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The IRS has updated its Q-and-A for U.S. taxpayers who must report specified foreign financial assets on Form 8938, Statement of Specified Foreign Financial Assets.

Foreign Asset Reporting Updates from the IRS

  • 4/3/2013

Foreign Asset Reporting Updates From the IRS

The IRS has updated its online Q-and-A for U.S. taxpayers who must report specified foreign financial assets on Form 8938, Statement of Specified Foreign Financial Assets. Reporting is required by the Foreign Account Tax Compliance Act (FATCA), for tax years beginning after March 18, 2010.

FATCA was enacted in 2010 and is a far-reaching statute designed to obtain information about U.S. taxpayers with financial assets held in a foreign account. Eventually, reporting will be required for both individuals and specified domestic entities, but until the IRS issues regulations, only U.S. individual taxpayers must report specified foreign financial assets.

Reporting thresholds

Form 8938 reporting applies to U.S. citizens, resident aliens, and certain nonresident aliens whose specified financial assets exceed the following thresholds:

  • Unmarried taxpayers: more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year
  • Married taxpayers filing jointly: double the thresholds for unmarried taxpayers
  • Married filing separately: the same as for unmarried taxpayers

For U.S. taxpayers living outside the United States, the thresholds are:

  • Unmarried taxpayers: more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year
  • Married taxpayers filing jointly: double the thresholds for unmarried taxpayers
  • Married filing separately: the same as for unmarried taxpayers

Also, U.S. taxpayers who are not required to file an income tax return are not required to file Form 8938.

Specified foreign financial assets

Taxpayers who meet the threshold must report financial accounts maintained by a foreign financial institution, including savings accounts, deposit, checking, and brokerage accounts held by a bank or broker-dealer. Certain assets not held in a financial account also must be reported, including:

  • Stock or securities issued by a foreign corporation
  • A note, bond, or debenture issued by a foreign person
  • Certain swaps, options, and derivatives
  • An interest in a foreign partnership, foreign estate, or foreign retirement or deferred compensation plan
  • An interest in a foreign insurance or annuity contract with a cash-surrender value

Foreign real estate and foreign currency that are held directly do not have to be reported. If real estate is held through a foreign entity, the interest in the entity is a specified foreign financial asset, but the real estate is not separately reported. Other tangible assets held for investment in a foreign country (such as, art, jewelry, precious metals, or other collectibles) do not have to be reported.

Taxpayers do not have to report shares of a U.S. mutual fund that owns foreign stock or securities. The following financial accounts maintained by a U.S. financial institution do not have to be reported: U.S. mutual funds, IRAs, 401(k) retirement plans, qualified U.S. retirement plans, and brokerage accounts. A right to foreign social security is not reportable.

A financial account at a U.S. branch of a foreign financial institution, or at a foreign branch or affiliate of a U.S. financial institution, does not have to be reported, the IRS explained. A foreign safe deposit box is not reportable.

Filing

Taxpayers who filed an income tax return but failed to file Form 8938 should file an amended return, Form 1040X, with Form 8938 attached. The IRS reiterated that the separate requirements under FATCA and the Bank Secrecy Act (Report of Foreign Bank and Financial Account) both apply; filing one form does not relieve a taxpayer of an obligation to file the other form, if applicable.

Some taxpayers who had to otherwise file for 2011 are allowed to file in 2012. This transition rule applies if the taxpayer was on a fiscal year beginning before January 1, 2011, and filed an annual return before Form 8938 was released. In that case, the 2011 Form 8938 should be filed with the taxpayer’s 2012 annual return.

Valuation

Taxpayers generally do not have to hire a certified appraiser or actuary to value their specified foreign financial assets. A foreign financial account can be valued based on account statements. An asset not in a financial account can be valued based on reliable publicly-available information. Even if this latter condition does not apply, a taxpayer can make a reasonable estimate of the value, without obtaining an appraisal.

A taxpayer with a foreign pension plan or deferred compensation arrangement can use readily accessible information, if available, or the value of any distributions during the year. If neither condition applies, the value should be reported as zero, even for determining whether the reporting threshold is satisfied.

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