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FATCA Update - Form 8938

Under the Foreign Account Tax Compliance Act (“FATCA”) any U.S. person holding foreign financial assets with an aggregate value in excess of $50,000, at any point during the tax year, is required to report specific information regarding those assets to the IRS. This reporting requirement is met by completing a form newly developed by the IRS, Form 8938.

 
IRC Section 6038D defines foreign financial assets as assets that are held in a financial account maintained by a foreign financial institution such as bank accounts; any stock or security issued by a person other than a U.S. person; any financial instrument or contract held for investment that has an issuer or counterparty that other than a U.S. person; and any interest in a foreign entity. Currently there is no guidance available on how to determine the value of any non-liquid foreign assets that are required to be reported on Form 8938. The chief counsel’s office noted that the guidance is in the processed of being developed and will be promulgated within the next few months.

The Form 8938 must be attached to the taxpayer’s annual tax return for assets held in tax years beginning on or after January 1, 2011.

The Form 8938 filing requirement is in addition to other foreign information returns such as Form 5471 (Information Return of U.S. Person with Respect to Certain Foreign Corporations) and TDF 90-22.1 (Report of Foreign Bank and Financial Accounts “FBAR”).

The current draft version of the Form 8938 is a two page form which would significantly increase the amount of data required to file a tax return.

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