Reporting Foreign Financial Assets Form 8938 and the FBAR

In an attempt to stymie tax evasion by U.S. taxpayers hiding assets overseas, the IRS recently released the final version of Form 8938. Individuals must use Form 8938 to report specified foreign financial assets with an aggregate value greater than $50,000 (this threshold increases for married individuals filing jointly and U.S. taxpayers living abroad). The Form 8938 is required to be filed with an individual’s annual income tax return, beginning with the 2011 tax year. Individuals not required to file an annual income tax return are not required to file the Form 8938. Until the IRS releases additional guidance, only individuals, and not specified domestic entities, are required to file the Form 8938.

This new filing requirement does not replace or otherwise affect a taxpayer’s obligations to file a Report of Foreign Bank and Financial Accounts ("FBAR"). The FBAR is used as a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. A U.S. person is required to file the FBAR with the Treasury if the U.S. person has a financial interest in or signature authority over at least one financial account located outside the United States, and the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

The purposes of the Form 8938 and FBAR are similar and there is significant overlap. Yet, filing the Form 8938 does not relieve an individual of the requirement to file the FBAR. Many individuals will be required to file both the Form 8938 and the FBAR to report substantially the same information. Despite the similarities, there are some difference between the FBAR and the Form 8938. The FBAR is not filed with an individual’s federal income tax return and must be filed with the Treasury by June 30 each year. In addition, the filing thresholds for the Form 8938 and the FBAR are different and the foreign financial assets that must be reported on the Form 8938 are not limited to bank and financial accounts.

IRS Circular 230 Notice

Internal Revenue Service regulations state that only a formal opinion that meets specific requirements can be used to avoid tax penalties. Any tax advice in this communication is not intended or written to be used, and cannot be used by a taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer, because it does not meet the requirements of a formal opinion.