New form requirement to report foreign financial assets

“  A single taxpayer is only required to file if the overall value of his specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.”

RECENTLY, the IRS issued rules that require you to attach a disclosure statement to your income tax return if you have an interest in a “specified foreign financial asset” for any year when the aggregate value of such assets exceeds reporting thresholds at end of the year or anytime during the year. Different thresholds apply to taxpayer living in the US and taxpayer living outside of US or tax home is in foreign country. The IRS has issued a new Form 8938 (Statement of Specified Foreign Financial Assets) to be filed. The new form does not replace FinCEN Form 114(Report of Foreign Bank and Financial Accounts).

What are specified foreign financial assets? 

• Depository or custodial accounts at foreign financial institutions.

• To a certain level not held in an account at a financial institution:

• Any interest in a foreign entity.

• Stocks or securities issued by foreign persons,

• Any other financial contract or instrument held for investment that is issued by or has a Non-US person counterpart, and

Who must file form 8938? 

• US Citizens, resident aliens, and certain non-resident aliens.

• When the value of those assets is more than the applicable reporting thresholds.

• A particular person that has an interest in certain foreign financial assets.

When and how to file form 8938?

• Filed with your annual return Form 1040 or Form 1040NR by the due date.

• Annual return includes income tax return or information return.

What if I fail to file form 8938? 

You will be subjected to a $10,000 penalty. A continuing failure of more than 90 days after the day on which IRS mails a notice subjects the particular person to an additional penalty of $10,000 for each 30-day period (or fraction thereof) during which the failure persists after the 90-day period has expired, up to a maximum penalty of $50,000 for each such failure. If the failure was due to reasonable cause and not willful neglect, then, no penalty applies.

For Individuals living in the US, the following reporting thresholds apply:

• A single or married taxpayer filing a separate income tax return is only required to file if the overall value of his 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.

• Married taxpayers filing a joint tax return are only required if the overall value of their specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 any time during the tax year.

Individuals living abroad: The subsequent reporting thresholds apply to a taxpayer whose tax home is in a foreign country, is living abroad and who is (1) a US citizen that’s been a bona fide resident of a foreign country for a consecutive period that includes an entire tax year; or (2) a US resident or citizen who is present in a foreign country at least 330 full days during any period of 12 uninterrupted months that ends in the tax year being reported:

• A single taxpayer is only required to file if the overall value of his specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.

• A married taxpayer filing a joint income tax return only satisfies the reporting threshold if the overall value of all specified foreign financial assets the taxpayer or his/her spouse owns is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.

• A married taxpayer who is filing a separate income tax return is only required to file if the overall value of his specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.

In accordance with IRS Circular 230, this communication is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.

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Sy Al-os Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies.