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Own Foreign Assets? Don’t Forget About Form 8938

Guest Blogger: Vinay S. Navani, CPA, MBA, MST

New for 2011 individual income tax returns is IRS Form 8938, Statement of Foreign Financial Assets.  Enacted as part of the Foreign Account Tax Compliance Act (FATCA), this form is part of the trend by the U.S. government (and other foreign governments) to require more disclosure of assets held outside of the country.  Holders of foreign bank accounts should be familiar with Form TD F 90-22-1, Report of Foreign Bank and Financial Reports, also known as the FBAR.  Form 8938 is completely independent from and in addition to any requirement to file an FBAR.  The requirement to file an FBAR is not impacted by this new form.

Form 8938 also includes reporting for foreign bank accounts, but is much broader in scope as it also requires disclosure of other foreign financial assets such as stock in foreign corporations, interest in foreign partnerships, loans to foreign persons, interest in foreign employer retirement plans, and ownership of certain foreign life insurance policies, as just a few examples. The threshold for filing Form 8938 varies based on filing status and whether you reside in or outside the U.S.  The lowest threshold for reporting is $50,000 in value of foreign financial assets.

Like most foreign related IRS filings, the penalties for failure to file are so steep that taxpayers who may be subject to filing Form 8938 will want to err on the side of caution and file the Form if there is any doubt as to whether your specific asset holdings are required to be included on the Form.  Form 8938 is due with your 2011 personal income tax return, which is due on April 17, 2012.  With less than one month away from the due date, give this requirement important consideration.  Request an automatic extension using IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, if you are not able to fully comply with these new rules by April 17th.

For more information, go to the IRS page on Form 8938.

Vinay S. Navani, CPA, MBA, MST, shareholder and director of tax at Wilkin & Guttenplan, P.C., joined the firm in 1998. His client roster includes emerging and established businesses in the high-tech and software industries, as well as other closely-held businesses along with the business owners. He assists his clients on income tax planning and compliance matters such as business sales and restructuring, retirement plans, charitable giving strategies, tax audits and other topics.  Interested in tax-saving tips?  Follow him on twitter!