If you are required to report interests in foreign assets to the IRS, the international tax team at LSL CPAs wants to update you on the final regulations provided by the IRS (T.D. 9706). The regulations finalize temporary regulations (T.D. 9567) issued in 2011, although there are some changes to be pointed out.
Reporting Foreign Assets
Enacted as part of the Foreign Account Tax Compliance Act, Sec. 6038D requires individuals to report interests in specified foreign financial assets when filing their federal income tax returns for tax years beginning after March 18, 2010. In order to report these interests, IRS Form 8938, Statement of Specified Foreign Financial Assets, needs to be used.
The international tax team at LSL CPAs can handle filing these forms. By working with a tax professional with international experience and the needed expertise to execute these forms, your reporting requirements will be covered.
Specified Foreign Assets include the following:
- Foreign bank and financial accounts
- Interest in certain foreign trusts & foreign estates
- Stock issued by foreign corporations
- Foreign partnerships
- Notes, bonds, debentures, or other debt issued by a foreign person
- Interest rate swaps, currency swaps, and other similar agreements with a foreign counterparty
- Certain foreign derivatives
The Special Foreign Assets reporting requirement is triggered by a statutory threshold of $50,000 in aggregate value of all foreign financial holdings during the tax year. The IRS is authorized to change the amounts.
Current thresholds for taxpayers living in the United States are as follows:
- For single taxpayers and married taxpayers filing separately: $50,000 on the last day of the year or $75,000 anytime during the year.
- For married taxpayers filing jointly: $100,000 on the last day of the year or $150,000 anytime during the year.
For taxpayers living abroad, the thresholds are as follows:
- For single taxpayers and married taxpayers filing separately: $200,000 on the last day of the year or $300,000 anytime during the year.
- For married taxpayers filing jointly: $400,000 on the last day of the year or $600,000 anytime during the year.
A significant change in the final regulations is the addition of an exception for dual-resident taxpayers who claim to be taxed as residents of a treaty partner country. Such an exception can be achieved through the timely filing of Form 1040NR, U.S. Nonresident Alien Income Tax Return with an attached Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).
Foreign Assets & The Future
Another change from the temporary regulations amends the foreign currency conversion rules to permit a taxpayer to rely on a foreign currency conversion shown on a periodic financial account statement. The IRS indicated in the preamble to the regulations that it is considering the proper treatment for virtual currency like Bitcoins, but no decisions have yet to be made.
LSL CPAs understands if the information provided above seems complicated. It is hard for any non-tax professional to fully comprehend it and utilize effectively. Our international tax team is here to help.
It is important to note that this article presents only a partial view of the subject matter. It does not claim or attempt to be comprehensive or perfectly accurate. To learn more about how these issues might apply to your particular international accounts or financial holdings, please call LSL CPAs international tax accountant Yana Weaver at 714.672.0022.
