by Neha Sethia, CPA, MST
Senior Accountant, Tax Services

If you maintain foreign financial accounts, you may be required to file informational Form 8938, Statement of Specified Foreign Financial Assets, which was recently released for its first use with respect to 2011 income tax return filings.   No new income taxes are generated by the use of Form 8938, but Form 8938 helps the IRS keep track of your foreign investment earnings and where those earnings are reported on federal income tax return. 

Form 8938 does not replace Form TDF 90-22.1, Report of Foreign Bank and Financial Accounts, but is, instead, an additional form that may need to be completed and attached to your tax return.

Created by the IRS because Congress recently enacted legislation requiring it to improve tax compliance by taxpayers with offshore financial accounts, the purpose of Form 8938 is to report financial accounts maintained at foreign financial institutions as well as foreign financial assets, for example interests in foreign entities, that are not in held in accounts at U.S. or foreign financial institutions if the total value of all of these specified foreign financial assets (also known as SFFAs) is more than the following reporting thresholds:

Filing thresholds for individuals living in the U.S.

 Filing thresholds for individuals living abroad

 A blank Form 8938 can be found on the IRS website. The type of information you will need if you meet the filing thresholds can be seen below:

Part I: Requests information about your foreign bank accounts, such as the type of account and the account number or other designation.

Part II: Requests information for foreign financial assets that are not held in a foreign financial account, such as a description of the asset and the identifying number, if any, or other description.

Part III: Requests the types and amounts of income, deductions and credits attributable to SFFAs during the year, such as interest income, dividend income and investment fees paid on foreign accounts.

Because the penalties for failure to properly report specified foreign financial assets are so severe[i] , we suggest that you start early gathering the information you will need to determine if you are required to file Form 8938 for 2011 and to have that information available before the 2011 tax filing deadline[ii].

In addition, the IRS anticipates issuing regulations that may require domestic entities to file Form 8938 in the 2012 tax year.

If you have further questions on the requirements, please contact Neha Sethia, at nsethia@bkl-cpa.com.