Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

Ringing in the New Year

As we look to the hope and promise that a new year may offer, we must also look to the IRS website for new international tax reporting changes.

IRS mandates new reference ID requirements for foreign information returns

The IRS has announced that it intends to revise Forms 5471, 8858, and 8865 by adding a new line that will require taxpayers to include a Unique Reference Identification (URI) for tax years beginning 2012.  With respect to Form 5471, the URI will only be required where a foreign corporation has not entered an employer identification number (EIN) in line 1b(1).

Failure to use an EIN or a URI could result in the imposition of a penalty.

The new requests for information will be located at Form 5471, line 1b(2), Form 8858, line 1b(2) and Form 8865, line F2(b).

IRS Releases Guidance on Foreign Financial Asset Reporting

The Internal Revenue Service in coming days will release a new information reporting form that taxpayers will use starting this coming tax filing season to report specified foreign financial assets for tax year 2011.

Form 8938 (Statement of Specified Foreign Financial Assets) will be filed by taxpayers with specific types and amounts of foreign financial assets or foreign accounts. Individuals who may have to file Form 8938 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.

Form 8938 is required when the total value of specified foreign assets exceeds certain thresholds.  For example, a married couple living in the U.S. and filing a joint tax return would not file Form 8938 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.

The thresholds for taxpayers who reside abroad are higher. For example in this case, a married couple residing abroad and filing a joint return would not file Form 8938 unless the value of specified foreign assets exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

Form 8938 is not required of individuals who do not have an income tax return filing requirement.

With respect to domestic entities, proposed regulations suggest entities formed or availed of for the purposes of holding, directly or indirectly, specified foreign financial assets will be required to disclose annually if the domestic corporations and partnerships (1) hold interests in specified foreign financial assets in excess of $50,000; (2) are closely held; and either (a) at least 50% of gross income for the year and at least 50% of assets held at any time during the year are passive; or (b) the gross income and assets are at least 10% passive and the entity is formed or availed of by a specified individual with a principal purpose of avoiding Code Sec. 6038D reporting obligations.

By Debra Callicutt, CPA

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  1. […] a follow up to the blog, the IRS just released the final version of Form 8938, Statement of Specified Foreign Financial […]