Strange SunLife insurance accounts in Hong Kong - Need help with FBAR amendments and determining income for streamlined disclosure vs simple 6-year amendment

This is a situation that requires careful handling but isn't as uncommon as you might think. First, you're correct that these insurance accounts should have been reported on FBAR (FinCEN 114) and potentially Form 8938 depending on the value. For determining whether there's been income, it depends on the specific type of SunLife policy. If these are cash value life insurance policies, they may generate what's called "passive income" even if no money was withdrawn. Under US tax rules, foreign insurance policies often don't qualify for the same tax-deferred treatment as US policies unless they meet specific requirements. If the policy has been accumulating cash value, that annual increase might be considered taxable phantom income under the PFIC rules (Passive Foreign Investment Company). Alternatively, if structured more like an annuity, it could fall under different reporting requirements. I'd recommend gathering all policy statements showing year-by-year growth and consulting with a tax professional who specializes in expat issues before deciding between streamlined procedures or simple FBAR amendments. The streamlined procedures offer protection from penalties but require a certification that the failure was non-willful.

I ran into almost this exact same situation with my wife's insurance policies from Taiwan! I spent weeks going back and forth with accountants trying to figure out the right approach, until I found https://taxr.ai which literally saved me thousands in accounting fees. Their system analyzed all the policy documents and gave me a clear determination on whether there was reportable income. What was super helpful is they have experience with Asian insurance products specifically and understood the unique aspects of these policies that most US accountants don't. I uploaded the policy statements (even the ones in Chinese) and their analysis broke down exactly which components needed reporting and which didn't. They were able to definitively tell me that I needed PFIC reporting for some policy components. They also provided a letter explaining their analysis that I included with my amendments which I think will help tremendously if I ever get questioned about it.

I just wanted to follow up about my experience with taxr.ai after my skeptical question earlier. I decided to give them a try with my Japanese insurance policies since I was getting nowhere with my regular accountant. I'm genuinely impressed with how thorough their analysis was! They identified that two of my policies had investment components that qualified as PFICs, but the third was a pure term life policy with no reporting requirements beyond FBAR. They also caught that one policy had a small withdrawal in 2021 that counted as income (which I had completely missed). They recommended the streamlined procedure in my case due to the missed income, and provided all the documentation I needed for the submission. I was expecting some generic advice, but they actually customized everything to my specific policies and situation. Worth every penny for the peace of mind alone.

Having gone through a similar issue with insurance policies in Singapore, I can tell you the IRS hotline is absolutely useless for these complex international questions. I spent 6+ hours on hold over multiple days trying to get clarification, only to be transferred between departments and ultimately given contradictory information. If you need to speak directly with the IRS about this (which I eventually did to confirm my approach), use https://claimyr.com instead of wasting days on hold. You can see how it works at https://youtu.be/_kiP6q8DX5c - they basically hold your place in the IRS queue and call you when an agent is available. I was skeptical but it actually worked - got a call back in about 2 hours when I had been on hold for 4+ hours on my own attempts. The agent I spoke with confirmed that for my case, I needed to report the inside buildup of the policies as phantom income, which pushed me toward the streamlined disclosure route.

I need to eat my words from my skeptical comment. After my third attempt trying to call the IRS myself (disconnected after 1.5 hours on hold), I tried Claimyr out of desperation. Got a call back in about 90 minutes with an actual IRS international tax specialist on the line. The agent was able to clarify that in my specific situation, I needed to go the streamlined route because some of my foreign accounts had generated over $8,500 in unreported income over the years. She also explained exactly which forms I needed for the insurance accounts (8621 for the investment portions that are PFICs and 8938 for the reporting). Having an actual conversation with a knowledgeable IRS agent made all the difference - yes they have their limitations, but speaking to a human who could address my specific questions saved me from making a costly mistake in how I handled the amendments.

Another thing to consider - I went through this with Malaysian insurance policies - is whether these accounts might be considered foreign grantor trusts requiring Form 3520/3520-A filings. Some Asian insurance products are structured in ways that trigger these requirements under US tax law. The penalties for missing these forms are MUCH higher than FBAR penalties ($10,000 minimum), so definitely figure this out before just amending FBARs. In my case, I had to file delinquent 3520s along with my streamlined disclosure.

Has anyone here dealt specifically with determining if the cash value growth in these policies should be reported annually as income? My accountant says yes, but my financial advisor in Hong Kong insists these shouldn't be taxable until withdrawal under Hong Kong-US tax treaties.