Many U.S. taxpayers are familiar with the requirement to annually file a foreign bank account report (FBAR). However, it’s important to note that the Foreign Account Tax Compliance Act (FATCA) adds another filing requirement for certain taxpayers who hold foreign financial assets. These taxpayers must report these assets on Form 8938, Statement of Specified Foreign Financial Assets. Below are seven things to know.
Generally, a specified individual who has an interest in specified foreign financial assets and the value is more than the applicable thresholds must file Form 8938 if the applicable threshholds are exceeded.
Earlier this year, the IRS and U.S. Treasury finalized regulations that require certain specified domestic entities to report specified foreign financial assets. These regulations are effective for taxable years beginning after December 31, 2015, meaning that calendar-year domestic entities must include these assets in their 2016 tax returns.
A specified individual is one of the following:
A specified domestic entity is defined as a domestic corporation, domestic partnership or domestic trust formed or used, directly or indirectly, for holding specified foreign financial assets. The determination of whether a domestic entity is a specified domestic entity is made annually. A corporation or partnership is treated as a specified domestic entity if:
Specified foreign financial assets include the following assets:
The reporting thresholds depend on whether the taxpayers live in or outside of the United States and their filing status.
Taxpayers must attach Form 8938 to their annual return and file it by the due date (including extensions) for that return.
Taxpayers who fail to report information on specified foreign financial assets may be subject to a penalty of $10,000. If the taxpayer does not file a correct and complete Form 8938 within 90 days after the IRS issues a failure-to-file notice, the taxpayer may be subject to an additional penalty of $10,000 for each 30-day period during which they continue to fail to file Form 8938 (not to exceed $50,000).
For taxpayers who fail to file Form 8938 or fail to report a specified foreign financial asset, the statute of limitations for the tax year may remain open for all or a part of your income tax return until three years after Form 8938 is filed.
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.