Calculating Form 8938 Maximum Account Value (New) 2022

Calculating Form 8938 Maximum Account Value (New) 2022

Form 8938 Maximum Account Value

Determining the maximum value of foreign accounts or assets can be very difficult for certain types of foreign assets that need to be reported to the Internal Revenue Service on Form 8938 (Statement of Specified Foreign Financial Assets) in accordance with IRC 6038D. For some types of assets such as Foreign Bank Accounts, it is relatively straightforward — presuming the foreign financial institutions provide the US Taxpayer with information sufficient for them to determine the value. For other types of assets that fluctuate throughout the day or do not have concrete values — such as funds, non-public stock, and other investments — it can be a much more complicated exercise. The Internal Revenue Service’s Form 8938 instructions provide some guidance on how to report the maximum account value for FATCA (Foreign Account Tax Compliance Act) purposes on the 8938 Form. Let’s take a look:

Form 8938 Maximum Account Value

Let’s walk through the IRS explanation of reporting Form 8938 maximum values.

As provided by the IRS:

Valuing Specified Foreign Financial Assets

• • • The value of a specified foreign financial asset for purposes of determining the total value of specified foreign financial assets in which you have an interest during the tax year or on the last day of the tax year is the asset’s fair market value. For purposes of figuring the total value of specified foreign financial assets, the value of a specified foreign financial asset denominated in a foreign currency must first be determined in the foreign currency and then converted to U.S. dollars. See Foreign Currency Conversion.

What does this Mean?

This is a general instruction that the Taxpayers are required to report the maximum value of any asset they own during the year and/or on the last day of the tax year. That value is first determined in foreign currency and then converted to the US Dollar.

Value of an Interest in a Foreign Trust During the Tax Year

• • • If you do not know or have reason to know based on readily accessible information the fair market value of your interest in a foreign trust during the tax year, the value to be included in determining the total value of your specified foreign financial assets during the tax year is the maximum value of your interest in the foreign trust. See Valuing Interests in Foreign Trusts, later, for rules on determining the maximum value of an interest in a foreign trust.

What does this Mean?

Valuing foreign trusts can be hard, but essentially the Taxpayer must determine what their interest is in the foreign trust to report for Form 8938 purposes.

Value of an Interest in a Foreign Estate, Foreign Pension Plan, etc.

• • • If you do not know or have reason to know based on readily accessible information the fair market value of your interest in a foreign estate, foreign pension plan, or foreign deferred compensation plan during the tax year, the value to be included in determining the total value of your specified foreign financial assets during the tax year is the fair market value, determined as of the last day of the tax year, of the currency and other property distributed during the tax year to you. If you received no distributions during the tax year and do not know or have reason to know based on readily accessible information the fair market value of your interest, use a value of zero for the interest.

What does this Mean?

In order to determine the value of foreign assets such as foreign pension plans and foreign estates, the information may not be accessible — so the IRS requires the Taxpayer to base it on the value of the distribution — and if no distribution was made and information is not otherwise available then the value may be reported as zero.

Asset With No Positive Value

• • • If the maximum value of a specified foreign financial asset is less than zero, use a value of zero for the asset.

What does this Mean?

Negative value assets are “rounded-up” to zero.

Joint Interest Valuation

• • • If you jointly own an asset with someone else, the value that you use to determine the total value of all of your specified foreign financial assets depends on whether the other owner is your spouse and, if so, whether your spouse is a specified individual and whether you file a joint or separate return.

    • Joint ownership with spouse filing joint income tax return. If you and your spouse file a joint income tax return and, therefore, would file one combined Form 8938 for the tax year, include the value of the asset jointly owned with your spouse only once to determine the total value of all of the specified foreign financial assets you and your spouse own.

What does this Mean?

Here is where it can get a bit confusing, and the reporting values will be impacted in part by whether or not the foreign asset is jointly owned with a spouse — and whether or not the spouses are filing joint or separate tax returns.

Form 8938/FATCA  IRS Amnesty Programs

TheForm 8938/FATCA Amnesty Programs are programs developed by the Internal Revenue Service to assist Taxpayers who are already out of compliance for non-reporting.

Some of the more common programs include:

• • • Voluntary Disclosure Program (VDP or “New” OVDP)

    • Streamlined Domestic Offshore Procedures

    • Streamlined Foreign Offshore Procedures

    • Delinquency Procedures

    • Reasonable Cause

Can I Just Start Filing Form 8938 This Year Instead?

No, unless the current year is the first year you had a Form 8938 Reporting requirement. If you had a prior year reporting requirement, but only begin to start filing in the current year (Filing Forward) it is illegal. In the world of offshore disclosure, this is referred to as a Quiet Disclosure. The IRS has warned taxpayers that if they get caught in a Quiet Disclosure situation, it may lead to willful penalties and even a criminal investigation by the IRS Special Agents.

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