Part III, Form 8938: Tax Items Attributable to Foreign Assets

Part III, Form 8938: Tax Items Attributable to Foreign Assets

Part III, Form 8938 Tax Items

After completing the initial portion of the Internal Revenue Service Form 8938 — and before breaking down detailed information of each specific foreign financial asset in sections IV and V — the US Taxpayer is required to summarize tax items attributable to the specified foreign financial assets that will be identified in the subsequent sections of the Form. This is one key aspect of Form 8938 that distinguishes it from the FBAR (aka FinCEN Form 114)  — which does not require any type of summary or identification of the income associated with the assets being reported. Essentially, the Taxpayer must:

• • • Evaluate each category of asset;

    • Determine if there are tax items attributable to each asset;

    • Identify the amount of income reported per tax item;

    • Provide which tax form this income was reported on and the line number, and

    • Include reference to any schedule in line number as well

Part III Summary of Tax Items Attributable to Specified Foreign Financial Assets

The Form 8938 Part III requests very specific information about the income attributed to the reported assets, including:

• • • (a) Asset category

      • Foreign deposit and custodial accounts; or

      • Other Foreign Assets

    • (b) Tax item

      • Interest

      • Dividends

      • Royalties

      • Other income

      • Gains (Losses)

      • Deductions

    • (c) Amount Reported on Form or Schedule

    • (d) Form and Line

    • (e) Schedule and Line

Example of Part III Tax Item Reporting

Here is a quick example of how a tax item may have to be reported:

• • • Melinda has a foreign financial deposit account that generates $14,000 a year in interest income.

      • First, Melinda would have to identify whether the account is a deposit/custodial account or other foreign asset.

      • Next, Melinda would have to identify the tax item (interest) and the amount reported on the tax return (even foreign exempt interest income is included on the US tax return, and generally taxable under U.S. tax law)

      • Then, Melinda would have to identify where on form 1040 the interest income was included.

      • Finally, Melinda will identify that the interest income was also included on schedule B.

Form 8938/FATCA IRS 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:

• • • 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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