On December 15, 2011, the IRS released updated information regarding Form 8938, a new information reporting form for certain U.S. taxpayers who own specified foreign assets: Certain U.S. taxpayers holding specified foreign financial assets with an aggregate value exceeding $50,000 will be required to report information about those assets on new Form 8938, which will be attached to the taxpayer's annual income tax return.
Form 8938 reporting requirement applies for specified foreign financial assets in which the taxpayer has an interest in taxable years starting after March 18, 2010. For most individual taxpayers, this means they will start filing Form 8938 with their 2011 income tax return to be filed this coming tax filing season.
However, if a taxpayer did not have any income and thus is not required to file an income tax return, such taxpayer is not required to file Form 8938, even if the value of the taxpayer's specified foreign assets is more than the appropriate reporting threshold.
A taxpayer must file Form 8938 if the taxpayer qualifies as a "specified individual" who has an interest in "specified foreign financial assets:
A "specified individual" is defined as follows:
- A U.S. citizen
- A U.S. resident alien for any part of the tax year
- A nonresident alien who makes an election to be treated as resident alien for purposes of filing a joint income tax return
- A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico
A "specified foreign financial asset" is:
- Any financial account maintained by a foreign financial institution (with some limited exceptions)
- Other foreign financial assets held for investment that are not in an account maintained by a US or foreign financial institution, such as:
- Stock or securities issued by someone other than a U.S. person
- Any interest in a foreign entity, and
- Any financial instrument or contract that has as an issuer or counterparty that is other than a U.S. person.
AND
The aggregate value of the taxpayer's "specified foreign financial assets" has to be more than the following reporting thresholds:
- Unmarried taxpayers living in the US: The total value of the taxpayer's specified foreign financial assets must be more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
- Married taxpayers filing a joint income tax return and living in the US: The total value of such taxpayers' specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year
- Married taxpayers filing separate income tax returns and living in the US: The total value of such taxpayers' specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
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The IRS considers a taxpayer living abroad if:
- The taxpayer is U.S. citizen whose tax home is in a foreign country and the taxpayer is either a bona fide resident of a foreign country or countries for an uninterrupted period that includes the entire tax year, or
- The taxpayer is a U.S. citizen or resident, who during a period of 12 consecutive months ending in the tax year is physically present in a foreign country or countries at least 330 days.
If the taxpayer is considered living abroad, based on the rules above, the taxpayer must file Form 8938 if:
- The taxpayer is filing a return other than a joint return and the total value of the taxpayer's specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or
- The taxpayer is filing a joint return and the value of the taxpayer's specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
Please note that 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).
Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.
Please call our office for additional information.
