Reporting Specified Financial Assets and Form 8938

Reporting Specified Financial Assets and Form 8938

U.S. taxpayers with assets overseas and their advisers should be mindful of new Form 8938, Statement of Specified Foreign Financial Assets, as they prepare the taxpayers' federal income tax returns for 2011.  

Temporary Regulations issued in December 2011 state that, with certain exceptions, Form 8938 must be filed by "a specified person that has any interest in a specified foreign financial asset during the taxable year."

The temporary regulations provide that Form 8938 must be attached to a specified person's annual return for the taxable year to report the required information if the aggregate value of all such assets exceeds: (1) $ 50,000 on the last day of the taxable year; or (2) $ 75,000 at any time during the taxable year. [Temp Treas Reg § 1.6038D-2T(a)]. IRC Section 6038D and Temporary Regulations Section 1.6038D-4T stipulate what information taxpayers must report. There are special threshold amounts for married specified individuals filing a joint annual return, for certain specified individuals living abroad, and for qualified individuals filing a joint annual return. See Temp Treas Reg § 1.6038D-2T(a)(2), (3), (4).

A "specified person" is defined as a specified individual or a specified domestic entity. [Temp Treas Reg § 1.6038D-1T(a)(1)]. A "specified individual" is a:

(1) U.S. citizen;

(2) Resident alien of the U.S. for any portion of the taxable year;

(3) Nonresident alien for whom an election under IRC Section 6013(g) or (h) is in effect; or

(4) Nonresident alien who is a bona fide resident of Puerto Rico or a Section 931 possession. [Temp Treas Reg § 1.6038D-1T(a)].

 A "specified foreign financial asset" includes "any financial account maintained by a foreign financial institution." [Temp Treas Reg § 1.6038D-3T(a)]. In addition, a specified foreign financial asset includes any of these assets held for investment and not held in an account maintained by a financial institution:

(1) stock or securities issued by a person other than a U.S. person;

(2) a financial instrument or contract that has an issuer or counterparty other than a U.S. person; and

(3) an interest in a foreign entity. [Temp Treas Reg § 1.6038D-3T(b)].

As to what is an "interest in a specified foreign financial asset", the temporary regulations provide that "[a] specified person has an interest in a specified foreign financial asset if any income, gains, losses, deductions, credits, gross proceeds, or distributions attributable to the holding or disposition of the specified foreign financial asset are or would be required to be reported, included, or otherwise reflected by the specified person on an annual return." [Temp Treas Reg § 1.6038D-2T(b)]. The temporary regulations provide further that "[a] specified person has an interest in a specified foreign financial asset even if no income, gains, losses, deductions, credits, gross proceeds, or distributions are attributable to the holding or disposition of the specified foreign financial asset for the taxable year." [Temp Treas Reg § 1.6038D-2T(b)].

The temporary regulations provide that a specified person, including a specified individual who is a bona fide resident of a U.S. possession, is not required to file Form 8938 for a taxable year if the specified person is not required to file an annual return for the year. [Temp Treas Reg § 1.6038D-2T(a)(7)].

The temporary regulations provide also that the value of "a specified foreign financial asset for purposes of determining the aggregate value of specified foreign financial assets held by a specified person and the maximum value of a specified foreign financial asset required to be reported on Form 8938 . . . is the asset's fair market value." [Temp Treas Reg § 1.6038D-5T(a)].

The instructions for Form 8938 provide simplified guidance on the requirements for filing Form 8938, as well as examples to assist taxpayers in determining if they must file Form 8938.

Form 8938 is another part of the FATCA landscape, and advisers to U.S. taxpayers with foreign financial assets should review the Temporary Treasury Regulations for Section 6038D and the instructions for Form 8938 as they prepare their clients' federal income tax returns for 2011.

RELATED LINKS:

For further guidance on the reporting requirements under IRC Section 6038D, please see:

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