On December 14, 2011, the IRS issued temporary regulations explaining that an individual or domestic entity may be required to report an interest in one or more specified foreign financial assets. If applicable, Form 8938 will be required to be attached to federal income tax returns for taxable years beginning after March 18, 2010.
Form 8938 is required if one or more specified Foreign Financial Accounts has an aggregate fair market value exceeding either, $50,000 on the last day of the taxable year, or $75,000 at any time during the taxable year. Additional rules and thresholds apply to married taxpayers and individuals living abroad.
Specified foreign financial assets generally include the following assets:
- Any financial account maintained by a foreign financial institution.
- To the extend held for investment, any stock or securities issued by someone that is not a U.S. person, any interest in a foreign entity, and any financial instrument or contract with an issuer or counterparty that is not a U.S. person.
Filing form 8938 does not replace the FBAR (Form 90-22.1, Report of Foreign Bank and Financial Accounts) filing requirement. Failure to file form 8938 could result in a penalty starting at $10,000 with a maximum additional penalty of $50,000 for a continuing failure to file after IRS notification. Failure to file also causes the statute of limitations to remain open until 3 years after the filing of Form 8938.
Foreign financial asset information reported on the following forms are not required to be duplicated. However, Form 8938 requires identification of information related to the following forms:
- Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations,
- Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing fund,
- Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts,
- Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, and
- Forms 8891, U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans
Even if a specified foreign financial asset is reported on a form listed above, taxpayers must still include the value of the asset in determining whether the aggregate value of the specified foreign financial asset is more than the applicable reporting threshold.
Refer to the Form 8938 instructions for information on how to determine the total value of specified foreign financial assets.