Beware of IRS Form 8938

The Internal Revenue Service plans to release a new information reporting form that taxpayers will need to use in 2011. The new form, Form 8938 (Statement of Specified Foreign Financial Assets), will need to be filed by taxpayers with specific types and amounts of foreign financial assets or foreign accounts.   The IRS said it is important for taxpayers to determine whether they are subject to this new requirement because the law imposes significant penalties for failing to comply.

With regard to the new Form 8938, the IRS said it is required when the total value of specified foreign assets exceeds certain thresholds. For example, a married couple living in the U.S. and filing a joint tax return would not file Form 8938 unless their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year. Per the instructions on Form 8938 the definition of a financial asset includes 1. Any financial account maintained by a foreign Institution 2. Other foreign assets held for investment but not in an account held by a financial institution such as stock issued by a foreign person, any interest held in a foreign entity and any financial contract that has as an issuer or counter-party other than a US citizen. In the even that this is held in a foreign currency then it must be converted to US Dollars

The thresholds for taxpayers who reside abroad are higher, the IRS noted. In this case, a married couple residing abroad and filing a joint return would not file Form 8938 unless the value of their specified foreign assets exceeded $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification, the IRS noted.  A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.

The above was submitted by James P Ventriglia a Certified Public Accountant in Cranston, Rhode Island and is for informational purposes only. One should consult with their tax adviser for more information on this matter