Overview Of Foreign Financial Asset Reporting
Section 6038D of the Internal Revenue Code (IRC) requires any individual with interest in a specified foreign financial asset during the tax year to attach Form 8938, Statement of Specified Foreign Financial Assets to your tax return for any year in which the aggregate value of all such assets is greater than $50,000 (please note that the reporting threshold varies depending on filing status and residency in the U.S. or outside of the U.S.).
A specified foreign financial generally includes:
- Any financial accounts maintained by a foreign financial institution
- To the extent not held in an account maintained by a foreign financial institution, any stocks or securities issued by a non-US person, interest in a foreign entity, or any financial instrument or contract that has an issuer or counterparty that is not a U.S. person
Form 8938 was released in its final form at the end of 2011 and filing is required with all tax returns submitted after that date.
Details Of Specified Foreign Financial Asset Reporting
Unless an exception applies, a specified person is required to complete and attach the Form 8938 to their annual return (i.e. individual tax return) by the due date (including extensions) for the annual return when the aggregate of such assets exceeds the applicable reporting threshold. It is important to note that the reporting is required even if the specified foreign financial asset generated no income.
Who Is A Specified Person
You are a specified individual if you are one of the following:
- A U.S. citizen
- A resident alien of the United States for any part of the tax year
- A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return
- A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico.
What Information Is Reported
The Form 8938 requires the specified person to report several items of information in connection with each specified foreign financial asset including:
- Names and addresses of foreign financial institutions
- Account number or other designation
- Amounts of income, gain, loss, deduction or credit recognized in respect to the specified foreign financial asset
- Maximum value of the asset during the year
While there is duplicate info that is reported on the Form 8938 as compared to the FBAR (FinCEN Form 114), it does not relieve you, as a the taxpayer, from both filing requirements.
Foreign Financial Asset Reporting Penalties
Individuals who fail to file a completed and timely Form 8938 for the tax year may be subject to a penalty of $10,000. In addition, if you do not file a correct and complete Form 8938 within 90 days after the IRS mails you a notice of the failure to file, the initial penalty increases by $10,000 for each 30 day period (or fraction thereof), up to a maximum penalty of $50,000.
In addition to the financial penalties, criminal penalties may also apply if you fail to file Form 8938, fail to report an asset, or have an underpayment of tax.
To learn more, please read our article on IRS Form 8938.
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