Form-8938: Do You own Financial Accounts in a Foreign Country?

Mary Ann Rosenberg, CPA

In a continuing effort to ensure reporting of worldwide income by U.S. taxpayers, the IRS has new reporting requirements for U.S. citizens and resident aliens with specified foreign financial assets.

For tax years beginning after March 18, 2010, Form 8938, Statement of Specified Foreign Financial Assets, is required to be filed if the value of these foreign accounts exceeds certain limits. Generally, unmarried taxpayers and married taxpayers filing separately need to file if the value of their foreign assets is greater than $50,000 on the last day of the tax year, or $100,000 at any time during the year. The limits for married taxpayers filing a joint return are $100,000 and $200,000, respectively. (For U.S. taxpayers living abroad, the thresholds may be higher if certain qualifications are met.)

Who must file?

You must file Form 8938 if you are a specified person who owns specified foreign financial assets, and the value of those assets exceeds the applicable reporting thresholds. In addition to U.S. citizens and resident aliens, a specified person includes the following:

• a nonresident alien who elects to be treated as resident alien for purposes of filing jointly
• a nonresident alien who is a bona fide resident of American Samoa or Puerto Rico

Note: Currently, only individuals must file Form 8938; however, the IRS will be issuing guidance regarding filing requirements for domestic entities formed or availed of to hold specified foreign financial assets.

If you do not have to file an income tax return for the tax year, you are not required to file Form 8938, even if your specified foreign financial assets exceed the threshold amounts.

What are specified foreign financial assets?

• Any financial account maintained by a foreign financial institution
• Any of the following assets not held in an account maintained by a foreign financial institution:
• Stock or security issued by a non-US person
• A financial instrument held for investment issued by non-US person
• An interest in a foreign entity

Examples include stock issued by a foreign corporation, an interest in a foreign partnership, a note issued by a foreign person, and an interest in a foreign trust or estate. Also included are interests in estates, pension plans and deferred compensation plans.

How is the form filed?

Form 8938 must be completed and filed with your annual income tax return, and filed by the due date (including extensions) for that return.

It is important to note that the filing requirement for Form 8938 does not alleviate the need for a taxpayer to file an FBAR (Form TD F 9-22.1). The thresholds for the Form 8938 are higher than those for the FBAR, but the financial asset rules apply to more persons and to more types of assets. They include such assets as foreign stock and securities and interests in foreign entities. They also apply to ownership interests, rather than the signatory or other authority covered by FBAR. Additionally, the rules apply to some persons whose interests do not meet the FBAR threshold. For instance, FBAR does not apply to a trust beneficiary whose interest in the trust is less than fifty percent, but the specific financial asset rules apply if that beneficiary is treated as the owner of more than $50,000 in trust assets. For more information, refer to the draft Form 8938 instructions attached.

What if I don't file?

The penalties for failure to file this form can be severe, and begins with a $10,000 penalty for not properly furnishing the required information about foreign financial assets. If you are uncertain about your specific situation or have any other questions, please call us.