Form 8938 instructions

Form 8938 instructions DEFAULT

Instructions for Form ()

 

Statement of Specified Foreign Financial Assets

Section references are to the Internal Revenue Code unless otherwise noted.


For the latest information about developments related to Form and its instructions, such as legislation enacted after they were published, go to IRS.gov/Form

What’s New

Rev. Proc. , available at IRS.gov/pub/irs-drop/rppdf, exempts foreign trust information reporting requirements on Forms and A, for certain U.S. individuals’ transactions with, and ownership of, certain tax-favored foreign trusts that are established and operated exclusively or almost exclusively to provide pension or retirement benefits, or to provide medical disability or educational benefits. This does not affect any reporting obligations under section D. For more information about section D information reporting, see IRS.gov/Businesses/Corporations/Basic-Questions-and-Answers-on-Form

Reminders

Specified domestic entity reporting.

Certain domestic corporations, partnerships, and trusts that are considered formed or availed of for the purpose of holding, directly or indirectly, specified foreign financial assets (specified domestic entities) must file Form if the total value of those assets exceeds $50, on the last day of the tax year or $75, at any time during the tax year.

For more information on domestic corporations, partnerships, and trusts that are specified domestic entities and must file Form , and the types of specified foreign financial assets that must be reported, see Who Must File, Specified Domestic Entity, Specified Foreign Financial Assets, Interests in Specified Foreign Financial Assets, and Assets Not Required To Be Reported, later.

Purpose of Form

Use Form to report your specified foreign financial assets if the total value of all the specified foreign financial assets in which you have an interest is more than the appropriate reporting threshold. See Types of Reporting Thresholds, later.

.This is an Image: caution.gifFiling Form does not relieve you of the requirement to file FinCEN Form , Report of Foreign Bank and Financial Accounts (FBAR), if you are otherwise required to file the FBAR. See FinCEN Form and its instructions for FBAR filing requirements. Go to IRS.gov/Businesses/Comparison-of-Formand-FBAR-Requirements for a chart comparing Form and FBAR filing requirements..

When and How To File

Attach Form to your annual return and file by the due date (including extensions) for that return.

An annual return includes the following returns.

  • Form

  • Form NR.

  • Form SR.

  • Form

  • Form N.

  • Form

  • Form

A reference to an "annual return" or "income tax return" in the instructions includes a reference to any return listed here, whether it is an income tax return or an information return.

.This is an Image: caution.gifDo not send a Form to the IRS unless it is attached to an annual return or an amended return. .

Who Must File

Unless an exception applies, you must file Form if you are a specified person (see Specified Person, later) that has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold.

If you are required to file Form , you must report the specified foreign financial assets in which you have an interest even if none of the assets affects your tax liability for the year. See Specified Individual, Specified Domestic Entity, and Types of Reporting Thresholds, later.

.This is an Image: taxtip.gifIf you do not have to file an income tax return for the tax year, you do not have to file Form , even if the value of your specified foreign financial assets is more than the appropriate reporting threshold..

Specified Person

A specified person is either a specified individual or a specified domestic entity, defined later.

You are a specified individual if you are one of the following.

  • A U.S. citizen.

  • A resident alien of the United States for any part of the tax year (but see Reporting Period, later).

  • A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return.

  • A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico. See Pub. , Tax Guide for Individuals With Income From U.S. Possessions, for a definition of bona fide resident.

Resident aliens.

You are a resident alien if you are treated as a resident alien for U.S. tax purposes under the green card test or the substantial presence test. For more information, see Pub. , U.S. Tax Guide for Aliens. If you qualify as a resident alien under either rule, you are a specified individual.

Special rule for dual resident taxpayers.

If you are a dual resident taxpayer (within the meaning of Regulations section (b)-7(a)(1)), who determines his or her income tax liability for all or a part of the tax year as if he or she were a nonresident alien as provided by Regulations section (b)-7, file Form as follows.

Specified individual filing as a nonresident alien at the end of his or her tax year.

You are not required to report specified foreign financial assets on Form for the part of your tax year covered by Form NR, provided you comply with the filing requirements of Regulations section (b)-7(b) and (c), including the requirement to timely file Form NR, as applicable, and attach Form , Treaty-Based Return Position Disclosure Under Section or (b).

Specified individual filing as a resident alien at the end of his or her tax year.

You are not required to report specified foreign financial assets on Form for the part of your tax year reflected on the schedule to Form or SR required by Regulations section (b)(2)(ii)(a), provided you comply with the filing requirements of Regulations section (b)(2)(ii)(a), including the requirement to timely file Form or SR and attach a properly completed Form

Specified Domestic Entity

You are a specified domestic entity if you are one of the following.

  • A closely held domestic corporation that has at least 50% of its gross income from passive income.

  • A closely held domestic corporation if at least 50% of its assets produce or are held for the production of passive income (see Passive income and Percentage of passive assets held by a corporation or partnership, later).

  • A closely held domestic partnership that has at least 50% of its gross income from passive income.

  • A closely held domestic partnership if at least 50% of its assets produce or are held for the production of passive income (see Passive income and Percentage of passive assets held by a corporation or partnership, later).

  • A domestic trust described in section (a)(30)(E) that has one or more specified persons (a specified individual or a specified domestic entity) as a current beneficiary.

Closely held domestic corporation.

A domestic corporation is closely held if, on the last day of the corporation’s tax year, a specified individual directly, indirectly, or constructively owns at least 80% of the total combined voting power of all classes of stock of the corporation entitled to vote or at least 80% of the total value of the stock of the corporation.

Closely held domestic partnership.

A domestic partnership is closely held if, on the last day of the partnership’s tax year, a specified individual directly, indirectly, or constructively holds at least 80% of the capital or profits interest in the partnership.

Constructive ownership.

Sections (c) and (e)(3) apply for purposes of determining a specified individual’s constructive ownership in a domestic corporation or partnership, except that section (c)(4) is applied as if the family of an individual includes the spouses of the specified individual’s family members.

Passive income.

Passive income means the part of gross income that consists of:

  • Dividends, including substitute dividends;

  • Interest;

  • Income equivalent to interest, including substitute interest;

  • Rents and royalties, other than rents and royalties derived in the active conduct of a trade or business conducted, at least in part, by employees of the corporation or partnership;

  • Annuities;

  • The excess of gains over losses from the sale or exchange of property described in Regulations section D-6(b)(3)(i)(F) and that gives rise to the types of passive income listed above;

  • The excess of gains over losses from transactions (including futures, forwards, and similar transactions) in any commodity, but not including:

    1. Any commodity hedging transaction described in section (c)(5)(A), or

    2. Active business gains or losses from the sale of commodities, but only if substantially all the corporation’s or partnership’s commodities are property described in paragraph (1), (2), or (8) of section (a);

  • The excess of foreign currency gains over foreign currency losses (as defined in section (b)) attributable to any section transaction; and

  • Net income from notional principal contracts.

Exception from passive income treatment for dealers.

In the case of a domestic corporation or partnership regularly acting as a dealer in property described in Regulations section D-6(b)(3)(i)(F), forward contracts, options contracts, or similar financial instruments (including notional principal contracts and all instruments referenced to commodities), passive income does not include the following.

  1. Any item of income or gain (other than any dividends or interest) from any transaction (including hedging transactions and transactions involving physical settlement) entered into in the ordinary course of such dealer’s trade or business as such a dealer.

  2. In the case of a corporation or partnership that is a dealer in securities (within the meaning of section (c)(2)), any income from any transaction entered into in the ordinary course of the corporation’s or partnership’s trade or business as a dealer in securities.

Passive income or assets of related corporations and partnerships.

For purposes of determining whether a domestic corporation or partnership meets the passive income or asset test, domestic corporations and domestic partnerships that are closely held by the same specified individual and that are connected through stock or partnership ownership with a common parent corporation or partnership are treated as owning the combined assets and receiving the combined income of all members of that group. For this purpose, any contract, equity, or debt existing between members of the group, as well as any items of gross income arising from that contract, equity, or debt, is eliminated.

Connected stock or partnership ownership.

A domestic corporation or partnership is considered connected through stock or partnership interest ownership with a common parent corporation or partnership in the following circumstances.

  1. Stock representing at least 80% of the total combined voting power of all classes of stock of the corporation entitled to vote or of the value of such corporation, other than stock of the common parent, is owned by one or more of the other connected corporations, connected partnerships, or the common parent.

  2. Partnership interests representing at least 80% of the profits interests or capital interests of the partnership, other than partnership interests in the common parent, is owned by one or more of the other connected corporations, connected partnerships, or the common parent.

Percentage of passive assets held by a corporation or partnership.

For purposes of determining whether at least 50% of your assets produce or are held for the production of passive income, the percentage of passive assets held by the corporation or partnership for a tax year is the weighted average percentage of passive assets (weighted by total assets and measured quarterly). The value of assets of the corporation or partnership is the fair market value or the book value. The book value of assets is the amount reflected on the corporation’s or partnership’s balance sheet and may be determined under either a U.S. or an international financial accounting standard. See Example 1 below, which illustrates the application of this weighted average asset rule.

Example 1. Application of the weighted average asset rule.

The following example illustrates the application of the weighted average asset rule.

DC is a domestic corporation, the total value of the stock of which is owned by L, a specified individual. DC is a calendar year taxpayer. Less than 50% of DC’s gross income for its tax year beginning January 1, , is passive income. DC has the following assets in , measured quarterly:
Passive Assets Total Assets
Q1 $ $
Q2 $$
Q3$$
Q4 $$1,
Tax Year Totals $$2,
DC’s weighted passive asset percentage for tax year is 40%, that is, DC’s total passive assets divided by its total assets ($ / $2, = 40%). Because fewer than 50% of DC’s assets produce or are held for the production of passive income and less than 50% of DC’s gross income for its tax year is passive income, DC does not meet the passive asset or passive income threshold and would not be a specified domestic entity.

Domestic trusts.

A trust described in section (a)(30)(E) is considered a specified domestic entity if and only if the trust has one or more specified persons (a specified individual or a specified domestic entity) as a current beneficiary for the tax year.

Current beneficiary.

With respect to a tax year, a current beneficiary is any person who at any time during the tax year is entitled to, or at the discretion of any person may receive, a distribution from the principal or income of the trust (determined without regard to any power of appointment to the extent that such power remains unexercised at the end of the tax year).

Special rule for general powers of appointment.

A current beneficiary also includes any holder of a general power of appointment, whether or not exercised, that was exercisable at any time during the tax year. A holder of a general power of appointment that is exercisable only on the death of the holder is not a current beneficiary.

Excepted Specified Domestic Entities

Entities described in section (3).

An entity described in section (3) and the regulations thereunder, with the exception of a trust that is exempt from tax under section (c), is not a specified domestic entity.

Certain domestic trust.

A trust described in section (a)(30)(E) is not considered a specified domestic entity, provided that all of the following apply.

  1. The trustee is one of the following.

    1. A bank that is examined by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, or the National Credit Union Administration;

    2. A financial institution that is registered with and regulated or examined by the Securities and Exchange Commission; or

    3. A domestic corporation described in section (3)(A) or (B), and the regulations issued with respect to those provisions.

  2. The trustee has supervisory authority over or fiduciary obligations with regard to the specified foreign financial assets held by the trust.

  3. The trustee files annual returns and information returns by the due date (including any applicable extensions) on behalf of the trust.

Domestic trusts owned by one or more specified persons.

A trust described in section (a)(30)(E) to the extent the trust or any part of the trust is treated as owned by one or more specified persons under sections through and the regulations.

Types of Reporting Thresholds

Reporting Thresholds Applying to Specified Individuals

If you are a specified individual, your applicable reporting threshold depends upon whether you are married, file a joint federal income tax return, and live inside (or outside) the United States.

Taxpayers living in the United States.

If you do not live outside the United States, you satisfy the reporting threshold discussed next that applies to you, and no exception applies, file Form with your income tax return.

Unmarried taxpayers.

If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50, on the last day of the tax year or more than $75, at any time during the tax year.

Married taxpayers filing a joint income tax return.

If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $, on the last day of the tax year or more than $, at any time during the tax year.

Married taxpayers filing separate income tax returns.

If you are married and file a separate income tax return from your spouse, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50, on the last day of the tax year or more than $75, at any time during the tax year.

Taxpayers living outside the United States.

If your tax home is in a foreign country, you meet one of the presence abroad tests described next, and no exception applies, file Form with your income tax return if you satisfy the reporting threshold discussed next that applies to you.

Unmarried taxpayers.

If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $, on the last day of the tax year or more than $, at any time during the tax year.

Married taxpayers filing a joint income tax return.

If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $, on the last day of the tax year or more than $, at any time during the tax year.

Married taxpayers filing separate income tax returns.

If you are married and file a separate income tax return from your spouse, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $, on the last day of the tax year or more than $, at any time during the tax year.

Presence abroad.

You satisfy the presence abroad test if you are one of the following.

  • A U.S. citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.

  • A U.S. citizen or resident who is present in a foreign country or countries at least full days during any period of 12 consecutive months that ends in the tax year being reported.

Reporting Thresholds Applying to Specified Domestic Entities

If you are a specified domestic entity, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50, on the last day of the tax year or more than $75, at any time during the tax year.

Determining the Total Value of Your Specified Foreign Financial Assets

You must figure the total value of the specified foreign financial assets in which you have an interest to determine if you satisfy the reporting threshold that applies to you. To determine if you have an interest in a specified foreign financial asset, see Interests in Specified Foreign Financial Assets, later.

Valuing Specified Foreign Financial Assets

The value of a specified foreign financial asset for purposes of determining the total value of specified foreign financial assets in which you have an interest during the tax year or on the last day of the tax year is the asset's fair market value. For purposes of figuring the total value of specified foreign financial assets, the value of a specified foreign financial asset denominated in a foreign currency must first be determined in the foreign currency and then converted to U.S. dollars. See Foreign Currency Conversion, later, for rules on determining and applying the appropriate foreign currency exchange rate.

Value of an Interest in a Foreign Trust During the Tax Year

If you do not know or have reason to know based on readily accessible information the fair market value of your interest in a foreign trust during the tax year, the value to be included in determining the total value of your specified foreign financial assets during the tax year is the maximum value of your interest in the foreign trust. See Valuing Interests in Foreign Trusts, later, for rules on determining the maximum value of an interest in a foreign trust.

Value of an Interest in a Foreign Estate, Foreign Pension Plan, and Foreign Deferred Compensation Plan

If you do not know or have reason to know based on readily accessible information the fair market value of your interest in a foreign estate, foreign pension plan, or foreign deferred compensation plan during the tax year, the value to be included in determining the total value of your specified foreign financial assets during the tax year is the fair market value, determined as of the last day of the tax year, of the currency and other property distributed during the tax year to you. If you received no distributions during the tax year and do not know or have reason to know based on readily accessible information the fair market value of your interest, use a value of zero for the interest.

Asset With No Positive Value

If the maximum value of a specified foreign financial asset is less than zero, use a value of zero for the asset.

If you jointly own an asset with someone else, the value that you use to determine the total value of all of your specified foreign financial assets depends on whether the other owner is your spouse and, if so, whether your spouse is a specified individual and whether you file a joint or separate return.

Joint ownership with spouse filing joint income tax return.

If you and your spouse file a joint income tax return and, therefore, would file one combined Form for the tax year, include the value of the asset jointly owned with your spouse only once to determine the total value of all of the specified foreign financial assets you and your spouse own.

Joint ownership with spouse filing separate income tax return.

If you and your spouse are specified individuals and you each file a separate annual return, include one-half of the value of the asset jointly owned with your spouse to determine the total value of all of your specified foreign financial assets.

Joint ownership with a spouse who is not a specified individual or someone other than a spouse.

Each joint owner includes the entire value of the jointly owned asset to determine the total value of all of that joint owner's specified foreign financial assets.

Special Rules

Assets Reported on Another Form

Specified individual.

If you are a specified individual, include the value of all specified foreign financial assets, even if they are reported on another form listed in Part IV to determine if you satisfy the reporting threshold that applies to you. See Part IV. Excepted Specified Foreign Financial Assets, later.

Specified domestic entity.

If you are a specified domestic entity, exclude the value of any specified foreign financial asset reported on another form listed in Part IV to determine if you satisfy the applicable reporting threshold.

Bona Fide Resident of a U.S. Possession

Do not include the value of specified foreign financial assets you are not required to report because you are a bona fide resident of a U.S. possession. See Bona Fide Resident of a U.S. Possession under Assets Not Required To Be Reported, later.

Owners of Certain Domestic Tursts

Do not include the value of specified foreign financial assets you are not required to report because you are an owner of a domestic widely held fixed investment trust or a domestic liquidating trust created under chapter 7 or chapter 11 of the Bankruptcy Code. See Domestic Investment Trusts and Domestic Bankruptcy Trusts, later.

Related Domestic Corporations and Partnerships

To determine if you satisfy the applicable reporting threshold, a specified domestic entity that is a corporation or partnership and that has an interest in any specified foreign financial asset is treated as owning all specified foreign financial assets held by all related corporations or partnerships that are closely held by the same specified individual (excluding specified foreign financial assets that are excluded from reporting under Part IV of Form or because you are the owner of a domestic widely held fixed investment trust or a domestic liquidating trust created under chapter 7 or chapter 11 of the Bankruptcy Code).

Examples 2 through 11 may help you decide if you have to file Form

Example 2. I am not married and do not live abroad. The total value of my specified foreign financial assets does not exceed $49, during the tax year.

You do not have to file Form You do not satisfy the reporting threshold of more than $50, on the last day of the tax year or more than $75, at any time during the tax year.

Example 3. I am not married and do not live abroad. I sold my only specified foreign financial asset on October 15, when its value was $,

You have to file Form You satisfy the reporting threshold even though you do not hold any specified foreign financial assets on the last day of the tax year because you did own specified foreign financial assets of more than $75, at any time during the tax year.

Example 4. I am not married and do not live abroad. An unrelated U.S. resident and I jointly own a specified foreign financial asset valued at $60,

You each have to file Form You each satisfy the reporting threshold of more than $50, on the last day of the tax year.

Example 5. I am not married and do not live abroad. I own an entity disregarded for tax purposes, which owns one specified foreign financial asset valued at $30, In addition, I own a specified foreign financial asset valued at $25,

You have to file Form You own both the specified foreign financial asset owned by the disregarded entity and the specified foreign financial asset you own directly, for a total value of $55, You satisfy the reporting threshold of more than $50, on the last day of the tax year.

Example 6. My spouse and I do not live abroad and file a joint income tax return. We jointly own a single specified foreign financial asset valued at $60,

You and your spouse do not have to file Form You do not satisfy the reporting threshold of more than $, on the last day of the tax year or more than $, at any time during the tax year.

Example 7. My spouse and I do not live abroad, file a joint income tax return, and jointly and individually own specified foreign financial assets. On the last day of the tax year, my spouse and I jointly own a specified foreign financial asset with a value of $90, My spouse has a separate interest in a specified foreign financial asset with a value of $10, I have a separate interest in a specified foreign financial asset with a value of $1,

You and your spouse have to file a combined Form You and your spouse have an interest in specified foreign financial assets in the amount of $, on the last day of the tax year. This is the entire value of the specified foreign financial asset that you jointly own, $90,, plus the value of the asset that your spouse separately owns, $10,, plus the value of the asset that you separately own, $1, You and your spouse satisfy the reporting threshold of more than $, on the last day of the tax year.

Example 8. My spouse and I do not live abroad, file separate income tax returns, and jointly own a specified foreign financial asset valued at $60, for the entire year.

Neither you nor your spouse has to file Form You each use one-half of the value of the asset, $30,, to determine the total value of specified foreign financial assets that you each own. Neither of you satisfies the reporting threshold of more than $50, on the last day of the tax year or more than $75, at any time during the tax year.

Example 9. My spouse and I file separate income tax returns, jointly and individually own specified foreign financial assets, and do not live abroad. On the last day of the tax year, my spouse and I jointly own a specified foreign financial asset with a value of $90, My spouse has a separate interest in a specified foreign financial asset with a value of $10, I have a separate interest in a specified foreign financial asset with a value of $1,

You do not have to file Form but your spouse does. Your spouse has an interest in specified foreign financial assets in the amount of $55, on the last day of the tax year. This is one-half of the value of the asset that you jointly own, $45,, plus the entire value of the asset that your spouse separately owns, $10, You have an interest in specified foreign financial assets in the amount of $46, on the last day of the tax year. This is one-half of the value of the asset that you jointly own, $45,, plus the entire value of the asset that you separately own, $1, Your spouse satisfies the reporting threshold of more than $50, on the last day of the tax year. You do not satisfy the reporting threshold of more than $50, on the last day of the tax year or more than $75, at any time during the tax year.

Example My spouse and I are U.S. citizens but live abroad for the entire tax year and file a joint income tax return. The total value of our combined specified foreign financial assets on any day of the tax year is $,

You and your spouse do not have to file Form You do not satisfy the reporting threshold of more than $, on the last day of the tax year or more than $, at any time during the tax year for married individuals who live abroad and file a joint income tax return.

Example My spouse and I live abroad and file separate income tax returns. My spouse is not a specified individual. On the last day of the tax year, my spouse and I jointly own a specified foreign financial asset with a value of $, My spouse has a separate interest in a specified foreign financial asset with a value of $10, I have a separate interest in a specified foreign financial asset with a value of $60,

You have to file Form but your spouse, who is not a specified individual, does not. You have an interest in specified foreign financial assets in the amount of $, on the last day of the tax year. This is the entire value of the asset that you jointly own, $,, plus the entire value of the asset that you separately own, $60, You satisfy the reporting threshold for a married individual living abroad and filing a separate return of more than $, on the last day of the tax year.

Specified Foreign Financial Assets

Types of Specified Foreign Financial Assets

Specified foreign financial assets include the following assets.

  1. Financial accounts maintained by a foreign financial institution.

  2. The following foreign financial assets if they are held for investment and not held in an account maintained by a financial institution.

    1. Stock or securities issued by someone that is not a U.S. person (including stock or securities issued by a person organized under the laws of a U.S. possession).

    2. Any interest in a foreign entity.

    3. Any financial instrument or contract that has an issuer or counterparty that is not a U.S. person (including a financial contract issued by, or with a counterparty that is, a person organized under the laws of a U.S. possession).

For foreign financial assets excepted from reporting, see Assets Not Required To Be Reported, later.

A financial account is any depository or custodial account (under Regulations section (b)(1)(i) or (ii)) maintained by a foreign financial institution as well as any equity or debt interest in a foreign financial institution (other than interests that are regularly traded on an established securities market) or any cash value life insurance or annuity contract maintained by an insurance company or other foreign financial institution. A specified foreign financial asset includes a financial account maintained by a financial institution that is organized under the laws of a U.S. possession (American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, Puerto Rico, or the U.S. Virgin Islands).

Foreign financial institution.

In most cases, a foreign financial institution is any financial institution that is not a U.S. entity and satisfies one or more of the following.

  • It accepts deposits in the ordinary course of a banking or similar business.

  • It holds financial assets for the account of others as a substantial part of its business.

  • It is engaged (or holds itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest (including a futures or forward contract or option) in such securities, partnership interests, or commodities.

Other Specified Foreign Financial Assets

Examples of other specified foreign financial assets include the following, if they are held for investment and not held in a financial account.

  • Stock issued by a foreign corporation.

  • A capital or profits interest in a foreign partnership.

  • A note, bond, debenture, or other form of indebtedness issued by a foreign person.

  • An interest in a foreign trust or foreign estate.

  • 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.

Assets held for investment.

You hold an asset, including a partnership interest, for investment if you do not use it in, or hold it for use in, the conduct of any trade or business.

Stock is not considered used or held for use in the conduct of a trade or business.

.This is an Image: caution.gifIf you are required to file Form , in addition to reporting retirement and pension accounts and nonretirement savings accounts described in Regulations section (b)(2)(i), you must report retirement and pension accounts, nonretirement savings accounts, and accounts satisfying conditions similar to those described in Regulations section (b)(2)(i) that are otherwise excluded from the definition of a financial account by an applicable Model 1 IGA or Model 2 IGA. Thus, such accounts are subject to uniform reporting rules and must be reported without regard to whether the account is maintained in a jurisdiction with an IGA..

Interests in Specified Foreign Financial Assets

You have an interest in a specified foreign financial asset if any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the asset are or would be required to be reported, included, or otherwise reflected on your income tax return.

You have an interest in a specified foreign financial asset even if no income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the asset are included or reflected on your income tax return for this tax year.

Interests in Property Transferred in Connection With the Performance of Services

You are first considered to have an interest in property transferred in connection with the performance of services on the first date that the property is substantially vested (within the meaning of Regulations section (b)) or, if you have made a valid section 83(b) election with respect to the property, on the date of transfer of the property.

Interests in Assets Held by Disregarded Entities

If you are the owner of a disregarded entity, you have an interest in any specified foreign financial assets owned by the disregarded entity.

Interests in Jointly Owned Assets

A joint owner of an asset has an interest in the entire asset. For special rules for interests in assets jointly owned by spouses, see Joint Interest Valuation, earlier, and Reporting the Value of Jointly Owned Assets, later.

Interests in Assets Held in Financial Accounts

If you have an interest in a financial account that holds specified foreign financial assets, you do not have to report the assets held in the account.

Interests in Assets Generating Certain Unearned Income of Children

If you file Form , Parents' Election To Report Child's Interest and Dividends, with your income tax return to elect to include in your gross income certain unearned income of your child (the "kiddie tax" election), you have an interest in any specified foreign financial asset held by the child.

Interests in Assets Held by Entities That Are Not Disregarded Entities

In most cases, you do not own an interest in any specified foreign financial asset held by a partnership, corporation, trust, or estate solely as a result of your status as a partner, shareholder, or beneficiary.

Interests in Assets Held by Grantor Trust

If you are considered the owner under the grantor trust rules of any part of a trust, you have an interest in any specified foreign financial asset held by that part of the trust you are considered to own. For exceptions from reporting for owners of certain domestic investment or bankruptcy trusts, see Domestic Investment Trusts and Domestic Bankruptcy Trusts, later.

Interests in Foreign Estates and Foreign Trusts

An interest in a foreign trust or a foreign estate is not a specified foreign financial asset unless you know or have reason to know based on readily accessible information of the interest. If you receive a distribution from the foreign trust or foreign estate, you are considered to know of the interest.

Interests in Foreign Pension Plans and Foreign Deferred Compensation Plans

Report in Part VI your interest in the foreign pension plan or foreign deferred compensation plan. Do not separately report the assets held by the plan. See Valuing Interests in Foreign Estates, Foreign Pension Plans, and Foreign Deferred Compensation Plans, later.

Reporting Period

Unless an exception applies, the reporting period for Form is your tax year.

Exception for Partial Tax Years of Specified Individuals

If you are a specified individual for less than the entire tax year, the reporting period is the part of the year that you are a specified individual.

Example

John is a calendar year taxpayer. The Form reporting period begins on January 1 and ends on December

Example

Agnes was a single calendar year taxpayer who died on March 6. The Form reporting period begins on January 1 and ends on March 6.

Example

George, a calendar year taxpayer, is not a U.S. citizen or married. George arrived in the United States on February 1 and satisfied the substantial presence test for the tax year. The Form reporting period begins on George's U.S. residency starting date, February 1, and ends on December

Reporting Maximum Value

You must report the maximum value during the tax year of each specified foreign financial asset reported on Form In most cases, the value of a specified foreign financial asset is its fair market value. An appraisal by a third party is not necessary to estimate the maximum fair market value during the year. See Valuing Financial Accounts and Valuing Other Specified Foreign Financial Assets, later.

Assets With No Positive Value

If the maximum value of a specified foreign financial asset is less than zero, use a value of zero as the maximum value of the asset.

Foreign Currency Conversion

If your specified foreign financial asset is denominated in a foreign currency during the tax year, the maximum value of the asset must be determined in the foreign currency and then converted to U.S. dollars.

In most cases, you must use the U.S. Treasury Bureau of the Fiscal Service foreign currency exchange rate for purchasing U.S. dollars. You can find this rate on fiscal.treasury.gov/fsreports/rpt/treasRptRateExch/treasRptRateExch_home.htm. If no U.S. Treasury Bureau of the Fiscal Service exchange rate is available, you must use another publicly available foreign currency exchange rate for purchasing U.S. dollars and disclose the rate on Form

Currency Determination Date

Use the currency exchange rate on the last day of the tax year to figure the maximum value of a specified foreign financial asset or the value of a specified foreign financial asset for the purpose of determining the total value of your specified foreign financial assets to see whether you have met the reporting threshold. Use this rate even if you sold or otherwise disposed of the specified foreign financial asset before the last day of the tax year.

Exception for Financial Account Statement Currency Conversion Rate

You may rely on the foreign currency conversion rate reflected in a financial account statement issued at least annually by the financial institution maintaining the account.

Reporting the Value of Jointly Owned Assets

If you own an asset jointly with one or more persons, you must report the asset's maximum value as follows.

Married Specified Individuals Filing a Joint Income Tax Return

If you are married and you and your spouse file a joint income tax return, report any specified foreign financial asset that you jointly own only once and include the maximum value of the entire asset (and not just the maximum value of your interest in the asset). Also, you must report any specified foreign financial asset that you or your spouse separately owns and include the maximum value of the entire asset. If you and your spouse file a joint income tax return that includes Form , you must report any specified foreign financial asset your child owns only once and include the maximum value of the entire asset.

Married Specified Individuals Filing Separate Income Tax Returns

If you are married and you and your spouse are specified individuals who file separate income tax returns, both you and your spouse report any specified foreign financial asset that you jointly own on your separate Forms , and both you and your spouse must include the maximum value of the entire asset on your separate Forms You must also report any specified foreign financial asset that you own individually on your separate Form and include the maximum value of the entire asset. If you file Form , you must report any specified foreign financial asset your child owns and include the maximum value of the entire asset.

If you are a joint owner of a specified foreign financial asset and you cannot use one of the special rules for married individuals who file a joint tax return, you must report the specified foreign financial asset and include the maximum value of the entire asset.

Valuing Financial Accounts

You may rely on periodic account statements for the tax year to report a financial account's maximum value unless you know or have reason to know based on readily accessible information that the statements do not reflect a reasonable estimate of the maximum account value during the tax year.

Valuing Other Specified Foreign Financial Assets

In most cases, you may use the value of a specified foreign financial asset that is not a financial account and that is held for investment and not held in an account maintained by a financial institution as of the last day of the tax year, unless you know or have reason to know based on readily accessible information that the value does not reflect a reasonable estimate of the maximum value of the asset during the tax year.

Example I have publicly traded foreign stock not held in a financial account that has a fair market value as of the last day of the tax year of $,, although, based on daily price information that is readily available, the week high trading price for the stock results in a maximum value of the stock during the tax year of $,

If you are required to file Form , the maximum value of the foreign stock to be reported is $,, based on readily available information of the stock’s maximum value during the tax year.

Valuing Interests in Foreign Trusts

If you are a beneficiary of a foreign trust, the maximum value of your interest in the trust is the sum of the following amounts.

  • The value of all of the cash or other property distributed during the tax year from the trust to you as a beneficiary.

  • The value using the valuation tables under section of your right as a beneficiary to receive mandatory distributions as of the last day of the tax year.

Valuing Interests in Foreign Estates, Foreign Pension Plans, and Foreign Deferred Compensation Plans

If you have an interest in a foreign estate, foreign pension plan, or foreign deferred compensation plan, the maximum value of your interest is the fair market value of your beneficial interest in the assets of the estate, pension plan, or deferred compensation plan as of the last day of the tax year. If you do not know or have reason to know based on readily accessible information the fair market value as of the last day of the tax year, the maximum value is the fair market value, determined as of the last day of the tax year, of the cash and other property distributed during the tax year to you as a beneficiary or participant. If you received no distributions during the tax year and do not know or have reason to know based on readily accessible information the fair market value of your interest as of the last day of the tax year, use a value of zero as the maximum value of the asset.

Assets Not Required To Be Reported

You are not required to report the following assets.

Certain Financial Accounts

The following financial accounts and the assets held in such accounts are not specified foreign financial assets and do not have to be reported on Form

  1. A financial account that is maintained by a U.S. payer, such as a domestic financial institution. In general, a U.S. payer also includes a domestic branch of a foreign bank or foreign insurance company and a foreign branch or foreign subsidiary of a U.S. financial institution. Examples of financial accounts maintained by U.S. financial institutions include:

    • U.S. mutual funds accounts,

    • IRAs (traditional or Roth),

    • Section (k) retirement accounts,

    • Qualified U.S. retirement plans, and

    • Brokerage accounts maintained by U.S. financial institutions.

  2. A financial account that is maintained by a dealer or trader in securities or commodities if all of the holdings in the account are subject to the mark-to-market accounting rules for dealers in securities or an election under section (e) or (f) is made for all of the holdings in the account.

Certain Financial Assets

You do not have to report any asset that is not held in a financial account if the asset is subject to the mark-to-market accounting rules for dealers in securities or commodities or an election under section (e) or (f) is made for the asset.

Foreign Social Security

An interest in a social security, social insurance, or other similar program of a foreign government is not a specified foreign financial asset.

Exceptions To Reporting

You do not have to report any asset on Form if you report it on one or more of the following forms that you timely file with the IRS for the same tax year.

  • Form , Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.

  • Form , Information Return of U.S. Persons With Respect to Certain Foreign Corporations.

  • Form , Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund.

  • Form , Return of U.S. Persons With Respect to Certain Foreign Partnerships.

Instead, you must identify on Form the form(s) on which you report the specified foreign financial asset and how many of these forms you file. See Part IV. Excepted Specified Foreign Financial Assets, later.

Joint Form or Form Filers

If you are included as part of a joint Form or Form filing and provide the notification required by Regulations section (i) or (c), you are considered to have filed that form for purposes of the requirement to report specified foreign financial assets on Form See Part IV. Excepted Specified Foreign Financial Assets, later.

If you are considered the owner under the grantor trust rules of any part of a foreign trust, you do not have to report any of the specified foreign financial assets held by the part of the trust you are considered to own if you satisfy the following conditions.

  • You report the trust on a Form that you timely file with the IRS for the same tax year.

  • The trust timely files Form A, Annual Information Return of Foreign Trust With a U.S. Owner, with the IRS for the same tax year.

Instead, you must identify on Form how many of these forms you file. See Part IV. Excepted Specified Foreign Financial Assets, later.

.This is an Image: caution.gifIf you are a specified individual, you must include the value of the assets reported on Forms , A, , , and in determining whether you satisfy the reporting threshold that applies to you. See Reporting Thresholds Applying to Specified Individuals, earlier. .

Domestic Investment Trusts

If you are considered the owner under the grantor trust rules of any part of a domestic widely held fixed investment trust under Regulations section , you do not have to report any specified foreign financial asset held by the part of the trust you are considered to own.

Domestic Bankruptcy Trusts

If you are considered the owner under the grantor trust rules of any part of a domestic liquidating trust under Regulations section (d) that is created under chapter 7 or chapter 11 of the Bankruptcy Code, you do not have to report any specified foreign financial asset held by the part of the trust you are considered to own.

Bona Fide Resident of a U.S. Possession

If you are a bona fide resident of a U.S. possession (American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, Puerto Rico, or the U.S. Virgin Islands), do not include the value of the following assets to determine if you satisfy the reporting threshold that applies to you. If you are required to file Form , you do not have to report the following specified foreign financial assets on Form

  • A financial account maintained by a financial institution organized under the laws of the U.S. possession of which you are a bona fide resident.

  • A financial account maintained by a branch of a financial institution not organized under the laws of the U.S. possession of which you are a bona fide resident, if the branch is subject to the same tax and information reporting requirements that apply to a financial institution organized under the laws of the U.S. possession of which you are a bona fide resident.

  • Stock or securities issued by an entity organized under the laws of the U.S. possession of which you are a bona fide resident.

  • An interest in an entity organized under the laws of the U.S. possession of which you are a bona fide resident.

  • A financial instrument or contract held for investment, provided each issuer or counterparty that is not a U.S. person is either an entity organized under the laws of the U.S. possession of which you are a bona fide resident or a bona fide resident of the U.S. possession of which you are a bona fide resident.

Penalties

You may be subject to penalties if you fail to timely file a correct Form or if you have an understatement of tax relating to an undisclosed specified foreign financial asset.

Failure-To-File Penalty

If you are required to file Form but do not file a complete and correct Form by the due date (including extensions), you may be subject to a penalty of $10,

Continuing Failure To File

If you do not file a correct and complete Form within 90 days after the IRS mails you a notice of the failure to file, you may be subject to an additional penalty of $10, for each day period (or part of a period) during which you continue to fail to file Form after the day period has expired. The maximum additional penalty for a continuing failure to file Form is $50,

Married Taxpayers Filing a Joint Income Tax Return

If you are married and you and your spouse file a joint income tax return, the failure to file penalties apply as if you and your spouse were a single person. Your and your spouse’s liability for all penalties is joint and several.

Presumption of Maximum Value

If the IRS determines that you have an interest in one or more specified foreign financial assets and asks you for information about the value of any asset, but you do not provide enough information for the IRS to determine the value of the asset, you are presumed to own specified foreign financial assets with a value of more than the reporting threshold that applies to you. See Determining the Total Value of Your Specified Foreign Financial Assets, earlier. In such case, you are subject to the failure-to-file penalties if you do not file Form

Reasonable Cause Exception

No penalty will be imposed if you fail to file Form or to disclose one or more specified foreign financial assets on Form and the failure is due to reasonable cause and not to willful neglect. You must affirmatively show the facts that support a reasonable cause claim.

The determination of whether a failure to disclose a specified foreign financial asset on Form was due to reasonable cause and not due to willful neglect will be determined on a case-by-case basis, taking into account all pertinent facts and circumstances.

Effect of foreign jurisdiction laws.

The fact that a foreign jurisdiction would impose a civil or criminal penalty on you if you disclose the required information is not reasonable cause.

Accuracy-Related Penalty

If you underpay your tax as a result of a transaction involving an undisclosed specified foreign financial asset, you may have to pay a penalty equal to 40% of that underpayment.

Examples of underpayments due to transactions involving an undisclosed specified foreign financial asset include the following.

  • You do not report ownership of shares in a foreign corporation on Form and you received taxable distributions from the company that you did not report on your income tax return.

  • You do not report ownership of shares in a foreign company on Form and you sold the shares in the company for a gain and did not report the gain on your income tax return.

  • You do not report a foreign pension on Form and you received a taxable distribution from the pension plan that you did not report on your income tax return.

Fraud

If you underpay your tax due to fraud, you must pay a penalty of 75% of the underpayment due to fraud.

Criminal Penalties

In addition to the penalties already discussed, if you fail to file Form , fail to report an asset, or have an underpayment of tax, you may be subject to criminal penalties.

Statute of Limitations

If you fail to file Form or fail to report a specified foreign financial asset that you are required to report, the statute of limitations for the tax year may remain open for all or a part of your income tax return until 3 years after the date on which you file Form

Extended Statute of Limitations for Failure To Include Income

If you do not include in your gross income an amount relating to one or more specified foreign financial assets, and the amount you omit is more than $5,, any tax you owe for the tax year can be assessed at any time within 6 years after you filed your return.

For this purpose, specified foreign financial assets include any specified foreign financial assets in which you have an interest without regard to the reporting threshold that applies to you and regardless of any exception from reporting a specified foreign financial asset on Form

Before you begin.

If you are a specified individual and report all of your specified foreign financial assets on a timely filed Form , A, , , or , you do not have to report them on Form Instead, enter your name(s) and taxpayer identification number (TIN) at the top of the form and complete Part IV only. If you are a specified individual or a specified domestic entity and report only a part of your specified foreign financial assets on one or more of these forms, report the remaining assets on Form and complete Part IV.

Continuation statements.

If you have more than one account or asset to report in Part V or VI, or more than one issuer or counterparty to report in Part VI, use the continuation statement provided after page 2. Copy as many continuation statements as you need, and attach the completed statements to Form following page 2. Check the box at the top of page 1 of the form to indicate that you are attaching continuation statements, and enter the number of continuation statements in the space provided.

Period Covered

File the return for calendar year and fiscal years that begin in and end in For a fiscal year, fill in the tax year of the specified individual or specified domestic entity for whom you are furnishing information in the space at the top of the form.

Identifying Information

Lines 1 and 2

Enter your name(s) and TIN as shown on the annual return you are filing with Form If you are a specified individual (see Specified Individual, earlier), enter the first TIN shown on your income tax return. A TIN is a social security number (SSN) or individual taxpayer identification number (ITIN). In the case of a specified domestic entity (see Specified Domestic Entity, earlier), enter the entity’s employer identification number (EIN).

Line 3

Indicate the type of filer by checking the applicable box on line 3. If you are a specified individual (see Specified Individual, earlier), check box 3a. In the case of a specified domestic entity (see Specified Domestic Entity, earlier), check the applicable box for partnership (3b), corporation (3c), or trust (3d).

Line 4

If you checked box 3a (specified individual), do not complete this line 4. If you checked box 3b (partnership) or 3c (corporation), enter the name and TIN of the specified individual (see Specified Individual, earlier) who closely holds the partnership or corporation. If you checked box 3d (trust), enter the name and TIN of the specified person (see Specified Person, earlier) who is a current beneficiary of the trust.

Note.

If you are a paper filer and you have more than one specified individual or specified person, attach a statement listing the name and TIN of each such specified individual or specified person.

.This is an Image: taxtip.gifIf you are a specified individual (see Specified Individual, earlier) for less than the entire tax year, you only have to report the information for the part of the year that you are a specified individual..

Part I. Foreign Deposit and Custodial Accounts Summary

Use Part I to summarize information regarding foreign deposit and custodial accounts reported in all Parts V.

Line 1

Report the number of deposit accounts reported in all Parts V.

Line 2

Report the total maximum value of these deposit accounts.

Line 3

Report the number of custodial accounts reported in all Parts V.

Line 4

Report the total maximum value of these custodial accounts.

Line 5

Indicate whether any foreign deposit or custodial accounts were closed during the tax year.

Part II. Other Foreign Assets Summary

Use Part II to summarize information regarding financial accounts (other than foreign deposit and custodial accounts) and other specified foreign financial assets reported in all Parts VI.

Line 1

Report the number of accounts and assets reported in all Parts VI.

Line 2

Report the total maximum value of these accounts and assets.

Line 3

Indicate whether any account was opened or closed or any asset was acquired or disposed of during the tax year.

Sours: https://www.irs.gov/instructions/i
Form Instructions (Summary ) (Golding & Golding)

Form Instructions (Summary ) (Golding & Golding)

Form instructions: The  Form instructions are complex. The IRSrequires U.S. Taxpayers to report specified foreign financial assets each year on a Form In recent years, the IRS has increased offshoreenforcementof foreign accounts compliance, including assets.  There are many components to accurately reporting foreign assets. When a U.S. person has offshore assets, accounts, investments and income, they may have various reporting requirements. There are several international information reporting forms, and the form is one of the most common. When a person has not timely reported their foreign assets, the IRS may impose Form penalties. To avoid penalties, the IRS offers various voluntary disclosure (tax amnesty) programs.

Contents

Form Instructions

We summarize the Form instructions for you. The goal of this summary is to provide some information, help, and hopefully some clarity about Form (aka FATCA, the Foreign Account Tax Compliance Act). The IRS publishes its own set of instructions (which are revised and updated each year), but oftentimes clients tell us they are very hard follow. This is because the IRS has to jam so much information into instructions &#; including information which is not applicable to most filers.

Common Form questions, include:

What is a Specified Foreign Financial Asset?

Specified Foreign Financial Assets, include assets located outside of the U.S. Some common examples, include:

  • Stock
  • Securities
  • Investments
  • Life Insurance
  • Partnerships and Corporations
  • Pension/Retirement

Who is a Specified Individual?

As defined by the IRS:

&#; A U.S. citizen.

&#; A resident alien of the United States for any part of the tax year (but see Reporting Period, later). 

&#; A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return.

&#; A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico. See Pub. , Tax Guide for Individuals With Income From U.S. Possessions, for a definition of bona fide resident.

What Assets belong on Form ?

Nearly all foreign assets, excluding individually owned real estate, is fair game for the Form For example, the gold you keep under your bed may not be reportable, but gold in a safety deposit box might be. Likewise, Cryptocurrency in a private wallet may not be reportable, but cryptocurrency in a foreign account might be.

Do I Report FMV (Fair Market Value)?

Generally, yes, you use the Fair Market value?

Have all Foreign Countries Signed a FATCA Agreement?

No, not all foreign countries have signed a FATCA Agreement. Currently more than countries have signed, and more than , Foreign Financial Institutions are reporting U.S. Account Holders.

Does it Include all Foreign Financial Accounts?

While it may not include all foreign financial accounts (some very limited exceptions, exclusions and limitations apply) it pretty much includes nearly foreign accounts.

Does FATCA apply to Legal Resident Aliens?

Yes. Unless, an exception, exclusion, or limitation applies, FATCA does apply.

What is Required to be Reported?

Generally, the type of information, includes:

  • Foreign Institution Name
  • Foreign Institution Address
  • Account Number
  • Income Generated
  • Owned with a Spouse or not
  • Acquired or sold in the current year
  • Income generated
  • Maximum value.

How many Foreign Financial Institutions report to the IRS?

Currently, more than , Foreign Financial Institutions report to the U.S. Government.

8-Step Instructions Guide

Even though the form may seem very intense, the reality is that it is not that bad&#;depending on the facts and circumstances of your situation.  For example, if you only have one unreported account and you decided to go on this trek alone, it shouldn&#;t be that bad (of course, unless the IRS contacts you later). Alternatively, if you have 27 assets in seven different countries generating all different types of passive income, the form is going to be much more time intensive and laborious.

We prepared a basic 8-step process to prepare the form. This is by no means a comprehensive summary, and is not intended as a guide for you or other tax professionals to complete the form.

Determine if You Have to File

Not everybody with specified foreign financial assets will have to file the form. There are four different threshold requirements:

&#; Single or married filing separately in the United States: Aggregate total of all specified foreign assets of $50, on the last day of the year. Or, if you have less than $50, on the last day of the year but more than $75, on any other day of the year, you still have to file.

&#; Single or married filing separately Foreign Resident: Aggregate total of all specified foreign assets of $, on the last day of the year. Or, if you have less than $, on the last day of the year but more than $, on any other day of the year, you still have to file.

&#; Married filing jointly in the United States: Aggregate total of all specified foreign assets of $, on the last day of the year. Or, if you have less than $, on the last day of the year but more than $, on any other day of the year, you still have to file.

&#; Married filing jointly Foreign Resident: Aggregate total of all specified foreign assets of $, on the last day of the year. Or, if you have less than $, on the last day of the year but more than $, on any other day of the year, you still have to file.

Make a List of your Foreign Assets

We recommend going through your foreign assets for the year and determine which assets you owned during the year. Assets are a very broad category, and may include the following:

  • Foreign Accounts
  • Foreign Investments
  • Foreign Entity Ownership
  • Foreign Pension
  • Foreign Life Insurance

That is not a comprehensive list, but just a list of the five most common types of assets.

Determine the Value of the Foreign Assets

In order to determine whether you even have to file the form, you will need to determine the value of the assets. Therefore, it is important to use the current year exchange rate and then calculate the value of each asset.

A few key tips:

  • While there is no specific exchange rate you have to use, it has to be reasonable.
  • Both the IRS and Department of Treasury publish their own individual rates; you should keep it consistent for each asset.

Exclude Assets That Are Not Included in the Analysis

Not all assets are subject to reporting. This is a very complex area that goes beyond this introduction, but two important exclusions are the following:

&#; Foreign Real Estate: it only needs to be included if it is part of assets owned by a foreign entity. For example, if you own real estate that you rent, that is not included, but if you own 10% of a foreign entity that owns real estate, the proportionate value of the entity assigned to you would include the value of that real estate.

&#; Financial Account Held at a Foreign Branch of a U.S. Financial Institution: This is a bit tricky. If the foreign institution is considered a wholly-owned subsidiary and not a branch, you may find yourself in some trouble &#; it is typically better to just report in this type of situation, but you should speak with an experienced offshore disclosure lawyer first.

Determine the Income Generated from the Assets

Unlike the FBAR in which a person only has to report the value of their accounts, the form is different. Not only is it filed directly with your tax return, but you have to identify “a summary of tax items attributable to specified foreign financial assets.”

In other words, the IRS wants to know the type of income and the source that generated the income. Therefore, it is important to determine the total amount of income generated from the foreign assets. We recommend creating different columns or categories such as interest, dividends, royalties, and gains, and then determining how much was earned under each category of income.

Determine Whether your Assets are Deposit or Custodial

This is nowhere near as easy as it should be. The IRS does not make it very clear, especially for individuals who do not have a background in tax. With that said, typically an account is going to be a deposit account unless it is being held for the benefit of another person. Depending on your specific scenario, sometimes foreign life insurance policies and retirement/pension funds may be considered custodial.

This should not be a sticking point. The idea is that the IRS wants you to disclose and they want to know the different types of assets that you have. Just because you mis-categorized an asset due to the ambiguous instructions provided by the IRS would not lead you to a penalty situation. Just give it your best shot.

Be Sure to Identify Question 3 of Part 5

This is where individuals may get into trouble. Question three of part five requests specific information regarding the account. Namely, whether the account was opened or closed this year, whether the account was jointly owned, and whether any tax items were reported from the asset. This is important information that the IRS wants from you. It is so the IRS can determine how much income you are generating from the different accounts and whether it is an income-generating account or not.

Some returns may be rejected if this portion is not completed (but not always). The last thing you want is for the form to be rejected, because then you are asking the IRS to essentially take a second look at your specified foreign financial assets. Understanding, that for many individuals the risk of audit is relatively low and therefore, even a few mistakes should not be a big deal.

Late Filing is a Different Story

If you have not filed a form in prior years, but you had specified foreign financial assets that should have been reported, you should be careful to just start reporting. As you can see from question three part five, the IRS will know whether the account was opened in the current year or not, and whether there are tax items that should have been reported or not.

If you file the in the current year for the first time but had a reporting requirement in prior years in which your assets are generating income, it may beg the question as to why it was not reported previously.

Avoid FATCA Form Quiet Disclosure

A Quiet Disclosure is when you report the prior year offshore assets without following the proper means. Yes, some individuals will make it through no problem, but other individuals will be audited and if the IRS finds the person committed a quiet disclosure, they could be in some serious trouble.

It may amount to tax fraud and the IRS may pursue the criminal investigation. Again, realize that risk of audit is usually low and most people are not audited based on these foreign issues. With that said, there are some people who are in a higher tax bracket and owns businesses/itemizes deductions and the IRS tends to audit people for these various business deductions, charitable contributions, etc. The audit then expands and the auditor starts asking questions about these foreign accounts if they are filed improperly.

Are you out of Compliance?

If you are already out of compliance for not properly reporting or paying tax involving your cryptocurrency, you may consider getting into compliance before it is too late.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure

Contact our firm todayfor assistance.

Sours: https://www.goldinglawyers.com/forminstructions-important-steps-to-reporting-foreign-financial-assets/
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Step-by-Step Instructions for Expats Filing Form

FBAR gets a lot of airtime as far as expat tax-related issues go due to its very low thresholds and its very steep consequences. But Form , the Statement of Specified Foreign Financial Assets, while very similar to the FBAR, fills different account reporting requirements that apply only to expats who meet certain financial thresholds. Today, we’re going to take a moment to tackle the step-by-step process expats can follow to determine if they need to file Form , and then to file it successfully.

 

What Is Form &#; and does it mean for expats?

The Foreign Account Tax Compliance Act (FATCA) came along in and compels foreign financial institutions to report on foreign assets held by their US account holders or be subject to withholding on certain payments. As a result, Americans who move abroad may have never had asset and bank-related reporting requirements before, but in their new residence, suddenly, they do. Form is the IRS form that fulfills certain expats’ FATCA requirement.

Step 1: Determine If You Need to File Form

You’ll need to sort through your financial situation to find out if you’re going to have to file Form , which is based solely on financial thresholds and whether or not you are filing singly or jointly. FATCA can affect Americans who live in the continental US; it also affects expats, but the thresholds are much higher. The thresholds for single filers are whether you had $, on the last day of the year or $, at any point during the year; for expats who are married filing jointly, it doubles to $, on the last day of the year or $, at any point during the year.

Step 2: Locate the Necessary Information

On Form , you’ll be reporting specified foreign assets, which, thankfully, is not usually all of your assets. Add up the numbers from any financial accounts maintained by foreign financial institutions and other assets held for investment that are not in accounts maintained by a US or foreign financial institution – such as stock or securities issued by someone who is not a US person. And don’t forget assets like annuity contracts with cash value or shares in foreign hedge funds and private equity funds. So, this does involve things such as foreign pensions, foreign stock holdings, and foreign partnership interests. Also, in your tabulations, you need to incorporate any interest in a foreign entity and any financial instrument or contract that has as an issuer or counterparty that is not a US person. While specified foreign assets would include your foreign bank accounts, they would not include physical assets like your house.

Step 3: Check for These Exceptions

The tricky part of Form is that if you’ve already reported some specified foreign assets on Form for foreign corporations or foreign trusts on Form , then you don’t need to double report them; just make a note in Section IV Excepted Specified Foreign Financial Assets. Also, you do not need to report on financial accounts held at a foreign branch of a US bank, domestic mutual funds that invest in foreign stock, or foreign real estate or currency that you hold directly. A last note: as far as foreign stock held in a foreign brokerage account, you’ll need to report the account, but the stock does not need to be reported separately.

Step 3: File With the IRS

Form is due with your Federal Tax Return annually, so be prepared for the extra step and don’t miss the deadline! Form enforces penalties of up to $10, for failure to disclose accounts, and an additional $10, for every 30 days (up to $60,) of non-filing after the IRS contacts you – not to mention, you could face criminal penalties.

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Filing Requirements for Those With Foreign Assets, Form

This chapter is a continuation about the form you may need to submit if you are filing a FBAR, which is Form Statement of Specified Foreign Assets Form.  

U.S. citizens, resident aliens and certain non-resident aliens who have an interest in specific foreign financial assets and meet the filing thresholds must file this report yearly with their income tax returns. 

The IRS is very strict in regard to the reporting of foreign assets. It is in response to the number of cases they investigate regarding undisclosed assets being hidden overseas. I will be quick to point out that while the number of cases is not huge, the amounts recovered are.

Here is a link to instructions provided by the IRS to guide you in completion of the form.

In this chapter, I will explain the situations where Form is required and how to complete it. If you have any questions, please reach out to me. 

 

Differences Between Form and FBAR

As one could deduce by the existence of the two distinct forms, not all taxpayers who file FBAR will have to file Form or vice versa. Although there are several differences between the two forms, two of the notable distinctions are that foreign partnership interests, foreign hedge funds and foreign private equity funds must be reported on Form but not on FBAR. 

On the other hand, accounts for which a taxpayer merely has signature authority generally must be reported for on FBAR (with some exceptions) but generally not on Form (with some exceptions). To understand the differences between the FBAR and Form , here is a chart which illustrates the comparison of requirements under both.

 

Filing Criteria for Those with Foreign Assets

Persons and Entities

U.S. citizens, U.S. residents, certain residents of U.S. Possessions and nonresidents who elect to be treated as U.S. residents will have to fill out this form if they hold financial accounts or certain assets held for investment (deemed “specified persons”). At the business level, those that must file Form are those deemed “specified domestic entities.”

A specified domestic entity is defined by statute as “domestic corporation, a domestic partnership, or a trust described in section (a)(30)(E), if such corporation, partnership, or trust is formed or availed of for purposes of holding, directly or indirectly, specified foreign financial assets.” See26 CFR § D 

Closely held domestic corporations and partnerships that derive 50 percent or more of their gross income from passive income or have 50 percent or more of their assets producing (or are being held for the production of) passive income will be deemed specified domestic entities. SeeInstructions for Form (), Specified Domestic Entity. 

Passive income can include dividends, interest, income equivalent to interest, and annuities, among other examples. See the instructions for Form for a complete list of what qualifies as passive income. 

Specified Foreign Financial Assets

Specified foreign financial assets include financial accounts maintained by foreign financial institutions, and certain foreign financial assets that are held for investment as opposed to in accounts maintained by financial institutions. Among these foreign financial assets include interests in foreign entities, stocks or securities issued by non-US persons, financial instruments or contracts in which  a non-U.S. person is an issuer or counterparty, foreign corporation-issued stocks, and interests in foreign trusts or estates. 

Other examples include forms of debt issued by foreign persons and interests in foreign partnerships. 

 

Exempt Accounts and Assets

On the other hand, certain accounts and assets need not be reported. These include financial accounts held by U.S. financial institutions such as U.S. mutual funds accounts, Roth and traditional IRAs, (k) retirement accounts, and brokerage accounts held in U.S. financial institutions. 

Furthermore, financial accounts, as well as assets not held in financial accounts, that are subject to mark-to-market accounting rules for dealers in securities or commodities or an election under  26 U.S. Code (e) or (f)  do not need to be reported. SeeInstructions for Form (), “Assets Not Required to Be Reported”. 26 U.S. Code (e) and (f) discuss  “[e]lection of mark to market for dealers in commodities” and “[e]lection of mark to market for traders in securities or commodities,” respectively. 

 

Asset Thresholds

Owning such financial assets, alone, will not trigger a filing requirement. Rather, the assets you hold must be valued above the monetary threshold which will vary based on your place of residence, marital status, and whether you are filing as an individual or a “specified domestic entity.”

For example, Form is required if the total foreign-held asset value was $50, on the last day of the tax year, or $75, at any time during the tax year. If you are married and file jointly with your spouse, the threshold is $, on the last day of the year or $, at any time during the tax year.

If your tax home is a foreign country under the IRS’s rules, an unmarried taxpayer is required to report only if their assets were more than $, on the last day of the tax year or more than $, at any point during the year. 

The threshold for married taxpayers living abroad is $, on the last day of the tax year or $, at any time during the tax year.

Review the IRS’ page on Statement of Specific Foreign Assets for the filing criteria for corporations and for more detail on what constitutes specified foreign assets. 

You must report the maximum value of the foreign financial assets or financial accounts with foreign financial institutions, and certain other foreign non-account investment assets. The assets are reported in U.S. dollars using the end of the taxable year exchange rates.

Like FinCEN Form , there are reporting exemptions, but they differ from those of Form You do not have to report an account held in a foreign branch of a U.S. bank. 

Domestic mutual funds that invest in foreign stocks or securities or private equity funds are exempt. If held directly, personal property, such as jewelry and art, real estate, currency, and precious metals held abroad are all exempt.

Sours: https://www.sambrotman.com/international-tax/foreign-asset-requirements-form

8938 instructions form

At the beginning of , we posted about the new reporting requirement for certain individuals who own foreign assets over a certain threshold. For tax years beginning after March 18, , citizens, resident aliens and certain nonresident aliens with specified foreign assets with an aggregate value exceeding the threshold must file the new Form in addition to Form TD F , Report of Foreign Bank and Financial Accounts (the “FBAR”). As most individuals use a calendar tax year, the calendar tax year is the first year this will be an issue. The IRS released the final Form and accompanying Instructions at the end of last year.

Form must be filed with an individual’s income tax return. If an individual need not file an income tax return, that individual is not required to file Form , regardless of the value of his or her foreign financial assets. The Instructions confirm that, for now, only individuals must file. It is worth noting, however, that the draft Instructions previously issued specified that the Service anticipates eventually issuing regulations and guidance which will require domestic entities holding specified foreign financial assets exceeding the threshold to file.

The Instructions provide several interesting insights into how the new reporting requirement is to be applied, including some new information on the reporting threshold, for which there are several categories not clear on the face of the statute. An unmarried taxpayer (or married filing separately) living in the United States satisfies the reporting threshold if the aggregate value of his or her specified foreign financial assets exceeds $50, on the last day of the tax year or exceeds $75, at any point during the tax year. Married taxpayers filing jointly and living in the United States satisfy the reporting threshold if the aggregate value of their specified foreign financial assets exceeds $, on the last day of the tax year or exceeds $, at any point during the tax year. A taxpayer who is a resident of a foreign country or present in a foreign country at least full days out of 12 consecutive months satisfies the reporting threshold if the aggregate value of his or her specified foreign financial assets exceeds $, on the last day of the tax year or exceeds $, at any point during the tax year. If such a taxpayer living abroad is married filing jointly, he or she satisfies the reporting threshold if the aggregate value of his or her specified foreign financial assets (jointly with those of his or her spouse) exceeds $, on the last day of the tax year or exceeds $, at any point during the tax year. Those who reviewed the draft Instructions should take careful note of these reporting thresholds, as several vary from those issued with the draft Instructions.

Additionally, the Instructions contain detailed instructions on determining value of foreign assets, including several examples. A big issue covered by this section is joint ownership, as the appropriate value depends upon whether the co-owner is your spouse, whether that spouse would have a reporting requirement, and whether you file jointly. When joint owners are not spouses or are spouses, but one spouse is not a specified individual, and therefore does not need to file Form , each must include the full value of the asset in question. When joint owners are spouses filing separately and each is a specified individual, each spouse only includes half the value of the asset each. Joint owner spouses filing jointly should include the full value of the asset only once.

Form requires that the taxpayer disclose the maximum value of each foreign asset during the year. The Instructions state that for foreign financial accounts it is acceptable to rely on periodic statements and, for other assets, the value on the last day of the tax year, unless the taxpayer has reason to believe that is not a reasonable estimate of maximum value. With regard to valuing a beneficiary’s interest in a foreign trust, however, there is a specific valuation method based on the standard for distributions. If distributions are discretionary, the maximum value is all cash or other property received by that beneficiary in distributions for the year. If distributions are mandatory, the maximum value of the beneficiary’s interest is determined under section of the Internal Revenue Code.

There are several exceptions to reporting in the draft Instructions meant to eliminate duplicative reporting, one notably concerning interests in foreign grantor trusts. The owner or beneficiary of a foreign grantor trust need not report the specified foreign assets within the trust or that person’s interest in the trust on Form if that person reports the trust on Form and the trust files Form A. The taxpayer must still include the value of any excepted asset in determining whether the reporting threshold is met, however, and must identify the forms on which the specified foreign financial asset is reported in Part IV, Excepted Specified Foreign Financial Assets of Form

The Instructions provide a lot of information and details even beyond what is discussed here. As this is the first year for this reporting requirement, some extra attention to these Instructions is certainly worth the time.

Tags: Foreign, Form

Posted in International Estate Planning

Sours: https://www.deanmead.com//03/foreign_financial_assets_form__instructions/
Form 8938, Statement of Specified Foreign Financial Assets

Instructions for FATCA Reporting

If you have foreign financial assets, be sure to carefully read the new instructions for Form , the form which details foreign financial assets (under FATCA) and which must be attached to your Form or NR. The link to the instructions is: www.irs.gov/pub/irs-pdf/ipdf

Additional information on filing requirements, penalties for non-filing and thresholds can be found here: https://www.irs.gov/businesses/corporations/information-for-u-s-taxpayers-on-the-requirements-of-formstatement-of-specified-foreign-financial-assets

A complete list of FAQs outlining the types of financial instruments that should be declared on a FATCA Form can be found at: https://www.irs.gov/businesses/corporations/basic-questions-and-answers-on-form

Since , the IRS has been able to match information on your Form with information received from foreign financial institutions, so accuracy on your part every year is important.

ACA has prepared a detailed information sheet on these new requirments, available here.

 

This ACA page was updated in January

Sours: https://www.americansabroad.org/revised-instructions-for-fatca-reporting-in/

Now discussing:

Report a problem

Under U.S. law, a “U.S. person” is required to file annually a Form reporting his or her ownership of most “specified foreign financial assets.”

In general, Form reporting is required if the maximum aggregate value of the U.S. person&#;s foreign financial assets(s) generally exceeded $50, ($, if married filing jointly) (if reside abroad then $, or $,, respectively) at any time during the calendar year. Form must be filed with Personal Income Tax Return Form with the U.S. Internal Revenue Service. Filing an extension also extends the time to file Form

The IRS can impose a $10, penalty for failing to file Form by the due date of the tax return (including extensions), or for filing an incomplete or inaccurate Form If the Form has not been filed within 90 days of a formal notice by the IRS, then the IRS can assess additional penalties of $10, for each day period (or part of a day period) that the Form continues to be not-filed, up to a maximum penalty of $60, Criminal penalties may also apply. Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.

The IRS may waive penalties if the failure to file was due to reasonable cause for the failure to file and the IRS agrees. Reasonable Cause is a fact-specific submission, which is based on each applicant&#;s facts and circumstances. On the other hand, willful reporting violations may be subject to criminal penalties, which may be imposed in addition to asset forfeiture or civil penalties.

The IRS Delinquent International Informational Return Submission Procedures (DIIRSP) is one of the methods for taxpayers with unreported offshore accounts who have failed to file Form to cure the non-compliance.

U.S. persons with unreported foreign bank account are increasingly at risk of the IRS and the US Department of Justice identifying those accounts due to the implementation of the Foreign Accoun Tax Compliance Act (FATCA). FATCA, enacted in and implemented on July 1, , requires foreign financial institutions worldwide to perform in-depth due diligence and to collect information to identify any U.S. account holders or U.S. beneficial owners of financial assets abroad, and to automatically disclose account information annually to the IRS.  Almost all foreign banks around the world have been regularly providing US accountholder&#;s information to the IRS since

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