The IRS has released an updated series of questions and
answers (Q&As) on assets that must be reported on Form 8938, Statement of
Specified Foreign Financial Assets, and those assets that don't have to be
revealed on this form. This form is used for reporting under Code Sec. 6038D,
and is part of a crackdown on taxpayers with undisclosed foreign assets.
Background. For tax years beginning after Mar. 18, 2010, the
Hiring Incentives to Restore Employment Act of 2010 (HIRE Act, P.L. 111-147)
provides that individuals with an interest in a “specified foreign financial
asset” during the tax year must attach a disclosure statement to their income
tax return for any year in which the aggregate value of all such assets is
greater than $50,000 (or a dollar amount higher than $50,000 as IRS may
prescribe). (Code Sec. 6038D(a)) The disclosure is made on Form 8938. In
addition, to the extent provided by IRS in regs or other guidance, Code Sec.
6038D applies to any domestic entity formed or availed of for purposes of
holding, directly or indirectly, specified foreign financial assets, in the
same manner as if the entity were an individual. (Code Sec. 6038D(f))
“Specified foreign financial assets” are: (1) depository or
custodial accounts at foreign financial institutions, and (2) to the extent not
held in an account at a financial institution, (a) stocks or securities issued
by foreign persons, (b) any other financial instrument or contract held for
investment that is issued by or has a counterparty that is not a U.S. person,
and (c) any interest in a foreign entity. (Code Sec. 6038D(b))
A specified person who fails to provide required information
for any tax year is subject to a $10,000 penalty. A failure continuing for more
than 90 days after the day on which IRS mails a notice of the failure to the
specified person subjects the specified person to an additional penalty of
$10,000 for each 30-day period (or fraction thereof) during which the failure
continues after the 90-day period has expired, up to a maximum penalty of
$50,000 for each such failure. (Code Sec. 6038D(d)) No penalty applies if the
failure was due to reasonable cause and not willful neglect. (Code Sec.
6038D(g))
Under temp regs issued late last year, a Code Sec. 6038D
specified individual is a U.S. citizen, a U.S. resident alien, or a nonresident
alien who has elected under Code Sec. 6013(g) or Code Sec. 6013(h), to be taxed
as a U.S. resident. A resident alien who elects to be taxed as a resident of a
foreign country under a U.S. income tax treaty's residency tie-breaker rules is
also a specified individual. In addition, certain nonresident aliens who are
treated as residents under other Code sections are specified individuals. (Reg.
§ 1.6038D-1T(a))
Under the temp regs, a specified person must file Form 8938
if the person has an interest in one or more specified foreign financial assets
and those assets have an aggregate fair market value (FMV) exceeding either
$50,000 on the last day of the tax year or $75,000 at any time during the tax
year ($100,000 and $150,000, respectively, for married specified individuals
filing a joint annual return). (Reg. § 1.6038D-2T(a)(1), Reg. §
1.6038D-2T(a)(2)) These dollar amounts are increased for certain residents in
foreign countries.
Q&As explain specified foreign financial asset
reporting. Q&As issued earlier this year and supplemented this month offer
the following guidance on what must be reported on Form 8938 and what doesn't
have to be revealed.
Assets that must be reported on Form 8938 if the dollar
reporting threshold is exceeded include:
... Financial accounts maintained by a foreign financial
institution, such as savings, deposit, checking, and brokerage accounts held
with a bank or broker-dealer. Such an account must be reported even if its
contents include, in whole or in part, investment assets issued by a U.S.
person (e.g., U.S. stocks or securities). (Q&A 1 and 9)
... If held for investment but not in a financial account,
stock or securities issued by someone who is not a U.S. person, any other
interest in a foreign entity, and any financial instrument or contract held for
investment with an issuer or counterparty that is not a U.S. person. Examples:
stock or securities issued by a foreign corporation; a note, bond or debenture
issued by a foreign person; an interest rate swap, currency swap, basis swap,
interest rate cap, interest rate floor, commodity swap, equity swap, equity
index swap, credit default swap or similar agreement with a foreign
counterparty; and a partnership interest in a foreign partnership. (Q&A 1)
... An interest in a foreign pension or deferred
compensation plan, valued as of the last day of the year. If the taxpayer
doesn't know, or have reason to know, based on readily accessible information
the end-of-year fair market value, the maximum value is the value of the cash
and/or other property distributed to him during the year (and if there were no
distributions, the value of the interest in the plan is zero). (Q&A 12 and
13)
... A contract to sell precious metals held for investment
to a foreign person. (Q&A 21)
Assets that do not have to be reported on Form 8938 include:
... Foreign real estate (e.g., personal residence or rental
property). But if held through a foreign entity (e.g., partnership, or estate),
then the interest in the entity is a specified foreign financial asset that is
reported on Form 8938. (Q&A 3)
... Foreign currency holdings. (Q&A 4)
... Directly held shares of a U.S. mutual fund that owns
foreign stocks and securities (neither the fund nor its holdings are reported).
(Q&A 7)
... A financial account maintained by a U.S. financial
institution that holds foreign stocks and securities. Examples of financial
accounts maintained by U.S. financial institutions include: U.S. Mutual fund
accounts IRAs, 401(k) plans, qualified U.S. retirement plans, and brokerage
accounts maintained by U.S. financial institutions. (Q&A 8)
... A financial account maintained by a U.S. branch or U.S.
affiliate of a foreign financial institution (any specified foreign financial
assets in that account also do not have to be reported). (Q&A 10)
... A financial account (e.g., depository, custodial or
retirement account) held through a foreign branch or foreign affiliate of a
U.S.-based financial institution. (Q&A 11)
... Payments or the rights to receive the foreign equivalent
of social security, social insurance benefits or another similar program of a
foreign government. (Q&A 14)
... Directly held tangible assets, such as art, antiques,
jewelry, cars and other collectibles. (Q&A 19)
... Directly held precious metals, such as gold (but gold
certificates issued by a foreign person are reportable). (Q&A 20)
Q&A 17 reminds taxpayers that the filing of Form 8938
does not relieve a taxpayer of the separate requirement to file a FBAR (Form TD
F 90-22.1, Report of Foreign Bank and Financial Accounts) if he is otherwise
required to do so, and vice-versa. Depending on a taxpayer's situation, he may
be have to file Form 8938 or the FBAR or both forms, and certain foreign
accounts may be required to be reported on both forms. (For a side-by-side
comparison of Form 8938 and FBAR requirements, see http://www.irs.gov/businesses/article/0,,id=255986,00.html)
Basic Questions and Answers on Form 8938
Q&A 1-14, posted 02-29-12
Q&A 15-23, posted 06-07-12
1. What are the specified foreign financial assets that I
need to report on Form 8938?
If you are required to file Form 8938, you must report your
financial accounts maintained by a foreign financial institution. Examples of
financial accounts include:
• Savings, deposit, checking, and brokerage accounts held
with a bank or broker‐dealer.
And, to the extent held for investment and not held in a
financial account, you must report stock or securities issued by someone who is
not a U.S. person, any other interest in a foreign entity,
and any financial instrument or contract held for investment with an issuer or
counterparty that is not a U.S. person. Examples of these
assets that must be reported if not held in an account include:
• Stock or securities issued by a foreign corporation;
• A note, bond or debenture issued by a foreign person;
• An interest rate swap, currency swap, basis swap, interest
rate cap, interest rate floor, commodity swap, equity swap, equity
index swap, credit default swap or similar agreement with a
foreign counterparty;
• An option or other derivative instrument with respect to
any of these examples or with respect to any currency or commodity
that is entered into with a foreign counterparty or issuer;
• A partnership interest in a foreign partnership;
• An interest in a foreign retirement plan or deferred
compensation plan;
• An interest in a foreign estate;
• Any interest in a foreign‐issued insurance contract or
annuity with a cash‐surrender value.
The examples listed above do not comprise an exclusive list
of assets required to be reported.
2. I am a U.S. taxpayer but am not required to file an
income tax return. Do I need to file Form 8938?
Taxpayers who are not required to file an income tax return
are not required to file Form 8938.
3. Does foreign real estate need to be reported on Form
8938?
Foreign real estate is not a specified foreign financial
asset required to be reported on Form 8938. For example, a personal residence
or
a rental property does not have to be reported.
If the real estate is held through a foreign entity, such as
a corporation, partnership, trust or estate, then the interest in the entity is
a
specified foreign financial asset that is reported on Form
8938, if the total value of all your specified foreign financial assets is
greater
than the reporting threshold that applies to you. The value
of the real estate held by the entity is taken into account in determining the
value of the interest in the entity to be reported on Form
8938, but the real estate itself is not separately reported on Form 8938.
4. I directly hold foreign currency (that is, the currency
isn’t in a financial account). Do I need to report this on Form 8938?
Foreign currency is not a specified foreign financial asset
and is not reportable on Form 8938.
5. I am a beneficiary of a foreign estate. Do I need to
report my interest in a foreign estate on Form 8938?
Generally, an interest in a foreign estate is a specified
foreign financial asset that is reportable on Form 8938 if the total value of
all of
your specified foreign financial assets is greater than the
reporting threshold that applies to you.
6. I acquired or inherited foreign stock or securities, such
as bonds. Do I need to report these on Form 8938?
Foreign stock or securities, if you hold them outside of a
financial account, must be reported on Form 8938, provided the value of your
specified foreign financial assets is greater than the
reporting threshold that applies to you. If you hold foreign stock or
securities inside
of a financial account, you do not report the stock or
securities on Form 8938. For more information regarding the reporting of the
holdings of financial accounts, see FAQs 8 and 9.
7. I directly hold shares of a U.S. mutual fund that owns
foreign stocks and securities. Do I need to report the shares of
the U.S. mutual fund or the stocks and securities held by
the mutual fund on Form 8938?
If you directly hold shares of a U.S. mutual fund you do not
need to report the mutual fund or the holdings of the mutual fund.
8. I have a financial account maintained by a U.S. financial
institution that holds foreign stocks and securities. Do I need
to report the financial account or its holdings?
You do not need to report a financial account maintained by
a U.S. financial institution or its holdings. Examples of financial accounts
maintained by U.S. financial institutions include:
• U.S. Mutual fund accounts
• IRAs (traditional or Roth)
• 401 (k) retirement plans
• Qualified U.S. retirement plans
• Brokerage accounts maintained by U.S. financial
institutions
9. I have a financial account maintained by a foreign
financial institution that holds investment assets. Do I need to report
the financial account if all or any of the investment assets
in the account are stock, securities, or mutual funds issued by a
U.S. person?
If you have a financial account maintained by a foreign
financial institution and the value of your specified foreign financial assets
is
greater than the reporting threshold that applies to you,
you need to report the account on Form 8938. A foreign account is a specified
foreign financial asset even if its contents include, in
whole or in part, investment assets issued by a U.S. person. You do not need to
separately report the assets of a financial account on Form
8938, whether or not the assets are issued by a U.S. person or non‐U.S.
person.
10. I have a financial account with a U.S. branch of a
foreign financial institution. Do I need to report this account on
Form 8938?
A financial account, such as a depository, custodial or
retirement account, at a U.S. branch of a foreign financial institution is an
exception
to the general rule that a financial account maintained by a
foreign financial institution is specified foreign financial asset. A financial
account maintained by a U.S. branch or U.S. affiliate of a
foreign financial institution does not have to be reported on Form 8938 and any
specified foreign financial assets in that account also do
not have to be reported.
11. I own foreign stocks and securities through a foreign
branch of a U.S.-based financial institution. Do I need to report
these on Form 8938?
If a financial account, such as a depository, custodial or
retirement account, is held through a foreign branch or foreign affiliate of a
U.S.‐
based financial institution, the foreign account is not a
specified foreign financial asset and is not required to be reported on Form
8938
12. I have an interest in a foreign pension or deferred
compensation plan. Do I need to report it on Form 8938?
If you have an interest in a foreign pension or deferred
compensation plan, you have to report this interest on Form 8938 if the value
of
your specified foreign financial assets is greater than the
reporting threshold that applies to you.
13. How do I value my interest in a foreign pension or
deferred compensation plan for purposes of reporting this on Form
8938?
In general, the value of your interest in the foreign
pension plan or deferred compensation plan is the fair market value of your
beneficial
interest in the plan on the last day of the year. However,
if you do not know or have reason to know based on readily accessible
information the fair market value of your beneficial
interest in the pension or deferred compensation plan on the last day of the
year, the
maximum value is the value of the cash and/or other property
distributed to you during the year. This same value is used in
determining whether you have met your reporting threshold.
If you do not know or have reason to know based on readily
accessible information the fair market value of your beneficial interest in
the pension plan or deferred compensation plan on the last
day of the year and you did not receive any distributions from the plan, the
value of your interest in the plan is zero. In this
circumstance, you should also use a value of zero for the plan in determining
whether
you have met your reporting threshold. If you have met the
reporting threshold and are required to file Form 8938, you should report
the plan and indicate that its maximum is zero.
14. I am a U.S. taxpayer and have earned a right to foreign
social security. Do I need to report this on Form 8938?
Payments or the rights to receive the foreign equivalent of
social security, social insurance benefits or another similar program of a
foreign government are not specified foreign financial
assets and are not reportable.
15. If I have to file Form 8938, am I required to report all
of my specified foreign financial assets regardless of whether the
assets have a de miminis maximum value during the tax year?
If you meet the applicable reporting threshold, you must
report all of your specified foreign financial assets, including the specified
foreign financial assets that have a de minimis maximum
value during the tax year. For exceptions to reporting, see Exceptions to
Reporting on page 6 of the instructions for Form 8938.
16. I filed my income tax return but now realize that I
should have filed Form 8938 with my return, what should I do?
If you omitted Form 8938 when you filed your income tax
return, you should file Form 1040X, Amended U.S. Individual Income Tax
Return, with your Form 8938 attached.
17. Do I have to file both Form 8938 and Form TD F 90-22.1,
Report of Foreign Bank and Financial Accounts (FBAR)?
The filing of Form 8938 does not relieve you of the separate
requirement to file the FBAR if you are otherwise required to do so, and
vice‐versa. Depending on your situation, you may be required
to file Form 8938 or the FBAR or both forms, and certain foreign accounts
may be required to be reported on both forms.
18. I have numerous specified foreign financial assets to
report on Form 8938. Is there a continuation sheet for the Form
8938?
If you have more than one account or asset to report in Part
I or Part II of Form 8938, or more than one issuer or counterparty to report
in Part II of Form 8938, copy as many blank Parts I and/or
II as you need to complete, and attach them to Form 8938. Check the “If you
have attached additional sheets, check here” box at the top
of Form 8938.
19. I directly hold tangible assets for investment, such as
art, antiques, jewelry, cars and other collectibles, in a foreign
country. Do I need to report these assets on Form 8938?
No. Directly held tangible assets, such as art, antiques,
jewelry, cars and other collectibles, are not specified foreign financial
assets.
20. I directly hold precious metals for investment, such as
gold, in a foreign country. Do I need to report these assets on
Form 8938?
No. Directly held precious metals, such as gold, are not
specified foreign financial assets. Note, however, that gold certificates
issued by
a foreign person may be a specified foreign financial asset
that you would have to report on Form 8938, if the total value of all your
specified foreign financial assets is greater than the
reporting threshold that applies to you.
21. This tax year I sold precious metals that I held for
investment to a foreign person. Do I have to report the sales
contract on Form 8938?
The contract with the foreign person to sell assets held for
investment is a specified foreign financial asset investment asset that you
have to report on Form 8938, if the total value of all your
specified foreign financial assets is greater than the reporting threshold that
applies to you.
22. I have a safe deposit box at a foreign financial
institution. Is the safe deposit box itself considered to a financial
account?
No, a safe deposit box is not a financial account.
23. Am I required to hire a certified appraiser or actuary
to determine the fair market value of a specified foreign financial
asset? For example, if I have a foreign defined benefit
plan, am I required to obtain the services of an actuary?
You may determine the fair market value of a foreign
financial account for the purpose of reporting its maximum value based on
periodic
account statements unless you have reason to know that the
statements do not reflect a reasonable estimate of the maximum value of
the account during the tax year. For a specified foreign
financial asset not held in a financial account, you may determine the fair
market
value of the asset for the purpose of reporting its maximum
value based on information publicly available from reliable financial
information sources or from other verifiable sources. Even
if there is no information from a reliable financial information source or
other verifiable source, you do not need to obtain an
appraisal by a third party in order to reasonably estimate the asset’s maximum
value during the tax year.
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