Taxpayers have long been required by the Bank Secrecy Act to report certain foreign accounts. Now, there is a new reporting requirement in the Foreign Account Tax Compliance Act of 2010. U.S. taxpayers holding foreign financial assets may be required to report certain information about those assets on new Form 8938.
A specified foreign financial asset is:
- Any financial account maintained by a foreign financial institution. This does not include a U.S.
payer (such as a U.S. domestic financial institution), the foreign branch of a U.S. financial
institution, or the U.S. branch of a foreign financial institution.
- Other foreign financial assets held for investment that are not in an account maintained by a
US or foreign financial institution, namely:
- Stock or securities issued by someone other than a U.S. person,
- Any interest in a foreign entity, and
- Any financial instrument or contract that has as an issuer or counterparty that is
other than a U.S. person.
Form 8938 is required when the total value of specified foreign assets exceeds certain thresholds. The thresholds vary depending on the taxpayer’s status.
- Unmarried taxpayers living in the U.S.: The total value of the taxpayer’s specified foreign
financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at
any time during the tax year.
- Married taxpayers filing a joint income tax return and living in the U.S.: The total value of the
couple’s specified foreign financial assets is more than $100,000 on the last day of the tax
year or more than $150,000 at any time during the tax year.
- Married taxpayers filing separate income tax returns and living in the U.S.: The total value of
the taxpayer’s specified foreign financial assets is more than $50,000 on the last day of the tax
year or more than $75,000 at any time during the tax year.
- Taxpayers living abroad: an individual is a taxpayer living abroad if (1) the individual is a U.S.
citizen whose tax home is in a foreign country and the individual is either a bona fide resident
of a foreign country or countries for an uninterrupted period that includes the entire tax year; (2)
or the individual is a U.S. citizen or resident who, during a period of 12 consecutive months
ending in the tax year, is physically present in a foreign country or countries for at least 330
The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file a Form TD F 90-22.1 Report of Foreign Bank and Financial Authority. U.S. taxpayers who own a foreign bank account, brokerage account, mutual fund, unit trust, or other financial account may also be required to file Form TD F 90-22.1 if:
- The taxpayer has financial interest in, signature authority, or other authority over one or more
accounts in a foreign country, and
- The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the
The IRS understands that some individuals have not reported their offshore accounts as of yet, and have offered incentive programs to help individuals come forward. The IRS has recently launched a third Offshore Voluntary Disclosure Program (OVDP). The OVDP offers taxpayers a reduced penalty framework in exchange for full disclosure of unreported foreign accounts. The OVDP is a complex and lengthy process. Please contact our office with any questions or for more information.
Other International Compliance Requirements
The international compliance requirements are more complex and stringent than ever. Below is a list of who must file.
U.S. persons who receive distributions from foreign trusts are required to report them on Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, if they know or have reason to know that the trust is a foreign trust.
Each U.S. citizen or resident who is an officer, director, or 10 percent shareholder of a foreign company is required to file Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations.
Domestic corporations with non U.S. shareholders, who own 25 percent or more of the stock of the U.S. Corporation, must file a Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.
Any U.S. person that is a controlling 50 percent partner at any time during the tax year must also complete and file Form 8865 with his income tax return. Additionally, a controlling 10 percent partner must complete and file Form 8865. A controlling 10 percent partner is a U.S. person owning a 10 percent or greater interest in a partnership and together with other 10 percent or greater partners they own more than 50 percent of the foreign partnership.