Form 8938: Statement of Specified Foreign Financial Assets
The IRS has released the final
version of Form 8938 (Statement of Specified Foreign Financial Assets), which
taxpayers will use starting this coming tax filing season to report specified
foreign financial assets for tax year 2011.
An individual who holds any interest
in a specified foreign financial asset during the taxable year is required to
attach a statement to their return including information relating to those
assets, if the aggregate value of the specified foreign financial assets
exceeds $50,000 for the taxable year.
A specified foreign financial asset
is any financial account maintained by a foreign financial institution and, to
the extent not held in an account at a financial institution: (i) any stock or
security issued by any person other than a United States person; (ii) any
financial instrument or contract held for investment that has an issuer or
counterparty that is not a United States person; and (iii) any interest in a
foreign entity.
Failure to comply with the reporting
requirements could result in a $10,000 penalty, with an additional penalty up
to $50,000 for continued failure to file after IRS notification.
Explanation of Regulations
Each U.S. citizen, resident alien of
the United States, or nonresident alien who has elected to be taxed as a U.S.
resident must file Form 8938 if he or she has an interest in foreign financial
assets that exceeds either $50,000 on the last day of the taxable year or
$75,000 at any time during the taxable year. Married individuals filing a joint
annual return are not required to file Form 8938 unless the aggregate value of
all of the foreign financial assets in which they have an interest exceeds
$100,000 on the last day of the year or $150,000 at any time during the taxable
year. If no US Tax Return is required to be filed for the year Form 8938 need
not be filed for that year.
A higher threshold applies to for most US citizens
and taxpayers living overseas. For such persons, the filing threshold is
increased to foreign financial assets which exceed $200,000 on the last day of
the taxable year or $300,000 at any time during the taxable year ($400,000 and
$600,000 for married individuals who file a joint federal income tax return).
A person is generally considered to have an
interest in a foreign financial asset if any income, gains, losses, deductions,
credits, gross proceeds, or distributions attributable to the holding or
disposition of the asset required to be included on the person's annual tax return
filed with the IRS - even if no income, gains, losses, deductions, credits,
gross proceeds, or distributions are attributable to the asset for a particular
taxable year).
The owner of a disregarded entity or grantor trust
is generally treated as having an interest in any foreign financial assets held
by the disregarded entity or trust.
A parent that makes an election under the Code to
include certain unearned income of a child in the parent's gross income
required to be reported for the tax year has an interest in any foreign
financial asset held by the child. A person is not generally treated as having
an interest in any foreign financial assets held by a partnership, corporation,
trust (with some exceptions), or estate solely as a result of the person's
status as a partner, shareholder, or beneficiary.
Assets reported by a person on certain other forms
timely filed with the IRS do not need to separately identified on Form 8938. But
the value of foreign financial assets that qualify for this exception is
included for purposes of determining whether the aggregate value of foreign
financial assets in which a person has an interest exceeds the applicable
reporting threshold.
Another category of assets excepted from reporting
are assets considered owned by a person that is treated as the owner of certain
trusts. Additionally, certain assets held by a individual who is a bona fide
resident of a U.S. territory are also excepted from reporting. Foreign
financial assets that qualify for either of these two exceptions are not
included for purposes of determining whether the aggregate value of foreign
financial assets in which a person has an interest exceeds the applicable
reporting threshold.
A beneficial interest in a foreign trust or a
foreign estate is not a foreign financial asset of a person unless the person
knows or has reason to know based on readily accessible information of the
interest. Receipt of a distribution from the foreign trust or foreign estate is
deemed for this purpose to be actual knowledge of the interest.
Penalties
The new Form 8938 filing requirement does not
replace or otherwise affect a taxpayer's obligation to file an FBAR (Report of
Foreign Bank and Financial Accounts), even though certain information may be
reported on both Form 8938 and the FBAR. The penalty of $10,000 can be assessed
for failure to timely file a complete and correct Form 8938. A continued
failure to file within 90 days of after IRS mails a notice of failure to file
can subject a taxpayer to an additional penalty of $10,000 for each 30 day
period up to a maximum additional penalty of $50,000. In addition, failure to
timely file a Form 8938 for any year can cause the statute of limitations for
assessment of income taxes with respect to such year to remain open beyond the
normal three year period.
