New reporting requirements by IRS

Date: 29 Mar 2012


Beginning with income tax returns for the 2011 tax year, individual U.S. taxpayers may be required to comply with a new information reporting requirement with respect to assets they own outside the United States. The information is reported on the recently introduced Form 8938 Statement of Specified Foreign Financial Assets (SFFA). The form is used to report an interest in a Specified Foreign Financial Asset, which includes any financial accounts maintained in foreign financial institutions, as well as certain other foreign financial assets or instruments, such as stock in a foreign corporation or an interest in a foreign partnership as well as a beneficial interest in a foreign trust.

For single taxpayers, reporting is required if the aggregate value of all SFFAs owned by the taxpayer is more than US$50,000 on the last day of the taxable year, or more than US$75,000 at any time during the year. These thresholds are doubled for married taxpayers filing a joint return. Special thresholds apply for U.S. persons living abroad. A U.S. taxpayer for this purpose includes a U.S. citizen, U.S. income tax resident or a nonresident who elects to be treated as a resident in order to file a joint tax return.

The new reporting requirement may result in significant overlap of reporting for information already required to be reported on the Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, (FBAR). Information reported on other information reporting forms (3520, 3520-A, 5471, 8621, and 8865) need not be reported again on Form 8938, although the number of such other forms being filed must be reported on Form 8938. If the filing threshold is met, information that was not previously reportable under any previously existing information reporting rules, such as less-than-10% interests in non-public foreign corporations, small (or dormant, but opened) foreign bank accounts, and beneficial interests in foreign trusts of which the taxpayer is aware (even where no distribution is received in the current year).

There is a US$10,000 penalty for failure to file Form 8938. Additional penalties may apply if the failure to file continues after notification from the IRS. Penalties may be abated if the taxpayer has reasonable cause for their failure to comply.

An interest in a foreign trust may be considered as an SFFA, but only if the US beneficiary knows or has reason to know of the existence of his or her interest in the trust. Unless the beneficiary is entitled to a fixed return from the trust (in which case the normal actuarial rules apply), the value of such interest will be determined based on the value of property received in distributions during the year. The value is assumed to be zero in any year in which the beneficiary receives no distribution. In the case of a Foreign Grantor Trust, any foreign financial assets held by the trust will be considered as owned directly by the Grantor, except that a U.S. beneficiary other than the Grantor who receives a distribution from a Foreign Grantor Trust would still be required to report their interest on Form 8938.

For a more complete explanation of these important new filing requirements please visit

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