Wednesday, December 21, 2011

New Foreign Financial Asset Reporting

The Internal Revenue Service has released the final version of, and instructions for, Form 8938 (Statement of Specified Foreign Financial Assets) which must be used by individuals to report specified foreign financial assets for tax year 2011.  With a joint return, only one Form need be filed.  Until regulations are promulgated, this disclosure requirement does not apply to domestic entities formed or used to hold such assets.

The requirement to file Form 8938, which is an attachment to the tax return, applies to any year in which an individual has an interest in specified foreign assets the aggregate value of which exceeds an applicable reporting threshold amount.  The threshold amount depends upon whether the individual lives in the United States or files a joint income tax return.  The Form need not be filed if there is no income tax return filing requirement.

The specified foreign assets include any financial account at a foreign financial institution, individually owned stock or securities issued by foreign persons, any foreign issued financial instrument or contract, and any interest in a foreign entity. 

Failure to file the disclosure form could result in a $10,000 penalty with an additional penalty of up to $50,000 for continued failure to file after IRS notification, unless there is reasonable cause for not filing the form.