New Regulations On Foreign Financial Account Reporting

The IRS issued temporary regulations under the recently enacted section 6038D, Reporting of Specified Foreign Financial Assets.  Previously the IRS issued interim guidance in Notice 2011-55 and has also published draft Form 8938 instructions.  The statute and regulations are effective for tax years beginning after March 18, 2010. 

In general, section 6038D requires individual taxpayers with an interest in a “specified foreign financial asset” during the taxable year to attach a disclosure statement to their income tax return for any year in which the aggregate value of all such assets is greater than $50,000. The nature of the information required is similar, although not identical, to the information disclosed on Form TD F 90-22.1 Foreign Bank Account Reporting (FBAR).  Individuals who fail to make the required disclosures are subject to a penalty of $10,000 for the taxable year.

The temporary regulations are over 60 pages in length and include guidance in several areas including:

• An increase in the reporting threshold for specified individuals living outside of the U.S.
• Treatment of jointly owned assets
• Treatment of beneficial interests in foreign trusts or estates
• Valuation guidelines
• Specified categories of assets that are excepted from reporting under section 6038D