The filing of the FBAR or the Form 8938 does not preclude the U.S. taxpayer from being required to file the other form. Both the FBAR (Form TD F 90-22.1) and the Form 8938 may need to be filed. A chart with the comparison of the filing requirements for the FBAR and the Form 8938 is on the IRS website at http://www.irs.gov/businesses/article/0,,id=255986,00.html.
On June 7, 2012, the IRS issued updated basic questions and answers regarding Form 8938 reporting for specified foreign financial assets. The Hiring Incentives to Restore Employment Act of 2010 (Public Law 111-147) enacted Internal Revenue Code Section 6038D which requires U.S. taxpayers to disclose specified foreign financial assets to the IRS for tax years beginning after March 18, 2010. Last year Temporary Treasury Regulations were issued under I.R.C. Section 6038D, with an effective date of December 19, 2011.
For the year 2011, only individuals who are U.S. citizens or residents are required to file the Form 8938 with their U.S. federal tax return if they own specified foreign financial assets and they meet the filing threshold. Specified foreign financial assets that must be reported include financial accounts maintained by a foreign financial institution such as savings, deposit, checking and brokerage accounts held with a bank or broker-dealer. Other reportable foreign financial assets include the following if they are held for investment and they are not held in a financial account:
(1) stock issued by a foreign corporation;
(2) a capital or profits interest in a foreign partnership;
(3) an interest in a foreign trust or estate;
(4) a note, bond, debenture or other form of indebtedness issued by a foreign person;
(5) an option, swap or other derivative instrument with a foreign counterparty or issuer;
(6) an interest in a foreign retirement plan or deferred compensation plan; and
(7) an interest in a foreign-issued insurance contract or annuity with a cash surrender value.
The Form 8938 must be filed by U.S. individuals who are single taxpayers living in the United States if the total value of the 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. The Form 8938 must be filed by U.S. individuals who are married taxpayers living in the United States if the total value of the specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
The IRS expects to require U.S. entities to file the Form 8938 in the future if the entity is formed or availed of to hold specified foreign financial assets and the value of the assets exceeds the reporting threshold. Until the IRS issues regulations which require U.S. entities to file the Form 8938, only U.S. individuals are required to file for the tax year 2011.
A $10,000 penalty applies for the failure to file a correct and complete Form 8938 by the due date, including extensions of the U.S. taxpayer’s federal tax return. An additional $10,000 penalty up to a maximum of $50,000 could be imposed for each 30-day period that the failure to file continues if the taxpayer does not file the form within 90 days after receiving a notice from the IRS.
For more information, please contact our international tax advisor at 301.231.6200.