Part II of Form 8938 to Report Other Foreign Assets to IRS

Part II of Form 8938 to Report Other Foreign Assets to IRS

Part II of Form 8938 to Report Other Foreign Assets to IRS

Part II of Form 8938 to Report Other Foreign Assets 

Internal Revenue Service Form 8938 is used to report Specified Foreign Financial Assets each year to the IRS in accordance with FATCA (Foreign Account Tax Compliance Act). Unlike many other international information reporting forms, Form 8938 is submitted as part of the Tax Return. This is different than the FBAR (which is submitted directly on the FinCEN website) and/or other IRS forms which are submitted to specific locations (Form 3520 is filed in Ogden, UT for example). One complexity of Form 8938 is Part II determining what assets qualify as “Other Foreign Assets” in order to summarize them for Part II of Form 8938 — let’s take a look:

Other Foreign Assets for Form 8938

Unlike the FBAR (which Form 8938 is often compared to), the reporting of foreign assets includes — but is not limited to — foreign financial accounts. The IRS defines Other Foreign Assets as the following:

      • Other Specified Foreign Financial Assets

      • Examples of other specified foreign financial assets include the following, if they are held for investment and not held in a financial account.

      • Stock issued by a foreign corporation.

      • A capital or profits interest in a foreign partnership.

      • A note, bond, debenture, or other form of indebtedness issued by a foreign person. • An interest in a foreign trust or foreign estate.

      • An interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement with a foreign counterparty.

      • An option or other derivative instrument with respect to any of these examples or with respect to any currency or commodity that is entered into with a foreign counterparty or issuer.

      • Assets held for investment.

      • You hold an asset, including a partnership interest, for investment if you do not use it in, or hold it for use in, the conduct of any trade or business. Stock is not considered used or held for use in the conduct of a trade or business. If you are required to file Form 8938, in addition to reporting retirement and pension accounts and nonretirement savings accounts described in Regulations section 1.1471-5(b)(2)(i), you must report retirement and pension accounts, nonretirement savings accounts, and accounts satisfying conditions similar to those described in Regulations section 1.1471-5(b)(2)(i) that are otherwise excluded from the definition of a financial account by an applicable Model 1 IGA or Model 2 IGA.

      • Thus, such accounts are subject to uniform reporting rules and must be reported without regard to whether the account is maintained in a jurisdiction with an IGA.

The Part II of Form 8938 Requirements are All-Encompassing

When a person is unsure whether their foreign assets qualify as an “other foreign asset” for reporting on Form 8938, it is generally recommended to err on the side of caution when completing Part II of Form 8938.

IRS International Tax Amnesty Programs

The Form 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:

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.

Our International Tax Lawyers Represent Clients Worldwide

Our International Tax Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure. 

Contact our firm today for assistance.

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