your lifeline for form 8938
TRANSCRIPT
Your Lifeline for Form 8938Module I
Your Lifeline for Form 8938
A Five-Part Webinar Series
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Why Do We Pay Taxes
Your Lifeline for Form 8938
A Five-Part Webinar Series
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Why Do We Pay Taxes
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Why Do We Pay Taxes
Why Do We Pay Taxes
Form 8938
(1) Form 8938 Statement of Specified Foreign Financial Assets
ndash Background
bull The US government is miffed about widespread international tax noncompliance and it is not holding back how it feels about those who continue to play tax ldquohanky pankyrdquo It has taken major steps to address the problem
bull One such step was the enactment of FATCA (Foreign Account Tax Compliance Act) FATCA sometimes referred to by the nickname ldquoFat Catrdquo was the culmination of a three-year campaign by Washington to combat offshore tax evasion
Form 8938
bull FATCA was loaded to the hilt with various tax provisions including Code Sec 6038D
bull 6038D requires certain US individual taxpayers to report information to the IRS about their foreign financial assets by filing an annual Form 8938
Form 8938ndash Why is it important to comply with the Form 8938 filing
requirement
ndash Violations trigger a parade of horribles
bull Information-reporting penalties bull Increased sanctions for understatements bull Extended period for IRS enforcement andbull Potential criminal charges
A Labyrinth of Overlapping Rulesndash The general rule might appear innocent enough but it is chock full of
abstract principles and vague concepts that have led many to call it ldquoa riddle wrapped in a mystery inside an enigmardquo
ndash Even though Code Sec 6038D was enacted back in 2010 the IRS has not provided taxpayers with clear guidance on Form 8938rsquos complex rules Where does that leave us With a jumble of convoluted temporary regulations issued in 2011 final regulations promulgated in December 2014 and countless iterations of the Instructions for Form 8938
Form 8938
ndashRule Any individual who during any taxable year holds any interest in a specified foreign financial asset shall attach to such personrsquos tax return hellip for such taxable year the information described in subsection(c) with respect to each such asset if the aggregate value of all such assets exceeds $ 50000
Form 8938ndash Letrsquos break the rule down into manageable pieces so that wersquore not
forced to drink water out of a fire hose
bull Any specified individual (ldquoSIrdquo)bull Who holds an interestbull During any portion of a tax yearbull In a specified foreign financial asset (ldquoSFFArdquo)bull Must attach to his timely Form 1040 (or Form 1040NR)bull A complete and accurate Form 8938bull If the aggregate value of all SFFAsbull Exceeds the applicable filing threshold
Form 8938bull Who must file a Form 8938
ndash According to the final regulations a specified individual includes any one of the following categories of individuals
bull US citizensbull Individuals who are not US citizens but who are US residents for any
portion of the relevant yearbull Nonresident aliens who affirmatively elect under Code Sec 6013(g) or
Code Sec 6013(h) to be treated as US residents for federal tax purposesbull Nonresident aliens who are bona fide residents of Puerto Rico andbull Nonresident aliens who are bona fide residents of a so-called ldquoSection 931
Possessionrdquo (ie American Samoa)
Form 8938
bull No tax return requirement = No Form 8938 requirement
ndash Specified individuals who have no duty to file Form 1040 or Form 1040NR need not file a separate Form 8938
ndash Instructions for Form 8938 enlarges this idea as follows If a specified individual has no tax return filing duty then he has no Form 8938 filing duty even if the value of the SFFArsquos exceeds the applicable reporting threshold
Form 8938
bull What period of time does a Form 8938 cover
ndash It starts each tax period beginning on January 1 and ends on December 31
Form 8938
bull When does an individual ldquohold an interestrdquo in an SFFA
ndash ldquoHolding an interestrdquo varies significantly when it comes to Form 8938
ndash This has caused enormous confusion among taxpayers and practitioners alike since ldquoholding an interestrdquo for purposes of Form 8938 is not the same as ldquoholding an interestrdquo in an asset when it comes to the FBAR-reporting requirements
Form 8938
ndash Generally speaking a specified individual has an interest in a ldquoSFFArdquo if any income gains losses deductions or credits attributable to holding or disposing of the SFFA are (or should be) reported included or reflected on the specified individualrsquos annual tax return
ndash This is a trap for the unwary
Form 8938ndash Very simply a SFFA need not affect a taxpayerrsquos tax
liability for the tax year in order to trigger a Form 8938 filing requirement
ndash All thatrsquos necessary in order for a specified individual to have an interest in a SFFA is for the income gains losses deductions or credits attributable to holding or disposing of the SFFA to be reportable on the individualrsquos tax return
Form 8938Special Rules about ldquoholding an interestrdquo
(1) No entity attribution
ndash Rule An interest in a SFFA is not automatically attributed to a specified individual merely because he owns an interest in an entity that actually holds a SFFA
ndash Example Fred is the majority shareholder of a foreign corporation that holds an interest in a SFFA Is Fred treated as having an interest in the SFFA as a result of his status as a shareholder of the foreign corporation No
ndash Contrast this with the FBAR-reporting requirements The FBAR requirements generally require the reporting of foreign financial accounts regardless of whether the taxpayer holds them directly or indirectly (ie through an entity)
Form 8938
(2) Disregarded entities holding SFFAs
ndash Rule A SI who owns a ldquodisregarded entityrdquo is treated as having an interest in any SFFA that is held by such entity
ndash Instructions ldquoIf you are the owner of a disregarded entity you have an interest in any [SFFAs] owned by the disregarded entityrdquo
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
bull FATCA was loaded to the hilt with various tax provisions including Code Sec 6038D
bull 6038D requires certain US individual taxpayers to report information to the IRS about their foreign financial assets by filing an annual Form 8938
Form 8938ndash Why is it important to comply with the Form 8938 filing
requirement
ndash Violations trigger a parade of horribles
bull Information-reporting penalties bull Increased sanctions for understatements bull Extended period for IRS enforcement andbull Potential criminal charges
A Labyrinth of Overlapping Rulesndash The general rule might appear innocent enough but it is chock full of
abstract principles and vague concepts that have led many to call it ldquoa riddle wrapped in a mystery inside an enigmardquo
ndash Even though Code Sec 6038D was enacted back in 2010 the IRS has not provided taxpayers with clear guidance on Form 8938rsquos complex rules Where does that leave us With a jumble of convoluted temporary regulations issued in 2011 final regulations promulgated in December 2014 and countless iterations of the Instructions for Form 8938
Form 8938
ndashRule Any individual who during any taxable year holds any interest in a specified foreign financial asset shall attach to such personrsquos tax return hellip for such taxable year the information described in subsection(c) with respect to each such asset if the aggregate value of all such assets exceeds $ 50000
Form 8938ndash Letrsquos break the rule down into manageable pieces so that wersquore not
forced to drink water out of a fire hose
bull Any specified individual (ldquoSIrdquo)bull Who holds an interestbull During any portion of a tax yearbull In a specified foreign financial asset (ldquoSFFArdquo)bull Must attach to his timely Form 1040 (or Form 1040NR)bull A complete and accurate Form 8938bull If the aggregate value of all SFFAsbull Exceeds the applicable filing threshold
Form 8938bull Who must file a Form 8938
ndash According to the final regulations a specified individual includes any one of the following categories of individuals
bull US citizensbull Individuals who are not US citizens but who are US residents for any
portion of the relevant yearbull Nonresident aliens who affirmatively elect under Code Sec 6013(g) or
Code Sec 6013(h) to be treated as US residents for federal tax purposesbull Nonresident aliens who are bona fide residents of Puerto Rico andbull Nonresident aliens who are bona fide residents of a so-called ldquoSection 931
Possessionrdquo (ie American Samoa)
Form 8938
bull No tax return requirement = No Form 8938 requirement
ndash Specified individuals who have no duty to file Form 1040 or Form 1040NR need not file a separate Form 8938
ndash Instructions for Form 8938 enlarges this idea as follows If a specified individual has no tax return filing duty then he has no Form 8938 filing duty even if the value of the SFFArsquos exceeds the applicable reporting threshold
Form 8938
bull What period of time does a Form 8938 cover
ndash It starts each tax period beginning on January 1 and ends on December 31
Form 8938
bull When does an individual ldquohold an interestrdquo in an SFFA
ndash ldquoHolding an interestrdquo varies significantly when it comes to Form 8938
ndash This has caused enormous confusion among taxpayers and practitioners alike since ldquoholding an interestrdquo for purposes of Form 8938 is not the same as ldquoholding an interestrdquo in an asset when it comes to the FBAR-reporting requirements
Form 8938
ndash Generally speaking a specified individual has an interest in a ldquoSFFArdquo if any income gains losses deductions or credits attributable to holding or disposing of the SFFA are (or should be) reported included or reflected on the specified individualrsquos annual tax return
ndash This is a trap for the unwary
Form 8938ndash Very simply a SFFA need not affect a taxpayerrsquos tax
liability for the tax year in order to trigger a Form 8938 filing requirement
ndash All thatrsquos necessary in order for a specified individual to have an interest in a SFFA is for the income gains losses deductions or credits attributable to holding or disposing of the SFFA to be reportable on the individualrsquos tax return
Form 8938Special Rules about ldquoholding an interestrdquo
(1) No entity attribution
ndash Rule An interest in a SFFA is not automatically attributed to a specified individual merely because he owns an interest in an entity that actually holds a SFFA
ndash Example Fred is the majority shareholder of a foreign corporation that holds an interest in a SFFA Is Fred treated as having an interest in the SFFA as a result of his status as a shareholder of the foreign corporation No
ndash Contrast this with the FBAR-reporting requirements The FBAR requirements generally require the reporting of foreign financial accounts regardless of whether the taxpayer holds them directly or indirectly (ie through an entity)
Form 8938
(2) Disregarded entities holding SFFAs
ndash Rule A SI who owns a ldquodisregarded entityrdquo is treated as having an interest in any SFFA that is held by such entity
ndash Instructions ldquoIf you are the owner of a disregarded entity you have an interest in any [SFFAs] owned by the disregarded entityrdquo
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938ndash Why is it important to comply with the Form 8938 filing
requirement
ndash Violations trigger a parade of horribles
bull Information-reporting penalties bull Increased sanctions for understatements bull Extended period for IRS enforcement andbull Potential criminal charges
A Labyrinth of Overlapping Rulesndash The general rule might appear innocent enough but it is chock full of
abstract principles and vague concepts that have led many to call it ldquoa riddle wrapped in a mystery inside an enigmardquo
ndash Even though Code Sec 6038D was enacted back in 2010 the IRS has not provided taxpayers with clear guidance on Form 8938rsquos complex rules Where does that leave us With a jumble of convoluted temporary regulations issued in 2011 final regulations promulgated in December 2014 and countless iterations of the Instructions for Form 8938
Form 8938
ndashRule Any individual who during any taxable year holds any interest in a specified foreign financial asset shall attach to such personrsquos tax return hellip for such taxable year the information described in subsection(c) with respect to each such asset if the aggregate value of all such assets exceeds $ 50000
Form 8938ndash Letrsquos break the rule down into manageable pieces so that wersquore not
forced to drink water out of a fire hose
bull Any specified individual (ldquoSIrdquo)bull Who holds an interestbull During any portion of a tax yearbull In a specified foreign financial asset (ldquoSFFArdquo)bull Must attach to his timely Form 1040 (or Form 1040NR)bull A complete and accurate Form 8938bull If the aggregate value of all SFFAsbull Exceeds the applicable filing threshold
Form 8938bull Who must file a Form 8938
ndash According to the final regulations a specified individual includes any one of the following categories of individuals
bull US citizensbull Individuals who are not US citizens but who are US residents for any
portion of the relevant yearbull Nonresident aliens who affirmatively elect under Code Sec 6013(g) or
Code Sec 6013(h) to be treated as US residents for federal tax purposesbull Nonresident aliens who are bona fide residents of Puerto Rico andbull Nonresident aliens who are bona fide residents of a so-called ldquoSection 931
Possessionrdquo (ie American Samoa)
Form 8938
bull No tax return requirement = No Form 8938 requirement
ndash Specified individuals who have no duty to file Form 1040 or Form 1040NR need not file a separate Form 8938
ndash Instructions for Form 8938 enlarges this idea as follows If a specified individual has no tax return filing duty then he has no Form 8938 filing duty even if the value of the SFFArsquos exceeds the applicable reporting threshold
Form 8938
bull What period of time does a Form 8938 cover
ndash It starts each tax period beginning on January 1 and ends on December 31
Form 8938
bull When does an individual ldquohold an interestrdquo in an SFFA
ndash ldquoHolding an interestrdquo varies significantly when it comes to Form 8938
ndash This has caused enormous confusion among taxpayers and practitioners alike since ldquoholding an interestrdquo for purposes of Form 8938 is not the same as ldquoholding an interestrdquo in an asset when it comes to the FBAR-reporting requirements
Form 8938
ndash Generally speaking a specified individual has an interest in a ldquoSFFArdquo if any income gains losses deductions or credits attributable to holding or disposing of the SFFA are (or should be) reported included or reflected on the specified individualrsquos annual tax return
ndash This is a trap for the unwary
Form 8938ndash Very simply a SFFA need not affect a taxpayerrsquos tax
liability for the tax year in order to trigger a Form 8938 filing requirement
ndash All thatrsquos necessary in order for a specified individual to have an interest in a SFFA is for the income gains losses deductions or credits attributable to holding or disposing of the SFFA to be reportable on the individualrsquos tax return
Form 8938Special Rules about ldquoholding an interestrdquo
(1) No entity attribution
ndash Rule An interest in a SFFA is not automatically attributed to a specified individual merely because he owns an interest in an entity that actually holds a SFFA
ndash Example Fred is the majority shareholder of a foreign corporation that holds an interest in a SFFA Is Fred treated as having an interest in the SFFA as a result of his status as a shareholder of the foreign corporation No
ndash Contrast this with the FBAR-reporting requirements The FBAR requirements generally require the reporting of foreign financial accounts regardless of whether the taxpayer holds them directly or indirectly (ie through an entity)
Form 8938
(2) Disregarded entities holding SFFAs
ndash Rule A SI who owns a ldquodisregarded entityrdquo is treated as having an interest in any SFFA that is held by such entity
ndash Instructions ldquoIf you are the owner of a disregarded entity you have an interest in any [SFFAs] owned by the disregarded entityrdquo
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
A Labyrinth of Overlapping Rulesndash The general rule might appear innocent enough but it is chock full of
abstract principles and vague concepts that have led many to call it ldquoa riddle wrapped in a mystery inside an enigmardquo
ndash Even though Code Sec 6038D was enacted back in 2010 the IRS has not provided taxpayers with clear guidance on Form 8938rsquos complex rules Where does that leave us With a jumble of convoluted temporary regulations issued in 2011 final regulations promulgated in December 2014 and countless iterations of the Instructions for Form 8938
Form 8938
ndashRule Any individual who during any taxable year holds any interest in a specified foreign financial asset shall attach to such personrsquos tax return hellip for such taxable year the information described in subsection(c) with respect to each such asset if the aggregate value of all such assets exceeds $ 50000
Form 8938ndash Letrsquos break the rule down into manageable pieces so that wersquore not
forced to drink water out of a fire hose
bull Any specified individual (ldquoSIrdquo)bull Who holds an interestbull During any portion of a tax yearbull In a specified foreign financial asset (ldquoSFFArdquo)bull Must attach to his timely Form 1040 (or Form 1040NR)bull A complete and accurate Form 8938bull If the aggregate value of all SFFAsbull Exceeds the applicable filing threshold
Form 8938bull Who must file a Form 8938
ndash According to the final regulations a specified individual includes any one of the following categories of individuals
bull US citizensbull Individuals who are not US citizens but who are US residents for any
portion of the relevant yearbull Nonresident aliens who affirmatively elect under Code Sec 6013(g) or
Code Sec 6013(h) to be treated as US residents for federal tax purposesbull Nonresident aliens who are bona fide residents of Puerto Rico andbull Nonresident aliens who are bona fide residents of a so-called ldquoSection 931
Possessionrdquo (ie American Samoa)
Form 8938
bull No tax return requirement = No Form 8938 requirement
ndash Specified individuals who have no duty to file Form 1040 or Form 1040NR need not file a separate Form 8938
ndash Instructions for Form 8938 enlarges this idea as follows If a specified individual has no tax return filing duty then he has no Form 8938 filing duty even if the value of the SFFArsquos exceeds the applicable reporting threshold
Form 8938
bull What period of time does a Form 8938 cover
ndash It starts each tax period beginning on January 1 and ends on December 31
Form 8938
bull When does an individual ldquohold an interestrdquo in an SFFA
ndash ldquoHolding an interestrdquo varies significantly when it comes to Form 8938
ndash This has caused enormous confusion among taxpayers and practitioners alike since ldquoholding an interestrdquo for purposes of Form 8938 is not the same as ldquoholding an interestrdquo in an asset when it comes to the FBAR-reporting requirements
Form 8938
ndash Generally speaking a specified individual has an interest in a ldquoSFFArdquo if any income gains losses deductions or credits attributable to holding or disposing of the SFFA are (or should be) reported included or reflected on the specified individualrsquos annual tax return
ndash This is a trap for the unwary
Form 8938ndash Very simply a SFFA need not affect a taxpayerrsquos tax
liability for the tax year in order to trigger a Form 8938 filing requirement
ndash All thatrsquos necessary in order for a specified individual to have an interest in a SFFA is for the income gains losses deductions or credits attributable to holding or disposing of the SFFA to be reportable on the individualrsquos tax return
Form 8938Special Rules about ldquoholding an interestrdquo
(1) No entity attribution
ndash Rule An interest in a SFFA is not automatically attributed to a specified individual merely because he owns an interest in an entity that actually holds a SFFA
ndash Example Fred is the majority shareholder of a foreign corporation that holds an interest in a SFFA Is Fred treated as having an interest in the SFFA as a result of his status as a shareholder of the foreign corporation No
ndash Contrast this with the FBAR-reporting requirements The FBAR requirements generally require the reporting of foreign financial accounts regardless of whether the taxpayer holds them directly or indirectly (ie through an entity)
Form 8938
(2) Disregarded entities holding SFFAs
ndash Rule A SI who owns a ldquodisregarded entityrdquo is treated as having an interest in any SFFA that is held by such entity
ndash Instructions ldquoIf you are the owner of a disregarded entity you have an interest in any [SFFAs] owned by the disregarded entityrdquo
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
ndashRule Any individual who during any taxable year holds any interest in a specified foreign financial asset shall attach to such personrsquos tax return hellip for such taxable year the information described in subsection(c) with respect to each such asset if the aggregate value of all such assets exceeds $ 50000
Form 8938ndash Letrsquos break the rule down into manageable pieces so that wersquore not
forced to drink water out of a fire hose
bull Any specified individual (ldquoSIrdquo)bull Who holds an interestbull During any portion of a tax yearbull In a specified foreign financial asset (ldquoSFFArdquo)bull Must attach to his timely Form 1040 (or Form 1040NR)bull A complete and accurate Form 8938bull If the aggregate value of all SFFAsbull Exceeds the applicable filing threshold
Form 8938bull Who must file a Form 8938
ndash According to the final regulations a specified individual includes any one of the following categories of individuals
bull US citizensbull Individuals who are not US citizens but who are US residents for any
portion of the relevant yearbull Nonresident aliens who affirmatively elect under Code Sec 6013(g) or
Code Sec 6013(h) to be treated as US residents for federal tax purposesbull Nonresident aliens who are bona fide residents of Puerto Rico andbull Nonresident aliens who are bona fide residents of a so-called ldquoSection 931
Possessionrdquo (ie American Samoa)
Form 8938
bull No tax return requirement = No Form 8938 requirement
ndash Specified individuals who have no duty to file Form 1040 or Form 1040NR need not file a separate Form 8938
ndash Instructions for Form 8938 enlarges this idea as follows If a specified individual has no tax return filing duty then he has no Form 8938 filing duty even if the value of the SFFArsquos exceeds the applicable reporting threshold
Form 8938
bull What period of time does a Form 8938 cover
ndash It starts each tax period beginning on January 1 and ends on December 31
Form 8938
bull When does an individual ldquohold an interestrdquo in an SFFA
ndash ldquoHolding an interestrdquo varies significantly when it comes to Form 8938
ndash This has caused enormous confusion among taxpayers and practitioners alike since ldquoholding an interestrdquo for purposes of Form 8938 is not the same as ldquoholding an interestrdquo in an asset when it comes to the FBAR-reporting requirements
Form 8938
ndash Generally speaking a specified individual has an interest in a ldquoSFFArdquo if any income gains losses deductions or credits attributable to holding or disposing of the SFFA are (or should be) reported included or reflected on the specified individualrsquos annual tax return
ndash This is a trap for the unwary
Form 8938ndash Very simply a SFFA need not affect a taxpayerrsquos tax
liability for the tax year in order to trigger a Form 8938 filing requirement
ndash All thatrsquos necessary in order for a specified individual to have an interest in a SFFA is for the income gains losses deductions or credits attributable to holding or disposing of the SFFA to be reportable on the individualrsquos tax return
Form 8938Special Rules about ldquoholding an interestrdquo
(1) No entity attribution
ndash Rule An interest in a SFFA is not automatically attributed to a specified individual merely because he owns an interest in an entity that actually holds a SFFA
ndash Example Fred is the majority shareholder of a foreign corporation that holds an interest in a SFFA Is Fred treated as having an interest in the SFFA as a result of his status as a shareholder of the foreign corporation No
ndash Contrast this with the FBAR-reporting requirements The FBAR requirements generally require the reporting of foreign financial accounts regardless of whether the taxpayer holds them directly or indirectly (ie through an entity)
Form 8938
(2) Disregarded entities holding SFFAs
ndash Rule A SI who owns a ldquodisregarded entityrdquo is treated as having an interest in any SFFA that is held by such entity
ndash Instructions ldquoIf you are the owner of a disregarded entity you have an interest in any [SFFAs] owned by the disregarded entityrdquo
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938ndash Letrsquos break the rule down into manageable pieces so that wersquore not
forced to drink water out of a fire hose
bull Any specified individual (ldquoSIrdquo)bull Who holds an interestbull During any portion of a tax yearbull In a specified foreign financial asset (ldquoSFFArdquo)bull Must attach to his timely Form 1040 (or Form 1040NR)bull A complete and accurate Form 8938bull If the aggregate value of all SFFAsbull Exceeds the applicable filing threshold
Form 8938bull Who must file a Form 8938
ndash According to the final regulations a specified individual includes any one of the following categories of individuals
bull US citizensbull Individuals who are not US citizens but who are US residents for any
portion of the relevant yearbull Nonresident aliens who affirmatively elect under Code Sec 6013(g) or
Code Sec 6013(h) to be treated as US residents for federal tax purposesbull Nonresident aliens who are bona fide residents of Puerto Rico andbull Nonresident aliens who are bona fide residents of a so-called ldquoSection 931
Possessionrdquo (ie American Samoa)
Form 8938
bull No tax return requirement = No Form 8938 requirement
ndash Specified individuals who have no duty to file Form 1040 or Form 1040NR need not file a separate Form 8938
ndash Instructions for Form 8938 enlarges this idea as follows If a specified individual has no tax return filing duty then he has no Form 8938 filing duty even if the value of the SFFArsquos exceeds the applicable reporting threshold
Form 8938
bull What period of time does a Form 8938 cover
ndash It starts each tax period beginning on January 1 and ends on December 31
Form 8938
bull When does an individual ldquohold an interestrdquo in an SFFA
ndash ldquoHolding an interestrdquo varies significantly when it comes to Form 8938
ndash This has caused enormous confusion among taxpayers and practitioners alike since ldquoholding an interestrdquo for purposes of Form 8938 is not the same as ldquoholding an interestrdquo in an asset when it comes to the FBAR-reporting requirements
Form 8938
ndash Generally speaking a specified individual has an interest in a ldquoSFFArdquo if any income gains losses deductions or credits attributable to holding or disposing of the SFFA are (or should be) reported included or reflected on the specified individualrsquos annual tax return
ndash This is a trap for the unwary
Form 8938ndash Very simply a SFFA need not affect a taxpayerrsquos tax
liability for the tax year in order to trigger a Form 8938 filing requirement
ndash All thatrsquos necessary in order for a specified individual to have an interest in a SFFA is for the income gains losses deductions or credits attributable to holding or disposing of the SFFA to be reportable on the individualrsquos tax return
Form 8938Special Rules about ldquoholding an interestrdquo
(1) No entity attribution
ndash Rule An interest in a SFFA is not automatically attributed to a specified individual merely because he owns an interest in an entity that actually holds a SFFA
ndash Example Fred is the majority shareholder of a foreign corporation that holds an interest in a SFFA Is Fred treated as having an interest in the SFFA as a result of his status as a shareholder of the foreign corporation No
ndash Contrast this with the FBAR-reporting requirements The FBAR requirements generally require the reporting of foreign financial accounts regardless of whether the taxpayer holds them directly or indirectly (ie through an entity)
Form 8938
(2) Disregarded entities holding SFFAs
ndash Rule A SI who owns a ldquodisregarded entityrdquo is treated as having an interest in any SFFA that is held by such entity
ndash Instructions ldquoIf you are the owner of a disregarded entity you have an interest in any [SFFAs] owned by the disregarded entityrdquo
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938bull Who must file a Form 8938
ndash According to the final regulations a specified individual includes any one of the following categories of individuals
bull US citizensbull Individuals who are not US citizens but who are US residents for any
portion of the relevant yearbull Nonresident aliens who affirmatively elect under Code Sec 6013(g) or
Code Sec 6013(h) to be treated as US residents for federal tax purposesbull Nonresident aliens who are bona fide residents of Puerto Rico andbull Nonresident aliens who are bona fide residents of a so-called ldquoSection 931
Possessionrdquo (ie American Samoa)
Form 8938
bull No tax return requirement = No Form 8938 requirement
ndash Specified individuals who have no duty to file Form 1040 or Form 1040NR need not file a separate Form 8938
ndash Instructions for Form 8938 enlarges this idea as follows If a specified individual has no tax return filing duty then he has no Form 8938 filing duty even if the value of the SFFArsquos exceeds the applicable reporting threshold
Form 8938
bull What period of time does a Form 8938 cover
ndash It starts each tax period beginning on January 1 and ends on December 31
Form 8938
bull When does an individual ldquohold an interestrdquo in an SFFA
ndash ldquoHolding an interestrdquo varies significantly when it comes to Form 8938
ndash This has caused enormous confusion among taxpayers and practitioners alike since ldquoholding an interestrdquo for purposes of Form 8938 is not the same as ldquoholding an interestrdquo in an asset when it comes to the FBAR-reporting requirements
Form 8938
ndash Generally speaking a specified individual has an interest in a ldquoSFFArdquo if any income gains losses deductions or credits attributable to holding or disposing of the SFFA are (or should be) reported included or reflected on the specified individualrsquos annual tax return
ndash This is a trap for the unwary
Form 8938ndash Very simply a SFFA need not affect a taxpayerrsquos tax
liability for the tax year in order to trigger a Form 8938 filing requirement
ndash All thatrsquos necessary in order for a specified individual to have an interest in a SFFA is for the income gains losses deductions or credits attributable to holding or disposing of the SFFA to be reportable on the individualrsquos tax return
Form 8938Special Rules about ldquoholding an interestrdquo
(1) No entity attribution
ndash Rule An interest in a SFFA is not automatically attributed to a specified individual merely because he owns an interest in an entity that actually holds a SFFA
ndash Example Fred is the majority shareholder of a foreign corporation that holds an interest in a SFFA Is Fred treated as having an interest in the SFFA as a result of his status as a shareholder of the foreign corporation No
ndash Contrast this with the FBAR-reporting requirements The FBAR requirements generally require the reporting of foreign financial accounts regardless of whether the taxpayer holds them directly or indirectly (ie through an entity)
Form 8938
(2) Disregarded entities holding SFFAs
ndash Rule A SI who owns a ldquodisregarded entityrdquo is treated as having an interest in any SFFA that is held by such entity
ndash Instructions ldquoIf you are the owner of a disregarded entity you have an interest in any [SFFAs] owned by the disregarded entityrdquo
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
bull No tax return requirement = No Form 8938 requirement
ndash Specified individuals who have no duty to file Form 1040 or Form 1040NR need not file a separate Form 8938
ndash Instructions for Form 8938 enlarges this idea as follows If a specified individual has no tax return filing duty then he has no Form 8938 filing duty even if the value of the SFFArsquos exceeds the applicable reporting threshold
Form 8938
bull What period of time does a Form 8938 cover
ndash It starts each tax period beginning on January 1 and ends on December 31
Form 8938
bull When does an individual ldquohold an interestrdquo in an SFFA
ndash ldquoHolding an interestrdquo varies significantly when it comes to Form 8938
ndash This has caused enormous confusion among taxpayers and practitioners alike since ldquoholding an interestrdquo for purposes of Form 8938 is not the same as ldquoholding an interestrdquo in an asset when it comes to the FBAR-reporting requirements
Form 8938
ndash Generally speaking a specified individual has an interest in a ldquoSFFArdquo if any income gains losses deductions or credits attributable to holding or disposing of the SFFA are (or should be) reported included or reflected on the specified individualrsquos annual tax return
ndash This is a trap for the unwary
Form 8938ndash Very simply a SFFA need not affect a taxpayerrsquos tax
liability for the tax year in order to trigger a Form 8938 filing requirement
ndash All thatrsquos necessary in order for a specified individual to have an interest in a SFFA is for the income gains losses deductions or credits attributable to holding or disposing of the SFFA to be reportable on the individualrsquos tax return
Form 8938Special Rules about ldquoholding an interestrdquo
(1) No entity attribution
ndash Rule An interest in a SFFA is not automatically attributed to a specified individual merely because he owns an interest in an entity that actually holds a SFFA
ndash Example Fred is the majority shareholder of a foreign corporation that holds an interest in a SFFA Is Fred treated as having an interest in the SFFA as a result of his status as a shareholder of the foreign corporation No
ndash Contrast this with the FBAR-reporting requirements The FBAR requirements generally require the reporting of foreign financial accounts regardless of whether the taxpayer holds them directly or indirectly (ie through an entity)
Form 8938
(2) Disregarded entities holding SFFAs
ndash Rule A SI who owns a ldquodisregarded entityrdquo is treated as having an interest in any SFFA that is held by such entity
ndash Instructions ldquoIf you are the owner of a disregarded entity you have an interest in any [SFFAs] owned by the disregarded entityrdquo
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
bull What period of time does a Form 8938 cover
ndash It starts each tax period beginning on January 1 and ends on December 31
Form 8938
bull When does an individual ldquohold an interestrdquo in an SFFA
ndash ldquoHolding an interestrdquo varies significantly when it comes to Form 8938
ndash This has caused enormous confusion among taxpayers and practitioners alike since ldquoholding an interestrdquo for purposes of Form 8938 is not the same as ldquoholding an interestrdquo in an asset when it comes to the FBAR-reporting requirements
Form 8938
ndash Generally speaking a specified individual has an interest in a ldquoSFFArdquo if any income gains losses deductions or credits attributable to holding or disposing of the SFFA are (or should be) reported included or reflected on the specified individualrsquos annual tax return
ndash This is a trap for the unwary
Form 8938ndash Very simply a SFFA need not affect a taxpayerrsquos tax
liability for the tax year in order to trigger a Form 8938 filing requirement
ndash All thatrsquos necessary in order for a specified individual to have an interest in a SFFA is for the income gains losses deductions or credits attributable to holding or disposing of the SFFA to be reportable on the individualrsquos tax return
Form 8938Special Rules about ldquoholding an interestrdquo
(1) No entity attribution
ndash Rule An interest in a SFFA is not automatically attributed to a specified individual merely because he owns an interest in an entity that actually holds a SFFA
ndash Example Fred is the majority shareholder of a foreign corporation that holds an interest in a SFFA Is Fred treated as having an interest in the SFFA as a result of his status as a shareholder of the foreign corporation No
ndash Contrast this with the FBAR-reporting requirements The FBAR requirements generally require the reporting of foreign financial accounts regardless of whether the taxpayer holds them directly or indirectly (ie through an entity)
Form 8938
(2) Disregarded entities holding SFFAs
ndash Rule A SI who owns a ldquodisregarded entityrdquo is treated as having an interest in any SFFA that is held by such entity
ndash Instructions ldquoIf you are the owner of a disregarded entity you have an interest in any [SFFAs] owned by the disregarded entityrdquo
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
bull When does an individual ldquohold an interestrdquo in an SFFA
ndash ldquoHolding an interestrdquo varies significantly when it comes to Form 8938
ndash This has caused enormous confusion among taxpayers and practitioners alike since ldquoholding an interestrdquo for purposes of Form 8938 is not the same as ldquoholding an interestrdquo in an asset when it comes to the FBAR-reporting requirements
Form 8938
ndash Generally speaking a specified individual has an interest in a ldquoSFFArdquo if any income gains losses deductions or credits attributable to holding or disposing of the SFFA are (or should be) reported included or reflected on the specified individualrsquos annual tax return
ndash This is a trap for the unwary
Form 8938ndash Very simply a SFFA need not affect a taxpayerrsquos tax
liability for the tax year in order to trigger a Form 8938 filing requirement
ndash All thatrsquos necessary in order for a specified individual to have an interest in a SFFA is for the income gains losses deductions or credits attributable to holding or disposing of the SFFA to be reportable on the individualrsquos tax return
Form 8938Special Rules about ldquoholding an interestrdquo
(1) No entity attribution
ndash Rule An interest in a SFFA is not automatically attributed to a specified individual merely because he owns an interest in an entity that actually holds a SFFA
ndash Example Fred is the majority shareholder of a foreign corporation that holds an interest in a SFFA Is Fred treated as having an interest in the SFFA as a result of his status as a shareholder of the foreign corporation No
ndash Contrast this with the FBAR-reporting requirements The FBAR requirements generally require the reporting of foreign financial accounts regardless of whether the taxpayer holds them directly or indirectly (ie through an entity)
Form 8938
(2) Disregarded entities holding SFFAs
ndash Rule A SI who owns a ldquodisregarded entityrdquo is treated as having an interest in any SFFA that is held by such entity
ndash Instructions ldquoIf you are the owner of a disregarded entity you have an interest in any [SFFAs] owned by the disregarded entityrdquo
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
ndash Generally speaking a specified individual has an interest in a ldquoSFFArdquo if any income gains losses deductions or credits attributable to holding or disposing of the SFFA are (or should be) reported included or reflected on the specified individualrsquos annual tax return
ndash This is a trap for the unwary
Form 8938ndash Very simply a SFFA need not affect a taxpayerrsquos tax
liability for the tax year in order to trigger a Form 8938 filing requirement
ndash All thatrsquos necessary in order for a specified individual to have an interest in a SFFA is for the income gains losses deductions or credits attributable to holding or disposing of the SFFA to be reportable on the individualrsquos tax return
Form 8938Special Rules about ldquoholding an interestrdquo
(1) No entity attribution
ndash Rule An interest in a SFFA is not automatically attributed to a specified individual merely because he owns an interest in an entity that actually holds a SFFA
ndash Example Fred is the majority shareholder of a foreign corporation that holds an interest in a SFFA Is Fred treated as having an interest in the SFFA as a result of his status as a shareholder of the foreign corporation No
ndash Contrast this with the FBAR-reporting requirements The FBAR requirements generally require the reporting of foreign financial accounts regardless of whether the taxpayer holds them directly or indirectly (ie through an entity)
Form 8938
(2) Disregarded entities holding SFFAs
ndash Rule A SI who owns a ldquodisregarded entityrdquo is treated as having an interest in any SFFA that is held by such entity
ndash Instructions ldquoIf you are the owner of a disregarded entity you have an interest in any [SFFAs] owned by the disregarded entityrdquo
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938ndash Very simply a SFFA need not affect a taxpayerrsquos tax
liability for the tax year in order to trigger a Form 8938 filing requirement
ndash All thatrsquos necessary in order for a specified individual to have an interest in a SFFA is for the income gains losses deductions or credits attributable to holding or disposing of the SFFA to be reportable on the individualrsquos tax return
Form 8938Special Rules about ldquoholding an interestrdquo
(1) No entity attribution
ndash Rule An interest in a SFFA is not automatically attributed to a specified individual merely because he owns an interest in an entity that actually holds a SFFA
ndash Example Fred is the majority shareholder of a foreign corporation that holds an interest in a SFFA Is Fred treated as having an interest in the SFFA as a result of his status as a shareholder of the foreign corporation No
ndash Contrast this with the FBAR-reporting requirements The FBAR requirements generally require the reporting of foreign financial accounts regardless of whether the taxpayer holds them directly or indirectly (ie through an entity)
Form 8938
(2) Disregarded entities holding SFFAs
ndash Rule A SI who owns a ldquodisregarded entityrdquo is treated as having an interest in any SFFA that is held by such entity
ndash Instructions ldquoIf you are the owner of a disregarded entity you have an interest in any [SFFAs] owned by the disregarded entityrdquo
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938Special Rules about ldquoholding an interestrdquo
(1) No entity attribution
ndash Rule An interest in a SFFA is not automatically attributed to a specified individual merely because he owns an interest in an entity that actually holds a SFFA
ndash Example Fred is the majority shareholder of a foreign corporation that holds an interest in a SFFA Is Fred treated as having an interest in the SFFA as a result of his status as a shareholder of the foreign corporation No
ndash Contrast this with the FBAR-reporting requirements The FBAR requirements generally require the reporting of foreign financial accounts regardless of whether the taxpayer holds them directly or indirectly (ie through an entity)
Form 8938
(2) Disregarded entities holding SFFAs
ndash Rule A SI who owns a ldquodisregarded entityrdquo is treated as having an interest in any SFFA that is held by such entity
ndash Instructions ldquoIf you are the owner of a disregarded entity you have an interest in any [SFFAs] owned by the disregarded entityrdquo
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
(2) Disregarded entities holding SFFAs
ndash Rule A SI who owns a ldquodisregarded entityrdquo is treated as having an interest in any SFFA that is held by such entity
ndash Instructions ldquoIf you are the owner of a disregarded entity you have an interest in any [SFFAs] owned by the disregarded entityrdquo
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
(3) Grantor Trusts Holding SFFAs
ndash Generally speaking a SI who is the owner (full or partial) of a grantor trust is considered to hold an interest in any SFFA that is actually held by such trust
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
(4) SFFAs Held by Childrenndash A SI who makes the ldquokiddie taxrdquo election under
Code Sec 1(g)(7) ndash ie elects to include certain passive income of his child as his own gross income for US income tax purposes ndash is considered to ldquohold an interestrdquo in any SFFA held by such child
ndash This is stated clearly in the Instructions for Form 8938
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
(5) Certain Nonvested SFFAsndash Issue Does a specified individual ldquohold an
interestrdquo in property that has been transferred to him in exchange for the performance of personal services if the specified individualrsquos interest in that property has not yet vested
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938ndash Two rules for nonvested SFFAs
bull First rule A SI who receives property for the performance of personal services is considered to ldquohold an interestrdquo in the property for purposes of Code Sec 6038D on the first date that the property is substantially vested
bull Second rule To the extent that a specified individual elects to be taxed immediately at present value on the entire amount that will eventually vest the specified individual is deemed to ldquohold an interestrdquo on the date the property is transferred
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Your Lifeline for Form 8938Module II
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
bull What types of assets constitute SFFAs
ndash Two main categories
bull 1 Foreign financial accounts maintained at a foreign financial institution (FFI) and
bull 2 Other foreign financial assets which are held for investment purposes
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
ndash Thus any item that falls within one of these two categories must be reported on Form 8938
ndash Letrsquos begin by defining Foreign Financial Institution
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
Definition of Foreign Financial Institution
A non-US entity thatndash Accepts deposits in the ordinary course of a banking or
similar businessndash Holds financial assets on behalf of others as a substantial
portion of its businessndash Is engaged primarily in the business of investing reinvesting
or trading securities partnership interest commodities or any interest in such securities partnership interests or commodities
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Category 1 Foreign Financial Accounts Maintained at FFI
List of Items Considered ldquoFinancial Accountsrdquo
1 Depository accounts
ndash Commercial accountsndash Savings accountsndash Time-deposit accountsndash Thrift accountsndash Accounts evidenced by a certificate of deposit thrift
certificate investment certificate passbook certificate of indebtedness or any other instrument used to place money in the custody of an entity that is engaged in the business of banking and that is obligated to extend credit (regardless of whether the instrument generates interest) and
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Any amount held by an insurance company under a guaranteed investment contract (or similar agreement) to pay or credit interest
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Category 1 Foreign Financial Accounts Maintained at FFI
2 Custodial accountsndash Definition An arrangement whereby a person
holds a financial instrument contract or investment for the benefit of another person
ndash Examplesbull Shares of corporate stockbull Promissory notesbull Bondsbull Debenturesbull Credit default swaps
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Category 1 Foreign Financial Accounts Maintained at FFI
3 Equity or debt interests in a foreign financial institution other than interests regularly traded on securities markets
4 ldquoCash-value insurance contractsrdquo and certain types of annuity contracts issued or maintained by an insurance company a holding company for an insurance company or certain foreign financial institutions
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Category 1 Foreign Financial Accounts Maintained at FFI
5 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non- retirement savings accounts that meet special conditions
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Category 1 Foreign Financial Accounts Maintained at FFI
6 Tax-favored foreign retirement accounts foreign pension accounts and foreign
non-retirement savings accounts that have already been excluded from the definition of ldquofinancial accountrdquo pursuant to an ldquoIGArdquo between the US and a foreign country to implement FATCA are still considered ldquofinancial accountsrdquo for Form 8938 purposes
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Takeaway While certain foreign governments and financial institutions are not required to provide data to the IRS pursuant to FATCA when it comes to certain retirement-type accounts specified individuals who hold an interest in such accounts are not as fortunate They must still report these accounts on a Form 8938
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Category 1 Foreign Financial Accounts Maintained at FFI
Items Not Considered ldquoFinancial Accountsrdquo
1 Below is a list of times not considered ldquofinancial accountsrdquo Thus they need not be reported on Form 8938
ndash Certain term life insurance contractsndash Accounts held by an estate of an individual if the documentation for
such accounts includes a copy of the decedentrsquos will or death certificate
ndash Certain escrow accountsndash Non-investment-related nontransferable immediate life annuity
contracts that monetize certain types of retirement or pension accounts
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Category 1 Foreign Financial Accounts Maintained at FFI
ndash Accounts or products that are excluded from the definition of ldquofinancial accountrdquo under an IGA (other than certain tax-favored foreign retirement accounts foreign pension accounts and foreign nonretirement savings accounts)
ndash Accounts held with ldquoUS payorsrdquondash Accounts whose holdings are subject to the
mark-to-market rules under Code Sec 475
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are considered other SFFAs held for investment purposes (must be reported)
1 Stocks or securities issued by a non-US personndash Example Stock issued by a foreign corporation
2 Financial instruments or contracts held for investment purposes whose issuer or counterparty is a non-US person andndash Example Notes bonds debentures or other forms of debt issued by a
foreign person3 Any interest in a foreign entity
ndash Example A capital interest or profits interest in a foreign partnershipndash Example An interest swap currency swap or a basis basis swap
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Category 2 SFFAs Other Than Foreign Financial Accounts
Items that are not considered other SFFAs held for investment purposes (need not be reported)
1 Interests in foreign social security social insurance or other similar programs of a foreign government
2 Interests in a foreign trust or a foreign estate unless the SI either knows or has reason to know of the existence of the interest based on readily accessible information
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Category 2 SFFAs Other Than Foreign Financial Accounts
bull Note well A common mistake that taxpayers make is believing that IRAs and other retirement plans are included in the definition of ldquospecified foreign financial assetsrdquo However to the extent that such an interest represents a social security social insurance or other similar program of a foreign government that is incorrect Such accounts are exempt from the Form 8938 reporting requirements
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
A Trap for the Unwary
Foreign Real Estate Oh The Agony
bull Issue Must foreign real estate owned directly by a SI be reported on Form 8938ndash No A personal residence or a rental property need
not be reported on Form 8938ndash In Form 8938 jargon neither is deemed a
ldquospecified foreign financial assetrdquo
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Foreign Real Estate Oh The Agony
bull If it were only that easy the discussion would end here
bull However there are a few caveats such as when the real estate is held through a foreign entity like a corporation partnership trust or estate
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Foreign Real Estate Oh The Agonyndash Note well If the real estate is held through a foreign entity and the
taxpayer owns an interest in that entity then the taxpayer can be said to own the real estate indirectly through the entity
ndash In that case the taxpayerrsquos interest in the entity ndash and only the entity ndash is deemed a ldquospecified foreign financial assetrdquo And if the taxpayerrsquos interest in the entity exceeds the reporting threshold that applies to him then he must report it on Form 8938
ndash While the real estate itself is not reported on Form 8938 that does not make it chopped liver It still has a purpose Very simply the value of the real estate must be taken into consideration for purposes of determining the value of the taxpayerrsquos interest in the foreign entity
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Foreign Real Estate Oh The Agonyndash And because the taxpayerrsquos interest in the foreign entity
must exceed a specific reporting threshold before the taxpayer has a duty to report it the value of the real estate directly impacts whether there is a Form 8938 reporting requirement
ndash Is the value of the real estate held by the entity taken into account for purposes of determining the value of the taxpayerrsquos interest in the entity Yes
ndash However the real estate itself is not separately reported on Form 8938
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Foreign Real Estate Oh The Agony
bull Example If the reporting threshold that applies to the taxpayer is $ 50000 and the fair market value of the foreign real estate is $ 49000 then the taxpayer has no obligation to report his interest in the entity that owns the real estate on Form 8938
bull But if the fair market value of the foreign real estate is $ 51000 then the taxpayer must report his interest in the entity that owns the real estate on Form 8938
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Gray Area
ndash Is ldquovirtual currencyrdquo such as Bitcoin considered a SFFA for purposes of Code Sec 6038 The IRS has reserved judgment at this time
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
bull How do you value an SFFAndash This is deceptively complicated thanks to different
rules that apply to different types of SFFAsndash General valuation principle The value of an SFFA
is normally its fair market value (FMV) on the last day of the tax year which can be determined from a ldquoreasonable estimaterdquo
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Your Lifeline for Form 8938Module III
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
bull How large (or valuable) must an SFFA be in order to trigger a Form 8938 reporting requirement
ndash Even if an individual is considered an ldquoSIrdquo and holds an interest in certain SFFAs during a given year he need only file Form 8938 if the aggregate value of the SFFAs exceeds certain reporting thresholds
ndash The thresholds vary based on three variables an SIrsquos location civil status and return-filing status
ndash There are six reporting thresholds
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
bull Example
ndash An unmarried taxpayer living in the United States satisfies the reporting threshold if the total value of his specified foreign financial assets is (1) greater than $50000 (USD) on the last day of the tax year or (2) greater than $75000 (USD) at any time during the tax year
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Form 8938
ndash However if that same taxpayer lived outside the United States as opposed to in the United States he would only satisfy the reporting threshold if the total value of his specified foreign financial assets was (1) greater than $ 200000 (USD) on the last day of the tax year or (2) greater than $ 300000 (USD) at any time during the tax year
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Description of Reporting Thresholds
1 Unmarried specified individual living in the US
The SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Description of Reporting Thresholds
2 Unmarried specified individual living abroad
A specified individual who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Description of Reporting Thresholds
ndash Who is a ldquoqualified individualrdquo for purposes of Code Sec 911
bull A US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire calendar year or
bull A US citizen or US resident who is present in a foreign country or countries for at least 330 full days during any consecutive 12-month period
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Description of Reporting Thresholds
3 Married SI living in the US filing separate Form 1040 from his or her spouse
The married SI must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 50000 on the last day of the year orndash $ 75000 at any time during the year
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Description of Reporting Thresholds
4 Married SI living abroad filing separate Form 1040 from his or her spouse
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 200000 on the last day of the year orndash $ 300000 at any time during the year
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Description of Reporting Thresholds
5 Married SIs living in the US and filing joint Forms 1040
The married SIs must file Form 8938 if the aggregate value of the SFFAs exceeds
ndash $ 100000 on the last day of the tax year orndash $ 150000 at any time during the year
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Description of Reporting Thresholds
6 Married SIs living abroad and filing joint Forms 1040
The married SI who is a ldquoqualified individualrdquo under Code Sec 911 during the relevant year and his or her spouse must file Form 8938 if the aggregate value of the SFFAs held by either spouse exceeds
ndash $ 400000 on the last day of the year orndash $ 600000 at any time during the year
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS bull If you are required to file Form 8938 and you have already reported
your specified foreign financial asset on any one of the following forms ndash Form 3520 Form 3520-A Form 5471 Form 8621 Form 8865 or Form 8891 ndash you need not report the asset on Form 8938 However you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets
bull Even if a specified foreign financial asset is reported on a form listed above you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is greater than the reporting threshold that applies to you
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Reporting Specified Foreign Financial Assets on other Forms Filed with the IRS
Filing Form 8938 does not relieve a taxpayer of the requirement to file an FBAR if the taxpayer is
otherwise required to file an FBAR
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Your Lifeline for Form 8938Module IV
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Penalties for Violating Code Sec 6038D
bull While the penalties for those who donrsquot follow the Form 8938 filing requirements might not be as severe as those for failing to file an FBAR they are nothing to shake a stick at
bull As tempting as it might be to look up at the sky and begin wringing your hands in utter despair and put down any information about foreign assets on Form 8938 that would be a recipe for disaster
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Penalties for Violating Code Sec 6038D
bull It could trigger some ndash or all ndash of the parade of horribles described below
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Penalties for Violating Code Sec 6038D
bull Like other penalties in the international arena the penalty for failing to file Form 8938 brings with it all the fury of a gigantic tsunami rising out of the ocean and crashing onto the shore
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Penalties for Violating Code Sec 6038D
bull If the taxpayer fails to file Form 8938 in a timely manner then he must pay a penalty of $ 10000 (USD)
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Penalties for Violating Code Sec 6038D
bull The penalty increases exponentially if the taxpayer doesnrsquot ldquofixrdquo the problem expeditiously after the IRS brings it to his attention
bull Example If the taxpayer does not file Form 8938 within 90 days after the day on which the IRS sends a notice about the missing return then the taxpayer must pay an additional penalty of $ 10000 for each 30-day period (or portion thereof) that passes without the filing of Form 8938
bull This is in addition to the initial $ 10000 penaltybull Note however that it is capped at $ 50000
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Hypothetical
Factsbull For purposes of this hypo assume that there are 30
days in a monthbull Dan is a specified individual who has an interest in a
SFFA He does not file Form 8938bull On February 1 20xx the IRS sends Dan a letter
informing him about his missing Form 8938 and advising him that he has until May 2 20xx ndash ie 90 days from February 2 the day after which the notice was sent ndash to cure the defect
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Hypothetical
bull Scenario 1 It is May 30 and Dan has still not filed his Form 8938 In other words May 2 came and went without him filing Form 8938 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
ndash A second penalty of $ 10000 (USD) because Dan failed to file Form 8938 within the 90-day grace period and the first 30-day period beyond the grace period ndash ie the month of May ndash has now passed without Dan filing Form 8938
ndash Note May is the first month that triggers the penalty
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Hypothetical
bull Scenario 2 Dan files his Form 8938 on May 1 What if any penalties is Dan subject to
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938ndash Dan is not subject to a second penalty because he had until
90 days after the day on which the IRS sent the notice to file a Form 8938 in order to avoid the second penalty The IRS mailed the notice on February 1 The day after is February 2 90 days from February 2 is May 2 Because Dan filed his Form 8938 on May 1 and May 1 falls within the 90-day grace period Dan does not pay a second penalty
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Hypothetical
bull Scenario 3 Dan files his Form 8938 on June 15 What if any penalties is Dan subject to
ndashAn initial $ 10000 (USD) penalty for failing to file Form 8938ndashA second penalty of $ 10000 because the first
30-day period beyond the grace period ndash that being the month of May ndash came and went without Dan filing Form 8938ndashA third penalty of $ 10000 How come
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Hypothetical
ndash Didnrsquot Dan file his Form 8938 before June 30 which marks the end of the second 30-day period beyond the grace period Yes But the rule says ldquoor portion thereofrdquo In other words a full 30-day period need not pass in order for the taxpayer to be liable for the $ 10000 ldquomonthly specialrdquo This means that Dan could have filed his Form 8938 on June 4 just two days into the second 30-day period and still be liable for the $ 10000 penalty
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Hypothetical
bull Scenario 4 Dan files his Form 8938 on December 2 seven months after the grace period What penalties must he pay
ndash An initial $ 10000 (USD) penalty for failing to file Form 8938
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
HypotheticalPeriod Month Penalty
First 30-day period beyond grace period
May 3-June 3 $ 10000
Second 30-day period beyond grace period
June 4- July 4 $ 10000
Third 30-day period beyond grace period
July 4- August 5 $ 10000
Fourth 30-day period beyond grace period
August 6-September 6 $ 10000
Fifth 30-day period beyond grace period
September 7-October 7 $ 10000
TOTAL $ 50000
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Hypothetical
bull Remember Penalties are capped at $ 50000bull Thus even though two more 30-day periods
passed without Dan filing his Form 8938 the $ 10000 ldquomonthly specialrdquo stops aggregating with the fifth month beyond the grace period here the month of September
bull In other words the fifth month is the last possible month for a $ 10000 penalty
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Hypothetical
Danrsquos total penalties
$ 10000 (initial penalty) + $ 50000 (five ldquomonthly specialsrdquo which aggregate to $ 50000) __________________________________________
$ 60000 (USD)
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Penalties for Violating Code Sec 6038D
Presumption of Violation
bull The combination of Code Sec 6038D(e) and the Final Regulations packs a ldquoone-two punchrdquo by creating a presumption of noncompliance in certain situations
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Presumption of Violation
Example
ndash Jack is an unmarried specified individual who lives in the US He holds an interest in a SFFA which he claims never exceeded the applicable reporting threshold that applies to him at any time during 2013 (ie $ 75000)
ndash He writes the IRS a letter memorializing this and telling them that his interest in the SFFA is only $ 40000 (USD)
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Presumption of Violation
ndash In response the IRS writes Jack a letter rejecting the letter that he provided as being insufficient to prove the aggregate value of the SFFA
ndash Under these circumstances the IRS may presume that the value of Jackrsquos interest in the SFFA exceeded $ 75000 and assert the $ 10000 penalty
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Reasonable Cause Defense to Code Sec 6038D Penalties
bull May the taxpayer assert a defense to Code Sec 6038D penalties
bull An SI who unintentionally fails to file a timely and accurate Form 8938 can have his Code Sec 6038D penalties waived if he can demonstrate that the violation was due to reasonable cause and not due to willful neglect
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Reasonable Cause Defense to Code Sec 6038D Penalties
bull However the burden of making ldquoan affirmative showing of all the facts alleged as reasonable causerdquo falls on the Specified Individual
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Beware of the accuracy-related penalty
bull As if the Code Sec 6038D penalties were not bad enough they can get even worse
bull Violations may also lead to other penalties the most common of which is the accuracy-related penalty
bull Definition of accuracy-related penalty To the extent that there is a tax underpayment then the IRS may assert a penalty equal to 20 of the amount of such underpayment
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Beware of the accuracy-related penalty
bull Question How is the IRS able to extend the accuracy-related penalty to the understatement of an undisclosed foreign financial asset
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Beware of the accuracy-related penalty
bull Herersquos how
ndash Step 1 Code Sec 6662(b) lists the items that give rise to a tax underpayment for purposes of the accuracy-related penalty
ndash Step 2 FATCA expanded this list by adding Code Sec 6662(b)(7) Code Sec 6662(b)(7) says that any ldquoundisclosed foreign financial asset understatementrdquo can be grounds for an accuracy-related penalty
ndash Step 3 FATCA also introduced Code Sec 6662(j) Under 6662(j) ldquoundisclosed foreign financial assetrdquo is defined as any asset with respect to which information must be reported to the IRS under various tax provisions including Code Sec 6038D but wasnrsquot
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Penalties Doubled In Certain Situations
bull Congress has added ldquoteethrdquo to Code Sec 6662(j) How so
bull By doubling the size of the accuracy-related penalty from 20 of the underpayment to 40 if the underpayment was due to the failure to report an SFFA on Form 8938
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Penalties Doubled In Certain Situations
bull Below is an example of when the accuracy-related penalty would be doubled
John did not report the ownership of his shares in a foreign company on Form 8938 despite selling the shares for a gain Nor did he report the gain on his income tax return
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Donrsquot Forget the Criminal Penalties
bull As uncomfortable as it might be to discuss this topic it is absolutely necessary
bull Aside from leaving a taxpayer with nothing more than the shirt on his back Code Sec 6038D can unleash its holy wrath on taxpayers in an even worse way by taking away their freedom
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Donrsquot Forget the Criminal Penalties
bull Violations of Code Sec 6038D can lead to potential criminal penalties
bull A cursory review of the Instructions for Form 8938 erases any doubt ldquoIf you fail to file Form 8938 fail to report an asset or have an underpayment of tax you may be subject to criminal penaltiesrdquo
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Extension of the Assessment Period
bull The FATCA tornado wreaks havoc not just on penalties but also on assessment periods
bull While the IRS generally has three years from the time a taxpayer files his tax return to initiate an examination and to make an assessment there are countless exceptions that all but swallow up the general rule
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Extension of the Assessment Period
bull FATCA modified the assessment period rules in two major waysndash First it modified Code Sec 6501(c)(8) to include
violations of Code Sec 6038D andndash Second it added a new code section to Code Sec
6501 ndash Code Sec 6501(e)(1)(A) The latter concerns ldquosubstantial omissionsrdquo of income from returns
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Unlimited Assessment Period if No Form 8938 Filed
bull General rule The IRS has three years from the time a taxpayer files his tax return to initiate an audit and to propose adjustments
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Unlimited Assessment Period if No Form 8938 Filed
bull The first modification extends the assessment period indefinitely for not just Form 8938 but the entire tax return ifndash The specified individual fails to file Form 8938 orndash Files an incomplete Form 8938
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Unlimited Assessment Period if No Form 8938 Filed
bull Note well The extended assessment period applies even if the taxpayerrsquos failure to file Form 8938 was a mere oversight
bull However the taxpayer gets a minor reprieve if his failure to file Form 8938 was unintentional In such cases the extended assessment period applies only to Form 8938 and not to the entire tax return
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Six-Year Assessment Period for Certain Income Omissions
bull The second modification extends the assessment period for substantial omissions of income from returns from three to six years
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Six-Year Assessment Period for Certain Income Omissions
bull The IRS may assess tax within six years of the time the taxpayer filed a Form 1040 if(1) The taxpayer omits from gross income amounts that otherwise should have been included and(2) Either
a Such omitted amount exceeds 25 of the gross income actually reported on the return or
b Such omitted amount is attributable to one or more SFFAs that were required to be reported under Code Sec 6038D hellip and exceeds $ 5000
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Your Lifeline for Form 8938Module V
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Your Lifeline for Form 8938Table of Contents
bull Module I The Elements (Part I)
bull Module II The Elements (Part II)
bull Module III Reporting Thresholds
bull Module IV Penalties amp Statute of Limitations
bull Module V Comparison of Form 8938 amp FBAR Requirements
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Comparison of Form 8938 amp FBAR RequirementsForm 8938 Statement of
Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)Who Must File Specified individuals which
include US citizens resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold
US persons which include US citizens resident aliens trusts estates and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Reporting Threshold (Total Value of Assets)
$50000 on the last day of the tax year or $75000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10000 at any time during the calendar year
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
When do you have an interest in an account or asset
If any income gains losses deductions credits gross proceeds or distributions from holding or disposing of the account or asset are or would be required to be reported included or otherwise reflected on your income tax return
Financial interest you are the owner of record or holder of legal title the owner of record or holder of legal title is your agent or representative you have a sufficient interest in the entity that is the owner of record or holder of legal title
Signature authority you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
What is Reported Maximum value of specified foreign financial assets which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets
Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to US dollars using the end of the taxable year exchange rate and report in US dollars
Use periodic account statements to determine the maximum value in the currency of the accountConvert to US dollars using the end of the calendar year exchange rate and report in US dollars
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and Financial Accounts
(FBAR)When Due By due date including
extension if any for income tax return
Received by June 30 (no extensions of time granted)
Where to File File with income tax return pursuant to instructions for filing the return
File electronically through FinCENrsquos BSA E-Filing System The FBAR is not filed with a federal tax return
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Comparison of Form 8938 amp FBAR Requirements
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Penalties Up to $10000 for failure to disclose and an additional $10000 for each 30 days of non-filing after IRS notice of a failure to disclose for a potential maximum penalty of $60000 criminal penalties may also apply
If non-willful up to $10000 if willful up to the greater of $100000 or 50 percent of account balances criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial (deposit and custodial) accounts held at foreign financial institutions
Yes Yes
Financial account held at a foreign branch of a US financial institution
No Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Financial account held at a US branch of a foreign financial institution
No No
Foreign financial account for which you have signature authority
No unless you otherwise have an interest in the account as described above
Yes subject to exceptions
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign stock or securities held in a financial account at a foreign financial institution
The account itself is subject to reporting but the contents of the account do not have to be separately reported
The account itself is subject to reporting but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account
Yes No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign partnership interests
Yes No
Indirect interests in foreign financial assets through an entity
No Yes if sufficient ownership or beneficial interest (ie a greater than 50 percent interest) in the entity
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
Yes as to both foreign accounts and foreign non-account investment assets
Yes as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value
Yes Yes
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign hedge funds and foreign private equity funds
Yes No
Foreign real estate held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Foreign real estate held through a foreign entity
No but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directly
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
Precious Metals held directly
No No
Personal property held directly such as art antiques jewelry cars and other collectibles
No No
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Types of Foreign Assets and Whether They are Reportable
Form 8938 Statement of Specified Foreign Financial
Assets
FinCEN Form 114 Report of Foreign Bank and
Financial Accounts (FBAR)
lsquoSocial Securityrsquo- type program benefits provided by a foreign government
No No
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-
Tel 9737837000MJDeBlisDeBlisLawcom
wwwDeBlisLawcom
- Your Lifeline for Form 8938 Module I
- Your Lifeline for Form 8938
- Your Lifeline for Form 8938 (2)
- Why Do We Pay Taxes
- Form 8938
- Form 8938 (2)
- Form 8938 (3)
- A Labyrinth of Overlapping Rules
- Form 8938 (4)
- Form 8938 (5)
- Form 8938 (6)
- Form 8938 (7)
- Form 8938 (8)
- Form 8938 (9)
- Form 8938 (10)
- Form 8938 (11)
- Form 8938 (12)
- Form 8938 (13)
- Form 8938 (14)
- Form 8938 (15)
- Form 8938
- Form 8938 (16)
- Slide 23
- Your Lifeline for Form 8938 Module II
- Your Lifeline for Form 8938 (3)
- Form 8938 (17)
- Form 8938 (18)
- Form 8938 (19)
- Category 1 Foreign Financial Accounts Maintained at FFI
- Category 1 Foreign Financial Accounts Maintained at FFI (2)
- Category 1 Foreign Financial Accounts Maintained at FFI (3)
- Category 1 Foreign Financial Accounts Maintained at FFI (4)
- Category 1 Foreign Financial Accounts Maintained at FFI (5)
- Category 1 Foreign Financial Accounts Maintained at FFI (6)
- Category 1 Foreign Financial Accounts Maintained at FFI (7)
- Category 1 Foreign Financial Accounts Maintained at FFI (8)
- Category 1 Foreign Financial Accounts Maintained at FFI (9)
- Category 2 SFFAs Other Than Foreign Financial Accounts
- Category 2 SFFAs Other Than Foreign Financial Accounts (2)
- Category 2 SFFAs Other Than Foreign Financial Accounts (3)
- A Trap for the Unwary
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony
- Foreign Real Estate Oh The Agony (2)
- Foreign Real Estate Oh The Agony (3)
- Gray Area
- Form 8938 (20)
- Slide 48
- Your Lifeline for Form 8938 Module III
- Your Lifeline for Form 8938 (4)
- Form 8938 (21)
- Form 8938 (22)
- Form 8938 (23)
- Description of Reporting Thresholds
- Description of Reporting Thresholds (2)
- Description of Reporting Thresholds (3)
- Description of Reporting Thresholds (4)
- Description of Reporting Thresholds (5)
- Description of Reporting Thresholds (6)
- Description of Reporting Thresholds (7)
- Reporting Specified Foreign Financial Assets on other Forms Fil
- Reporting Specified Foreign Financial Assets on other Forms Fil (2)
- Slide 63
- Your Lifeline for Form 8938 Module IV
- Your Lifeline for Form 8938 (5)
- Penalties for Violating Code Sec 6038D
- Penalties for Violating Code Sec 6038D (2)
- Penalties for Violating Code Sec 6038D (3)
- Penalties for Violating Code Sec 6038D (4)
- Penalties for Violating Code Sec 6038D (5)
- Hypothetical
- Hypothetical (2)
- Hypothetical (3)
- Hypothetical (4)
- Hypothetical (5)
- Hypothetical (6)
- Hypothetical (7)
- Hypothetical (8)
- Hypothetical (9)
- Penalties for Violating Code Sec 6038D (6)
- Presumption of Violation
- Presumption of Violation (2)
- Reasonable Cause Defense to Code Sec 6038D Penalties
- Reasonable Cause Defense to Code Sec 6038D Penalties (2)
- Beware of the accuracy-related penalty
- Beware of the accuracy-related penalty (2)
- Beware of the accuracy-related penalty (3)
- Penalties Doubled In Certain Situations
- Penalties Doubled In Certain Situations (2)
- Donrsquot Forget the Criminal Penalties
- Donrsquot Forget the Criminal Penalties (2)
- Extension of the Assessment Period
- Extension of the Assessment Period (2)
- Unlimited Assessment Period if No Form 8938 Filed
- Unlimited Assessment Period if No Form 8938 Filed (2)
- Unlimited Assessment Period if No Form 8938 Filed (3)
- Six-Year Assessment Period for Certain Income Omissions
- Six-Year Assessment Period for Certain Income Omissions (2)
- Slide 99
- Your Lifeline for Form 8938 Module V
- Your Lifeline for Form 8938 (6)
- Comparison of Form 8938 amp FBAR Requirements
- Comparison of Form 8938 amp FBAR Requirements (2)
- Comparison of Form 8938 amp FBAR Requirements (3)
- Comparison of Form 8938 amp FBAR Requirements (4)
- Comparison of Form 8938 amp FBAR Requirements (5)
- Types of Foreign Assets and Whether They are Reportable
- Types of Foreign Assets and Whether They are Reportable (2)
- Types of Foreign Assets and Whether They are Reportable (3)
- Types of Foreign Assets and Whether They are Reportable (4)
- Types of Foreign Assets and Whether They are Reportable (5)
- Types of Foreign Assets and Whether They are Reportable (6)
- Types of Foreign Assets and Whether They are Reportable (7)
- Types of Foreign Assets and Whether They are Reportable (8)
- Types of Foreign Assets and Whether They are Reportable (9)
- Types of Foreign Assets and Whether They are Reportable (10)
- Slide 117
-