Individuals who meet specified thresholds for reporting foreign financial assets must file Form 8938, Statement of Specified Foreign Financial Assets, during the 2012 filing season for the 2011 tax year, a panel of tax specialists and government officials stated on March 20. However, entities and organizations will not have to file Form 8938 until 2013, for the 2012 tax year, the panelists indicated.
The panelists, who included two IRS officials, spoke at a webcast produced by the American Institute of Certified Public Accountants (AICPA). The panelists expressed their own personal views and were not speaking on behalf of their employers or the AICPA.
An individual must attach Form 8938 to his or her annual return (such as Form 1040) and must file the form by the due date (including extensions) for that return. A key exception, noted Joseph Calianno, partner, Grant Thornton LLP, is that taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, even if the value of their specified foreign financial assets exceeds the appropriate threshold.
The IRS has issued proposed regulations under the Foreign Account Tax Compliance Act (FATCA) (enacted as part of the Hiring Incentives to Restore Employment (HIRE) Act regarding the reporting of foreign financial assets, Calianno said. The proposed regulations set forth requirements for when domestic entities will be required to report foreign financial assets, but these rules will not take effect at least until tax years beginning after December 31, 2011, Calianno said.
For an unmarried individual living in the United States, the reporting thresholds are more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year, Christine Ballard, partner, Dixon Hughes Goodman LLP, stated. The thresholds are the same for married taxpayers filing separate returns (and living in the U.S.), Ballard noted. For married taxpayers filing a joint return (and living in the U.S.), the thresholds are double these amounts—$100,000 and $150,000, respectively.
For U.S. taxpayers living abroad, the thresholds are much higher: $200,000/$300,000 for nonjoint filers; $400,000/$600,000 for joint filers, according to Ballard. The thresholds are more generous because taxpayers living outside of the United States will have more assets outside of the U.S., she said.
Joseph Henderson, IRS attorney, Office of the Associate Chief Counsel (International), said that the IRS wants to make FATCA as administrable as it can, with the least amount of burden on taxpayers. The IRS received comments in response to a draft Form 8938 and incorporated many of those comments in the proposed regulations, such as increased filing thresholds and exceptions to filing, Henderson noted. He added that the comment period for the proposed regulations expired March 19, but he encouraged taxpayers to still send in their comments.
Craig Gilbert, IRS special counsel, Deputy Associate Chief Counsel (International Field Service & Litigation), also participated on behalf of the IRS. The government panelists emphasized various points about reporting on Form 8938:
Foreign deposit and custodial accounts are reported on Part I of Form 8938, while other foreign assets are reported on Part II of the form.
If an asset is held for investment, it is reportable; if it is held in a trade or business, it is not reportable.
If a person sells a foreign residence and takes back a mortgage, the person is holding the mortgage for investment.
If a person receives compensatory stock options, and exercises them, the stock is reportable. If the options are still held, there are questions about reporting. The safest course is to report them, but if the options do not generate income, report their value as zero.
An individual who owns an interest in a foreign entity may have to report the interest, but should not look through the entity and report the assets held by the entity. This no-look-through rule will continue in the future.
Form 8938 requires individuals to identify other tax forms on which they reported foreign financial assets. Form 8938 accidentally omitted a reference to Form 8891. Taxpayers should include this form in the box for Form 3520. The IRS will correct this problem on the 2012 version of Form 8938.
There are no guidelines under FATCA for valuing assets. The IRS primarily is interested in how a person determined the value; if the method is “principled,” the value is probably acceptable.
Precious metals are not a speci