Reporting of Foreign Assets Required
On December 14, 2011 the IRS released form 8938 for reporting certain specified foreign assets. Per IRC §6038D, individual taxpayers holding an interest in a specified foreign asset must report that interest on their tax return if the combined value of all specified foreign assets is $50,000 or more. A specified foreign asset includes the following:
• Any financial account maintained by a foreign institution
• Stocks issued by a non US entity that are not held in an account maintained by a financial institution
• An interest in a foreign entity not held in an account maintained by a financial institution
• Notes, bonds, or debentures issued by a foreign person not held in an account maintained by a financial institution
• An interest in a foreign trust not held in an account maintained by a financial institution
Generally, only individuals are subject to the reporting requirements. Domestic entities are not subject unless the entity is formed for the purpose of holding specified foreign financial assets. If you have a reportable interest you must disclose certain information, including the account number, the name and address of the financial institution where the account is maintained or of the issuer if the asset is not held in a financial institution, and the maximum value of the asset during the year. This information is reported on Form 8938. A copy of the form as of December 2011 can be found here.
Keep in mind that Form 8938 reporting does not replace the Report of Foreign Bank and Financial Accounts (FBAR). Form 8938 and the FBAR are independent reporting obligations and some taxpayers may meet the requirements for filing both forms.
The penalties for not disclosing foreign assets are steep, with a minimum penalty of $10,000. Be sure to talk to your LMGW advisor if you think you may have a reportable interest.
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