de rendimentos) showing contributions, returns, and balances. These can be used to prepare the 3520-A.

Convert Brazilian reais at the rate prevailing when each amount is received, paid, or accrued; the IRS has no official exchange rate and generally accepts any posted rate used consistently, so its published yearly average rate is a common choice for amounts arising evenly across the year. The BRL can be volatile, making consistent conversion methodology important.

There is no U.S.–Brazil income tax treaty, so no treaty deferral. If a plan is a foreign trust, the timing depends on who funds it. In a closed fund an employer contributes to, employer contributions are taxed when they vest (§402(b)(1)) and growth after that when paid out, under §72 (§402(b)(2)), unless the member owns a part or the highly compensated rule applies (§402(b)(4)(A)). In a plan the member alone funds, the earnings are taxable each year. Brazilian income tax paid may generate a foreign tax credit under domestic law (IRC §901).