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July 06, 2012

Guidance on IRS Filing Requirements for Specified Foreign Financial Assets

Guest Author: Tawnya Underwood, Columbus, Ohio

Do you have foreign financial assets?  If so, you may be required to report your foreign financial assets to the Internal Revenue Service on the IRS Form 8938, Statement of Specified Foreign Financial Assets for tax years 2011 and beyond.  The tax attorneys at Nardone Law Group, LLC have helped a number of clients in Ohio and throughout the country with the filing requirements as they relate to foreign assets and accounts.  Our Ohio tax lawyers want to alert you to the IRS’s updated guidance on reporting of specified foreign financial assets.   

Background

The IRS issued Temporary Regulations effective for taxable years ending after December 19, 2011 under Internal Revenue Code §6038D.  These Temporary Regulations provide taxpayers with guidance as to filing obligations and reporting thresholds for the Form 8938.  The Form 8938 is attached to your annual income tax return and must be filed by the due date of that return (including extensions).  At the present time, only individuals holding specified foreign financial assets are subject to the Form 8938 filing requirement; however, it is expected that the IRS will issue final regulations in 2012, requiring specified domestic entities to report specified foreign assets. 

Reporting Requirements

The below chart details U.S. resident taxpayers’ reporting thresholds for specified foreign financial assets:

Taxpayers Living in the U.S.

Value of Specified Foreign Financial Asset

Unmarried Taxpayer

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 Filing Jointly

More than $100,000 on the last day of the tax year; or

More than $150,000 at any time during the tax year

Married Filing Separate

More than $50,000 on the last day of the tax year; or

More than $75,000 at anytime during the tax year

*Please note, the dollar amounts above increase for taxpayers living abroad. 

The IRS basic Questions and Answers (Q&A) on filing requirements for specified foreign financial assets can be accessed by clicking here

Assets that must be reported on a Form 8938, if they exceed the reporting thresholds as listed above, include:

  • Financial accounts maintained by a foreign financial institution.  These include savings, checking, and deposit accounts;
  • Stock or security issued by a foreign corporation; and
  • An interest in a foreign retirement plan or deferred compensation plan.

Assets that are not required to be reported on a Form 8938 include:

  • Foreign real estate, such as a personal residence or rental property;
  • Financial account with a U.S. Branch of a U.S. based financial institution; and  
  • Financial account maintained by a U.S. Financial institution holding foreign stocks and securities.

Some taxpayers feel that the reporting requirements for foreign financial assets are duplicative of the reporting requirements for foreign financial accounts.  In some cases it may be required that a taxpayer file both the Form 8938 and the Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).  The IRS addresses taxpayer’s questions in the Q&As related to this issue and has provided a chart detailing the differences in filing requirements for the Form 8938 and the FBAR, which can be viewed by clicking here.  You can also visit Nardone Law Group's FAQ's page on this topic by clicking here.

With the relatively new filing requirement of the Form 8938—2011 being the first taxable year requiring this filing—some taxpayers may have not realized their reporting requirement.  For those of you who have filed your 2011 Form 1040 U.S. Individual Income Tax Return by the April 17, 2012 deadline, but now realize you should have also included the Form 8938, do not panic.  You should take the following step:  file the Form 1040X, Amended U.S. Individual Income Tax Return, with your Form 8938 attached. You may have heard of the IRS’s Offshore Voluntary Disclosure Program, which is a program allowing taxpayers to come into compliance as it relates to undisclosed foreign accounts and undisclosed foreign entities used for purposes of avoiding or evading tax.  Simply not filing your Form 8938 for the 2011 tax year will not require that you enter the Offshore Voluntary Disclosure Program.  For more information related to the IRS’s Offshore Voluntary Disclosure Program, please click here.

If you are unsure as to whether or not you are required to file the Form 8938, you should contact an experienced tax lawyer today. The Ohio tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS. Our experienced tax lawyers will thoroughly review your case to determine whether you are required to file the FBAR and/or the Form 8938 to report foreign financial assets, and also assist in determining if you will need to participate in the IRS’s Offshore Voluntary Disclosure Initiative, which allows non-compliant taxpayers to come forward and file past due FBARs.  Contact us today for a consultation to discuss your case.

Please view the site disclaimer regarding the advice on this blog.

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July 06, 2012

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