IRS Updates 2014 Instructions to Form 8938 for FATCA Reporting of Foreign Financial Assets

On March 10, 2015, the Internal Revenue Service (“IRS”) released Update to IRS Instructions to Form 8938 (“Update”). IRS Form 8938, Statement of Specified Foreign Financial Assets is used to report specified foreign financial assets under section 6038D of the U.S. Internal Revenue Code (“IRC”).

IRC section 6038D, enacted in 2010 by the Foreign Account Tax Compliance Act (“FATCA”), requires U.S. citizens and U.S. residents with an interest in specified foreign financial assets to report the assets to the IRS if the aggregate value of the assets exceeds certain thresholds.

On December 12, 2014, the U.S. Treasury Department and the IRS issued final regulations with guidance on the reporting requirement under IRC section 6038D . Under the final regulations, the reporting requirement is satisfied by filing IRS Form 8938 annually with the affected taxpayer’s U.S. federal income tax return.

The Update reflects changes to Form 8938 reporting rules provided in the final regulations. It also contains additional information not included in the published Instructions for Form 8938 (Rev. December 2014) .

Individuals who are required to report interests in foreign financial assets to the IRS include, among other things, interests in:

One significant change in the final regulations is the addition of an exception for dual-resident taxpayers who claim to be taxed as residents of a treaty partner country by timely filing Form 1040NR, U.S. Nonresident Alien Income Tax Return and attaching Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).

The rules also clarify that taxpayers who own disregarded entities must include the value of any assets held by the entities both to determine whether they meet the filing threshold, and if they do meet the threshold, to determine the amount they must report on Form 8938. In addition, the final regulations provide that if an asset is held jointly by unmarried taxpayers, the full value of the asset must be included to determine both the threshold and the amount to be reported.

Another change from the temporary regulations amends the foreign currency conversion rules to permit a taxpayer to rely on a foreign currency conversion shown on a periodic financial account statement.

The final regulations also clarified that taxpayers included on a jointly filed Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations or Form 8865, Return of U.S. Persons with Respect to Certain Foreign Partnerships, who notify the IRS of the joint filing will not be required to file Form 8938. However, the final rules do not exempt filers of FinCEN Form 114, Report of Foreign Bank and Financial Accounts, from filing Form 8938 because the forms serve different purposes.

The IRS indicated in the preamble to the regulations that it is considering the proper treatment for virtual currency and requested comments on how virtual currency should be treated under these rules.

If you have any questions regarding FATCA reporting, please contact your WithumSmith+Brown professional, a member of WS+B’s International Services Group or email us at [email protected].

To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.