US non residents also have the obligation, since tax year 2011, to report a Statement of Specified Foreign Financial Assets.
Separate and apart from U.S. taxpayer's obligations to annually file a Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1, FBAR) with the U.S. Department of Treasury, certain U.S. non-resident aliens and non-resident aliens who elected to be taxed as a resident of the United States will now have another reporting obligation, starting with tax year 2011. In the latest attempt to ferret out U.S. taxpayers hiding assets overseas, Congress now requires filing with the IRS a new Form 8938, Statement of Specified Foreign Financial Assets.
Presently, Form 8938 generally must be filed by any individual who holds an interest in specified foreign assets with an aggregate value exceeding $50,000 ($100,000 for joint filers) as of December 31 or $75,000 ($150,000 for joint filers) at any time during the tax year. Additionally, the reporting requirement applies to disregarded entities, such as single-member limited liability companies whereby the individual is considered the owner and bears the Form 8938 filing responsibility.
Specified foreign financial assets include:
financial accounts, depository or custodial, maintained by foreign financial institutions; and
other assets not held in accounts maintained by financial institutions, such as stock or securities issued by non-U.S. persons, financial instruments or contracts with issuers or counterparties (e.g., currency swaps, other swap contracts, options and other derivative contracts) that are non-U.S. persons, and any interest in a foreign entity.
Special rules apply to other assets, such as gold holdings, artwork and real estate, to name a few.
The rules for foreign trusts, foreign estates, foreign pension plans and foreign deferred compensation plans are intricate and depend on whether or not distributions have been made. For example, the value of an interest in a foreign estate, pension or deferred compensation plan is the fair market value (FMV)—determined as of the last day of the tax year—of the currency or other property distributed during the tax year to the beneficiary or participant. However, the value of an interest in a foreign trust is the sum of the FMV of currency or other property distributed to the beneficiary during the taxable year plus the value, as of the last day of the tax year, of the beneficiary's right to receive distributions. If no distributions occurred during the tax year, the FMV for reporting purposes is zero.
The penalty for failure to report specified foreign financial assets on Form 8938 is $10,000. However, where the failure continues for more than 90 days after the IRS mails notice of the failure, additional penalties of $10,000 for each 30-day period (or fraction thereof) apply, up to a maximum penalty of $50,000. These penalties are separate from the stiff penalties that apply to the failure to file an FBAR. Penalties ranging from $10,000 for a non-willful violation, up to $250,000 for willful violations may apply for failure to file an FBAR. Additionally, willful failure to comply with FBAR filing requirements may result in imprisonment of up to five years.