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Temporary regulations provide guidance on requirement that individuals report foreign financial assets to the IRS

December 14, 2011 | No. 2011-606


The Treasury Department and IRS this afternoon released for publication in the Federal Register temporary regulations (T.D. 9567) and, by cross-reference, proposed regulations (REG-130302-10) relating to provisions of the Hiring Incentives to Restore Employment (HIRE) Act that require foreign financial assets to be reported, under section 6038D, to the IRS for tax years beginning after March 18, 2010.

The temporary regulations provide guidance relating to the requirement that individuals attach a statement to their income tax return to provide required information regarding foreign financial assets in which they have an interest.

For electronic versions of the regulations: T.D. 9567 and REG-130302-10

According to a related IRS release (IR-2011-117, December 14, 2011), the IRS will “in coming days” release a new information reporting form for taxpayers to use to report specified foreign financial assets for tax year 2011. Form 8938, Statement of Specified Foreign Financial Assets, will be filed by taxpayers with specific types and amounts of foreign financial assets or foreign accounts.

As explained by the IRS, the Form 8938 filing requirement was enacted in 2010 to improve tax compliance by U.S. taxpayers with offshore financial accounts. Individuals who may have to file Form 8938 are U.S. citizens and residents, nonresidents who elect to file a joint income tax return, and certain nonresidents who live in a U.S. territory. Form 8938 is required when the total value of specified foreign assets exceeds certain thresholds. The IRS provides two examples:

  • A married couple living in the United States and filing a joint tax return—they would not file Form 8938 unless their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
  • A married couple residing abroad and filing a joint return would not file Form 8938 unless the value of specified foreign assets exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

The instructions for Form 8938 explain the thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted, and what information must be provided. Form 8938 is not required of individuals who do not have an income tax return filing requirement.

The IRS noted that the new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR, Report of Foreign Bank and Financial Accounts.

Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40% penalty on any understatement of tax attributable to non-disclosed assets can also be imposed. Special statute of limitation rules apply to Form 8938, which are also explained in the instructions.

The regulations will be published in the Federal Register on December 19, 2011.

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