Tax Quarry

On December 14, 2011, the IRS issued a press release providing details on the requirements for filing a Statement of Specified Financial Assets.   

The IRS plans on releasing a new information reporting form that taxpayers must use to report specified foreign financial assets for tax year 2011.

According to the press release, Form 8938, which is called the "Statement of Specified Foreign Financial Assets", must be filed by taxpayers with specific types and amounts of foreign financial assets or foreign accounts. Failure to file this form will result in substantial penalties.  

Failing to file when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification.  A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.The purpose of this new form, from the perspective of the government, is to improve tax compliance by U.S. taxpayers with offshore financial accounts. The types of individuals who may have to file the form are U.S. citizens and residents, nonresidents who elect to file a joint income tax return and certain nonresidents who live in a U.S. territory.

The filing requirement kicks in when the total value of specified foreign assets exceeds certain thresholds.  The press release provides as an example the situation where a married couple lives in the U.S. and files a joint tax return.  The couple would not be required to file the form unless their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.

Taxpayers who reside abroad are subject to a higher. So, a married couple residing abroad and filing a joint return would only need to file the statement if the value of specified foreign assets exceed $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

If an individual does not have an income tax return filing requirement they are not required to file the statement.

Further, the new filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR (Report of Foreign Bank and Financial Accounts). 

For more information on the thresholds for reporting requirements, determining what constitutes a specified foreign financial asset, how to value relevant assets, what assets are exempted, and what information must be provided refer to the Instructions for Form 8938.

Marsha Henry
2012