Persons with Foreign Financial Assets

New Reporting Requirements for Persons with Foreign Financial Assets

In the upcoming tax filing season, the Internal Revenue Service will be releasing information about a new reporting form for tax payers to report particular foreign financial assets for the 2011 tax year.

This new form, Statement of Specified Foreign Financial Assets or Form 8938, explicitly details the types and amounts of foreign financial assets or foreign accounts. Since law impedes penalties on taxpayers who do not follow this protocol, it is imperative to know if this form applies to you.

In 2010, the 8938 Form was implemented for improving tax acquiescence by U.S taxpayers who held offshore financial accounts. Individuals considered for filing Form 8938 are U.S citizens and residents, nonresidents who elect to file a joint income tax return and certain nonresidents who live in a U.S territory.

Determining whether a Form 8938 needs to be filed is based on the total value of specified foreign assets exceeding particular thresholds. For example, unless a married couple filing a joint tax return exceeds 100,000 on the last day of the tax year or more than 150,000 at any point during the year, they would not need to file Form 8938.

Threshold amounts for taxpayers that live abroad are higher than in the U.S. For example, a married couple filing a joint return would only file Form 8938 if the value of their specified foreign assets exceeds 400,000 on the last day of the tax year or more than 600,000 at any time during the year.

When filing Form 8938, it is important to follow the instructions. The instructions clarify the thresholds for reporting, what is considered a specified foreign financial asset, the process for determining the total value of relevant assets, which assets are exempted, and the information required.

Individuals who do not have an income tax return filing requirement do not need Form 8938.

Form 8938 filing requirement does not exempt nor replace a taxpayer's duty to file an FBAR (Report of Foreign Bank and Financial Accounts). Further information can be found on the FBAR page.

As the instructions and possible imposed penalties explain, any individual failing to file Form 8938 when required is probable to a $10,000 fine with an additional fine up to $50,000 after continued non-compliance when an IRS notification has been received. Additionally, a 40 percent penalty can be applied to any understatement of tax coinciding with non-disclosed assets. Certain statute of limitation rules pertain to Form 8938, which are included in the instructions.

If you have any further questions, or need further information about Form 8938, its instructions, regulations attributed to this new foreign reporting and other information determining whether a taxpayer needs to file Form 8938, we recommend you contact your accountant. Additional information can be found on FATCA page of irs.gov.