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Focus on Taxation: New Foreign Financial Asset Reporting Requirements

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The IRS has recently issued new regulations which require "specified domestic entities" to report its interest in certain foreign financial assets on Form 8938, Statement of Foreign Financial Assets. The penalty for non-compliance is $10,000 per year.
March 4, 2016

The IRS has recently issued new regulations which require "specified domestic entities" to report its interest in certain foreign financial assets on Form 8938, Statement of Foreign Financial Assets. The penalty for non-compliance is $10,000 per year.

"Specified domestic entities" are any domestic corporation, partnership or trust that is:

  1. closely held (80% or more) by an individual (either directly, indirectly, or constructively); and

  2. at least 50% of the entity's gross income is passive or at least 50% of the assets held by the entity are held for the production of passive income.

The reporting threshold for specified domestic entities are set at foreign financial assets whose collective value is:

  1. $50,000 on the last day of the tax year; or

  2. $75,000 at any time during the tax year.

Prior to the release of the new regulations, Form 8938 was only applicable to individuals.

Form 8938 is in addition to the filing requirement for FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

The new regulations are effective for tax years beginning after December 31, 2015.

Please consult your RubinBrown advisor with any questions on the new regulations.

 

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

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