Form 8938 Must Be Filed with Form 1040 Due April 17, 2012
As a follow up to its release of a final version of IRS Form 8938 and instructions on February 29, 2012, the IRS released Basic Questions and Answers on Form 8938 (the "FAQs").1 In a previous alert, we discussed some of the general filing requirements with respect to Form 8938 which is effective now for individuals filing 2011 tax returns.2
The general rule-of-thumb is that all savings, deposit, checking, and brokerage accounts held with a foreign bank or broker-dealer are assets that must be reported on Form 8938. Foreign stock, securities, financial instruments and contracts held for investment must be reported on Form 8938 as well.
However, taxpayers and practitioners commonly encounter assets that do not necessarily fit squarely within one of these descriptions. The FAQs provide the following helpful guidance to taxpayers and practitioners in such circumstances.
Foreign Real Estate
Foreign real estate is not a specified foreign financial asset required to be reported on Form 8938. For example, a personal residence or a rental property does not have to be reported.
However, if a taxpayer holds foreign real estate through a foreign entity, such as a corporation, partnership, trust or estate, then the interest in the entity is a specified foreign financial asset that is reported on Form 8938.
Directly-held foreign currency (i.e., currency not held in a financial account) is not required to be reported on Form 8938.
Interest in Foreign Entities and Estates
An interest in a foreign entity (e.g., a partnership interest in a foreign partnership) or an interest in a foreign estate is required to be reported on Form 8938.
Account Maintained by a U.S. Financial Institution that Holds Foreign Stocks and Securities
A taxpayer is not required to report a financial account maintained by a U.S. financial institution or its holdings. Examples of financial accounts maintained by U.S. financial institutions include U.S. mutual fund accounts, IRAs (traditional or Roth), 401(k) retirement plans, qualified U.S. retirement plans, and brokerage accounts maintained by U.S. financial institutions.
Accounts Maintained at a U.S. Branch of a Foreign Financial Institution
A financial account, such as a depository, custodial or retirement account, at a U.S. branch of a foreign financial institution is an exception to the general rule that a financial account maintained by a foreign financial institution is a specified foreign financial asset, and is not required to be reported on Form 8938.
Foreign Financial Account that Only Holds Investments Issued by U.S. Persons
A taxpayer is required to report on Form 8938 a foreign financial account maintained by a foreign financial institution even if the account only contains assets issued by U.S. persons.
Foreign Pension or Deferred Compensation Plans
An interest in a foreign pension or deferred compensation plan is required to be reported on Form 8938. The value of an interest in a foreign pension plan or deferred compensation plan is generally the fair market value of the beneficial interest in the plan on the last day of the year.
Foreign Derivatives, Financial Instruments or Contracts Held For Investment
A foreign derivative, financial instrument or contract held for investment is required to be reported on Form 8938. Specific examples of such assets include:
- An interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap or similar agreement with a foreign counterparty;
- An option or other derivative instrument with respect to any of these examples or with respect to any currency or commodity that is entered into with a foreign counterparty or issuer;
Foreign-Issued Insurance Contract or Annuity With a Cash Surrender Value
Any interest in a foreign-issued insurance contract or annuity with a cash-surrender value is required to be reported on Form 8938.
Individuals or businesses with questions about reporting requirements, including FATCA/Form 8938 foreign asset and/or FBAR filing requirements, should consult experienced tax counsel. Blank Rome LLP has significant experience with U.S. tax information reporting requirements with respect to offshore assets and can assist individuals or businesses in navigating the filing process.
- The FAQs can be accessed at: http://www.irs.gov/businesses/corporations/article/0,,id=255061,00.html. In addition to the FAQs, the IRS has published a chart comparing the filing requirements of Form 8938 and Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). This chart can be accessed athttp://www.irs.gov/businesses/article/0,,id=255986,00.html.
- A copy of this previous alert is available at http://www.blankrome.com/index.cfm?contentID=37&itemID=267
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.