The Advent of Form 8938 - Beware of Increased Reporting for Special Foreign Financial Assets
In a move to help mitigate revenue gaps through increased taxpayer transparency, the Internal Revenue Service requires direct and indirect holders of “specified foreign financial assets” generally aggregating more than $50,000 during the tax year to file Form 8938, Statement of Specified Foreign Financial Assets. Commencing in 2012 for the 2011 income tax year, this filing is an expansion of the Report of Foreign Bank and Financial Accounts (FBAR), which must be filed for any U.S. person who has a financial interest or signature authority over any financial account in a foreign country if the aggregate value of said accounts exceeds $10,000 at any time during the calendar year. The FBAR must be filed by June 30, 2012.
More specifically, you may have an FBAR and Form 8938 filing requirement if you are a holder of depository or custodial accounts held at foreign financial institutions, stocks or securities issued by foreign persons, an interest in a foreign entity, a foreign pension plan or cash value life insurance contract, or any other financial instrument or contract held for investment and not issued by or has a counterparty that is not a U.S. person.
Observation: With substantial penalties for non-filing, compliance with these annual reporting requirements is critical. In fact, penalties for non-compliance can be exorbitant, sometimes reaching the value of the account itself. The key here is not just to file these forms, but to do so timely.
So, here’s the upshot. Form 8938 must be filed with the taxpayer’s income tax return for the year in which “specified foreign financial assets” generally aggregate more than $50,000. If you think you may be subject to these filing requirements, please feel free to contact your EisnerAmper Professional for more information.