IRS Releases Draft Version of Form 8938 for Foreign Financial Asset Holders


By Ron Kramer

On June 21, 2011, the IRS released a revised draft of Form 8938, Statement of Specified Foreign Financial Assets. When finalized, Form 8938 will be used by individuals to report an interest in one or more specified foreign financial assets as required by the Internal Revenue Code (IRC) Section 6038D.

Background. For tax years beginning after March 18, 2010 (i.e., 2011 returns filed in 2012), the Hiring Incentives to Restore Employment Act of 2010 (HIRE Act) provides that individuals with an interest in a “specified foreign financial asset” during the tax year must attach a disclosure statement (i.e., Form 8938) to their income tax return for any year in which the aggregate value of all such assets is greater than $50,000. In addition, to the extent provided by the IRS in regulations or other guidance, IRC Section 6038D applies to any domestic entity formed or availed of for purposes of holding, directly or indirectly, specified foreign financial assets, in the same manner as if the entity were an individual.

“Specified foreign financial assets” are: (1) depository or custodial accounts at foreign financial institutions, and (2) to the extent not held in an account at a financial institution, (a) stocks or securities issued by foreign persons, (b) any other financial instrument or contract held for investment that is issued by or has a counterparty that is not a U.S. person, and (c) any interest in a foreign entity.

In recently issued Notice 2011-55, the IRS suspended the IRC Section 6038D reporting requirements until it releases a final Form 8938. According to the Notice, after the new Form 8938 is released in its final form, individuals for whom the filing of Form 8938 was suspended for a tax year will have to attach the form for the suspended tax year to their next income tax return required to be filed with the IRS.

It is not clear from Notice 2011-55 whether the IRS expects to have the new form completed in time for filing with 2011 tax returns. The draft Form 8938, however, has an expected issue date of November 2011. The revised draft of Form 8938 was released without instructions. However, since the draft form references the instructions throughout, we expect draft instructions to be issued soon.

The revised form is much more extensive (and intrusive) than the earlier draft. You can review the draft Form 8938 at http://www.irs.gov/pub/irs-dft/f8938--dft.pdf. The draft previews the type of information that may be required for reporting foreign accounts beginning with 2011 tax returns.

It should be noted that compliance with IRC Section 6038D does not relieve a person of the responsibility to file Form TD F 90-22.1, “Report of Foreign Bank and Financial Accounts” (FBAR), if the FBAR is otherwise required to be filed. The FBAR must be filed in addition to Form 8938.

The IRS is currently seeking comments on new draft Form 8938. We will keep you posted as to the progress of the new reporting form and the 2011 filing requirements as information becomes available.

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