Article written by:
Mary McVicar, CPA
Under FATCA regulations, generally beginning with the 2011 tax year, specified individuals began reporting foreign financial assets to the IRS on Form 8938 (Statement of Specified Foreign Financial Assets). Completely independent from foreign bank account reporting requirements (filed with Form FinCEN 114, previously Form TD F 90.22-1), Form 8938 is filed with a taxpayer’s return and is broader than FBAR reporting, including not only financial accounts maintained in foreign financial institutions, but also certain stocks or securities, interests in foreign entities and financial instruments. While the regulations required specified individuals to begin reporting foreign financial assets for tax years ending after December 19, 2011, the same regulations contain provisions for specified domestic entities as well. However, the requirement for specified domestic entities to report foreign financial assets was delayed until final regulations were issued in February 2016 and is only required beginning with tax years ending after December 31, 2015.
As you consider your Form 8938 reporting requirements, please consider the following:
- A specified person (either a specified individual or a specified domestic entity) must file Form 8938 with their respective income tax return if the person has an interest in one or more specified foreign financial assets and the aggregate fair market value (FMV) of those assets exceeds either $50,000 on the last day of the tax year or $75,000 at any time during the tax year (or $100,000 and $150,000, respectively, for married specified individuals filing a joint annual return).
- Specified persons are not required to file Form 8938 for any tax year for which they are not required to file an annual return.
- The new requirement for specified domestic entities is limited by definition and is determined annually. A specified domestic entity includes the following:
- A closely held (at least 80% owned by a specified individual) domestic corporation or domestic partnership wherein at least 50% of its gross income or assets are passive. Note: IRC Reg § 1.6038D-6(b)(3) defines passive income and assets to be considered
- A domestic trust described that has one or more specified persons as a current beneficiary.
- If you are a specified individual and report all of your specified foreign financial assets on timely filed Forms 3520, 3520-A, 5471, 8621, or 8865, you do not have to report these again on Form 8938. Instead, Form 8938 Part IV is completed to appropriately denote the forms which have been used to report the specified foreign financial assets.
What are the takeaways to consider?
- Specified individuals are still required to report specified foreign financial assets on Form 8938.
- Beginning with tax years ending after December 31, 2015, specified domestic entities are now also required to report specified foreign financial assets. But, keep in mind, the scope of specified domestic entity is limited and does not include every domestic corporation, partnership or trust.
- The IRS will continue monitoring domestic corporations and partnership which are not required to report under the regulations and may expand the definition of specified domestic entity in the future if it is deemed necessary.