Assurance-Vie for US Citizens in France: PFIC, Form 8621 and the IRS (2026)

Assurance-vie is the default savings product in France. Roughly 1,900 billion euros sit in these contracts, more than in any other French investment. Despite the name, it is not really life insurance. It is a tax-advantaged investment wrapper issued by an insurer, with a nominal death benefit attached. Inside the contract you choose between two kinds of holding: - Fonds en euros: the insurer's general account, mostly government and corporate bonds, with a capital guarantee and an annual credited rate (around 2.5% to 3% for 2025 performance, paid in early 2026). - Unités de compte (UC): units in funds, ETFs, SCPIs and other vehicles, with no guarantee. Most modern contracts are mixed. The French tax advantages are built around holding the contract for eight years: - No French tax while money stays inside the contract, except that social charges (prélèvements sociaux) of 17.2% are taken each year on fonds en euros interest as it is credited. - On a withdrawal (rachat) before eight years, gains are taxed at the flat tax (PFU) of 30%: 12.8% income tax plus 17.2% social charges. - After eight years, an annual allowance of 4,600 euros of gains for a single person or 9,200 euros for a couple is free of income tax (social charges still apply). Gains above the allowance are taxed at 7.5% plus 17.2%, a total of 24.7%, for the portion relating to the first 150,000 euros of net premiums, and at 30% above that. - On death, sums paid to beneficiaries from premiums invested before age 70 are outside the estate. Each beneficiary receives 152,500 euros tax free under Article 990 I, then pays 20% up to 700,000 euros and 31.25% above. Premiums paid after age 70 get a single 30,500 euro allowance under Article 757 B, but the gains on them pass free. For a French taxpayer this is close to the perfect account: deferred, low-taxed, and an estate-planning tool. For a US citizen it is the opposite, because the IRS recognises none of it.

The United States taxes US citizens on worldwide income, and the US-France income tax treaty of August 31, 1994 contains a saving clause in Article 29(2) that preserves that right. Nothing in the treaty exempts assurance-vie. So the question is what the contract is under US law. Section 7702 defines life insurance for US tax purposes. A contract qualifies only if it passes either the cash value accumulation test or the guideline premium and cash value corridor test, both of which require a meaningful death benefit above the cash value. A typical assurance-vie pays the account value plus a token amount on death, so it fails. Section 7702(g) then says the income on the contract, meaning the annual increase in cash value over premiums paid net of the cost of insurance, is ordinary income to you each year. The Section 101 exclusion for death benefits and the deferral that US life insurance enjoys are gone. That is the first layer. The second is what the contract holds: - Fonds en euros: the annual crediting is interest income. Report it on Schedule B each year at the average exchange rate, gross of the 17.2% social charges, and claim the social charges as a Foreign Tax Credit. Some practitioners argue the general account is not a separate entity and only 7702(g) applies; the result is the same, current inclusion. - Unités de compte: each fund is a foreign corporation that earns passive income, which makes it a passive foreign investment company (PFIC). The prevailing view among expat practitioners is to look through the wrapper and report each UC fund on its own Form 8621. The alternative view treats the whole contract as a single failed insurance contract taxed under 7702(g). Both positions result in annual US tax on growth; the PFIC route adds the excess distribution rules on every switch and withdrawal. Whichever position you take, the French eight-year clock, the 4,600 euro allowance and the 152,500 euro succession allowance have no US equivalent. The contract is a taxable investment account with extra forms.

Under Section 1291, a PFIC holder who has not made an election pays tax on excess distributions and on gains from a sale using a deferred-tax method: the gain is spread evenly over every year you held the fund, each prior year's slice is taxed at the top ordinary rate for that year (37% today), and interest is charged on each slice as if the tax had been due that year. Dividends and switches between funds inside the contract count as distributions or dispositions. Form 8621 is due for each PFIC each year you hold it. The de minimis exception drops the annual filing where the total value of all your PFICs is $25,000 or less ($50,000 joint) at year end and you had no excess distribution or disposition; it does not remove the tax. Two elections can soften the rules, but assurance-vie makes them hard: - Qualified electing fund (QEF): you include your share of the fund's ordinary earnings and net capital gain each year. It needs a PFIC annual information statement from the fund. French OPCVM and SCPI managers almost never issue one. - Mark-to-market: you include the annual increase in value as ordinary income. It is available only for marketable stock, meaning regularly traded funds. Many UC lines qualify; SCPIs and structured products do not. Because every arbitrage inside the contract is a PFIC disposition, an actively managed or automatically rebalanced assurance-vie can generate dozens of 8621 events a year. Preparation fees often exceed the French tax saved.

The good news is on the credit side. Under US sourcing rules, gains on a foreign investment account of a US citizen are US-source, and dividends from a French fund are French-source only for the portion that is actually French. US-source income cannot absorb a Foreign Tax Credit, so a US citizen in France would be double taxed on assurance-vie gains without help. Article 24(1)(b) of the treaty provides that help. For an individual who is both a resident of France and a US citizen, income that France taxes and that would otherwise be US-source is treated as French-source to the extent necessary to allow a credit for the French tax, so long as the item is included in French taxable income. This re-sourcing rule, retained and refined by the 2009 protocol that entered into force December 23, 2009, is what lets you put the French PFU, and the 17.2% social charges since the IRS agreed in 2019 that CSG and CRDS are creditable income taxes, on Form 1116 against the US tax on the same gains. The limits: - Treaty re-sourced income goes in its own basket on Form 1116, with Form 8833 attached. - The credit offsets regular income tax. Whether Article 24 also lets it offset the 3.8% Net Investment Income Tax has been litigated; the Court of Federal Claims allowed it in Christensen (2023) and Bruyea (2024), but the Federal Circuit reversed both on August 31, 2026, so unless the Supreme Court takes the question up there is no credit against NIIT. Take the position with disclosure and expect a fight. - The Section 1291 interest charge is not a tax and no credit can offset it. - Timing mismatches are common: France taxes on withdrawal, the US annually or under the 1291 spread. French tax paid in a later year than the US inclusion may be stranded without carryback planning.

Since the FATCA intergovernmental agreement of November 14, 2013, French insurers must identify US persons and report their contracts to the French tax authority, which forwards the data to the IRS. Most decided the compliance risk was not worth it. The large insurers and online brokers routinely refuse new contracts to anyone with US citizenship, a US birthplace or a green card, and some have frozen or closed existing ones. The French basic-account right for accidental Americans covers current accounts, not assurance-vie. What remains: - A few mutual insurers and private-bank contracts accept US persons case by case, with a minimum premium and a signed W-9. Availability changes every year. - Luxembourg contracts sold into France are more open to US persons and can hold US-listed ETFs in a dedicated internal fund, which solves the PFIC problem. Entry tickets start around 250,000 euros, and the contract still fails Section 7702 and is still reportable. - A contract opened before you became a US person, or before your insurer changed policy, can usually be kept, but new premiums and arbitrages may be refused. If someone is selling you an assurance-vie as a US citizen, they are either unaware of your status or have priced it in. The US tax analysis still applies.

Section 4371 imposes a federal excise tax of 1% on premiums paid to a foreign insurer for life insurance, sickness or accident policies or annuity contracts covering the life of a US citizen or resident. It is paid quarterly on Form 720. Advisers regularly cite it as a hidden cost of assurance-vie. For a French contract it almost never applies. Article 2(1)(a)(ii) of the US-France treaty lists the insurance premium excise tax as a covered tax, and the business profits article then prevents the United States from taxing a French insurer's premium income unless the insurer has a US permanent establishment. The exemption applies only where the insurer qualifies for treaty benefits under the limitation on benefits article and does not reinsure the risk with an insurer that is not entitled to a similar exemption. Large French life insurers meet both conditions. Ask the insurer for a statement that it is a French resident entitled to treaty benefits and keep it with your file; no Form 720 is then required. The excise tax is a separate question from whether the contract is life insurance under Section 7702. A contract can be exempt from Section 4371 and still be a failed contract taxed annually under Section 7702(g).

An assurance-vie has a cash surrender value, and the FBAR regulations expressly cover an insurance policy with a cash value as a foreign financial account. Report it on FinCEN Form 114 if your foreign accounts together exceed $10,000 at any moment in the year, which any assurance-vie of substance will do. The value to report is the highest surrender value during the year, converted at the Treasury year-end rate. Form 8938 also applies. A cash-value insurance contract issued by a foreign person is a specified foreign financial asset. For a US citizen living in France, the filing thresholds are $200,000 at year end or $300,000 at any time for a single filer and $400,000 or $600,000 for joint filers, counting all foreign assets together. The insurer will not send you anything resembling a Form 1099. You need the annual statement (relevé de situation), the history of premiums, the schedule of fonds en euros crediting, and for each UC line the purchase dates, purchase prices and current values in euros. Get these now, not when the IRS asks.

Assurance-vie is sold in France as an estate-planning tool, and for French purposes it works: beneficiaries take outside the estate with a 152,500 euro allowance each for premiums paid before age 70, against a 100,000 euro allowance per child and rates up to 45% under the ordinary succession rules. The US estate tax rarely bites. The exemption is $15 million per person for 2026 under the One Big Beautiful Bill Act, indexed and with no sunset. A US citizen in France owes US estate tax on worldwide assets including the contract, and the 1978 US-France estate and gift tax treaty, amended in 2004, prevents double taxation, but few estates reach the threshold. Income tax is the surprise. Because the contract is not life insurance under Section 7702, the death benefit is not excluded under Section 101. The gain inside the contract is income in respect of a decedent, taxable to the beneficiary when received, with no step-up in basis. A US-person beneficiary gets nothing from the French 990 I allowance. So: if your heirs are US persons, assurance-vie is the wrong vehicle. If they are French residents with no US status, the French advantages are real and the US problem dies with you.

- Livret A: 22,950 euro cap, rate 1.5% from February 1, 2026 and 1.7% from August 1, 2026, interest exempt in France. The interest is fully taxable in the United States as ordinary interest income on Schedule B. There is no French tax to credit, so the US tax is real. The same applies to the LDDS (12,000 euro cap, same rate) and the LEP (10,000 euro cap, 2.5%, income-tested). - PEA (plan d'épargne en actions): a wrapper for European equities with a 150,000 euro contribution cap, income-tax-free in France after five years (social charges still apply). The United States ignores the wrapper. Directly held shares are taxed on dividends and sales like any brokerage account. Any fund inside the PEA, and nearly all PEA-eligible funds are French or European OPCVM, is a PFIC with its own Form 8621. Most French banks will not open a PEA for a US person anyway. - OPCVM (SICAV and FCP funds) and European UCITS ETFs in any account: PFICs. - SCPI: usually treated as PFICs because rental income is passive. Some advisers analyse a SCPI as a foreign partnership, which means Form 8865 instead of Form 8621. Either way the reporting is heavy. - PER (plan d'épargne retraite): contributions are not deductible in the United States, and deferral of the growth is unsettled outside employer plans. The pattern is simple. French tax breaks attach to wrappers, and the United States taxes what is inside the wrapper.

- Open a compte-titres (taxable brokerage account) with a broker that accepts US citizens resident in France. Interactive Brokers does, through its Irish entity. Most French online brokers do not. - Buy US-domiciled ETFs. They are not PFICs, they issue Forms 1099, and their dividends are US-source, so France gives the credit under Article 24(2) rather than the reverse. EU PRIIPs rules stop EU brokers marketing US ETFs to retail clients, but a US broker account is not blocked. - Keep fonds en euros only if you need a guaranteed euro asset. Its 7702(g) inclusion is at least simple: one interest figure a year, creditable social charges, no PFIC. - Do not open a new UC-heavy assurance-vie, a PEA or an OPCVM position. If you hold them, the PFIC tax on surrender is the same tax you will pay eventually, and the interest charge only grows. - Use the French allowances that survive: the 152,500 euro succession allowance for non-US heirs, and the 4,600 euro allowance after eight years on a mostly fonds en euros contract. - For retirement saving, a US IRA or Roth IRA stays open to you if you have earned income not wiped out by the Foreign Earned Income Exclusion; taking the Foreign Tax Credit instead preserves IRA eligibility.

Facts. You are a US citizen resident in France. In January 2020 you put 50,000 euros into a single UC fund inside an assurance-vie. In December 2026 it is worth 65,000 euros, a 30% gain, and you surrender it. No dividends were paid. You never filed Form 8621. Ignore currency movements for simplicity; the real computation is in dollars at each year's rate. French tax. The contract is under eight years old, so the 15,000 euro gain is taxed at the 30% PFU: 4,500 euros, of which 1,920 euros is income tax and 2,580 euros social charges. Result: 60,500 euros in hand. US tax under Section 1291. - The 15,000 euro gain is an excess distribution allocated evenly over the holding period, roughly 2,143 euros per year for 2020 through 2026. - The 2026 slice, about 2,143 euros, is ordinary income on your 2026 return at your marginal rate. At 24% that is about 514 euros. - Each of the six prior-year slices is taxed at the top rate for that year, 37%, about 793 euros per year, 4,757 euros in total. This deferred tax goes straight onto the return as additional tax; it does not run through your brackets and is not reduced by the standard deduction. - Interest is charged on each prior-year slice from that year's return due date at the federal underpayment rate, which has run between 7% and 8% since 2023. Compounded, the interest comes to roughly 1,300 euros. - Total US cost before credits: about 6,570 euros, or 44% of the gain. Foreign Tax Credit. Article 24(1)(b) re-sources the gain to France. The 4,500 euros of French PFU and social charges is creditable against the 514 euros of regular tax and, under Section 1291(g), against the 4,757 euros of deferred tax allocated to prior years. The 1,300 euro interest charge cannot be offset. Net US payment: roughly 1,300 to 1,800 euros depending on how the credit allocates across years, plus the cost of preparing seven years of Form 8621 computations. Compare a French resident with no US status: 4,500 euros of tax, no forms. Compare a US citizen holding the same 50,000 euros in a US-listed ETF in a compte-titres: a 15,000 euro long-term gain at 15% in the US, French PFU of 4,500 euros credited under Article 24(1)(b), net cost about 4,500 euros, one Form 8949 line.

Most assurance-vie held by Americans in France is unreported, usually because nobody told the holder it was a US problem. The fix costs far less than waiting. The Streamlined Foreign Offshore Procedures are open to US citizens who lived outside the United States for at least 330 days in one of the last three years and whose failure was non-willful. You file three years of returns or amended returns with the assurance-vie income, Forms 8621 and 8938, six years of FBARs, and a Form 14653 certification explaining the omission. No penalty on the tax, no FBAR penalty, no 8938 penalty; you pay tax and interest. The PFIC computations must be done for the three open years, but deferred tax on earlier years is captured only on a sale or distribution. A common approach is to surrender the UC positions in the same year you file streamlined, so the excess distribution lands in a year you are already correcting. If the IRS wrote first, or the facts suggest willfulness, streamlined is closed and you need the Voluntary Disclosure Practice through counsel. Do not just start filing correctly going forward: your insurer has reported the contract under FATCA since 2015, and Form 8938 and 8621 omissions keep the statute of limitations open on the whole return.