The IRS introduced Form 8938, Statement of Specified Foreign Financial Assets, for filing along with individual tax returns beginning in tax year 2011. Form 8938 is an informational reporting form that is used to report interest in certain foreign financial assets. Until now, filing has only been required for individuals. Beginning with tax year 2016, specified domestic entities such as certain corporations, partnerships and trusts will now also be required to file the form.
To determine if an entity is a specified domestic entity for purposes of filing Form 8938, the general rules are as follows:
- Domestic partnerships and corporations are considered specified domestic entities when closely held by a specified individual and 50% of the income or assets are considered passive.
- Domestic trusts, subject to a few exceptions, are generally considered specified domestic entities if one or more of the trust’s beneficiaries are a U.S. citizen or resident alien and 50% of the income or assets are considered passive.
If the entity is determined to be a specified domestic entity, the next step is to review if the filing threshold is met. The threshold for filing Form 8938 is if the value of its specified foreign financial assets is more than $50,000 on the last day of the year or more than $75,000 at any time during the year.
Specified foreign financial assets may include foreign bank accounts, foreign stock, interest in a foreign entity, foreign pensions and other foreign assets. The IRS has a helpful chart for comparing the filing requirements of both the FinCEN 114 and Form 8938.
There are heavy penalties, starting at $10,000, for noncompliance. In addition, failure to file Form 8938 or incomplete filing will keep the statute of limitations open on your entire income tax return until three years after filing the 8938. Moreover, if there is unreported income associated with a specified foreign asset greater than $5,000, tax can be assessed up to six years after filing your return. Therefore, please consult with a qualified tax professional for assistance with Form 8938.
Jill A. Helm, CPA