Alert Memo MARCH 12, 2012 NEW IRS FILING REQUIREMENT FOR U.S. EXECUTIVES WITH NON-U.S. COMPENSATION The U.S. Foreign Account Tax Compliance Act ( FATCA ), which was enacted by the U.S. Congress in 2010, has as its principal goal the prevention of tax evasion by U.S. taxpayers who hold non-u.s. assets. Unfortunately, the rules implementing this goal have a very broad reach and may require many U.S.-taxpayer executives with compensation awards based on foreign company stock or guaranteed or provided by a foreign company to file a new form with the Internal Revenue Service ( IRS ) as part of their 2011 tax returns, which are generally due on April 15, 2012. The new form, IRS Form 8938, and the instructions thereto (the Instructions ), which provide a detailed explanation of the filing requirements, are attached hereto. As indicated therein, the potential penalties for failures to file are up to $10,000 plus up to an additional $50,000 for failures to file after receipt of notice from the IRS, subject to a reasonable cause exception. 1 Specifically, the Instructions provide that foreign financial assets include any note, bond, debenture, or other form of indebtedness issued by a foreign person and any stock issued by a foreign corporation [or]... option or other derivative instrument with respect to such stock, if not used or held for use in the conduct of a trade or business and not held in a financial account. As a result, compensation arrangements that may subject U.S.-taxpayer executives to the new reporting requirements include the following common types of arrangements, subject to the minimum value thresholds described below: Equity compensation awards, including restricted stock, stock options, restricted stock units and phantom stock, of (or relating to stock of) a non-u.s. entity that is the employer or a parent of the employer; Deferred compensation arrangements for which the obligor is a non-u.s. entity; and 1 On February 8, 2012, the U.S. Treasury Department and the Internal Revenue Service released a lengthy and detailed preamble and proposed regulations under FATCA. The guidance can be found at http://www.irs.gov/pub/newsroom/reg- 121647-10.pdf, but it does not provide much assistance in connection with the application of the FATCA rules to compensation arrangements. Cleary Gottlieb Steen & Hamilton LLP, 2012. All rights reserved. This memorandum was prepared as a service to clients and other friends of Cleary Gottlieb to report on recent developments that may be of interest to them. The information in it is therefore general, and should not be considered or relied on as legal advice. Throughout this memorandum, "Cleary Gottlieb" and the "firm" refer to Cleary Gottlieb Steen & Hamilton LLP and its affiliated entities in certain jurisdictions, and the term "offices" includes offices of those affiliated entities.
Certain non-u.s. pension programs. For these purposes, U.S.-taxpayer executives includes U.S. citizens and U.S. resident aliens. There are reporting thresholds set forth in the Instructions. For example, married taxpayers filing joint returns and living in the U.S. are not required to file Form 8938 if the total value of their foreign financial assets (generally, the types of awards described above plus amounts held in accounts at foreign financial institutions) is $100,000 or less on the last day of the tax year and $150,000 or less on each day of the tax year. For married taxpayers filing joint returns and living outside the U.S., the equivalent thresholds are $400,000 and $600,000, respectively. For single taxpayers, the corresponding thresholds are $50,000 and $75,000 for those living in the U.S., and $200,000 and $300,000 for those living outside the U.S. The value of compensation awards for these purposes is generally defined only as the fair market value of the awards. No guidance is given concerning the treatment of vesting conditions, or the appropriate method for the valuation of options or other similar rights. There are special rules for the valuation of deferred compensation accounts and pension entitlements set forth in the instructions. Please feel free to contact any of your regular contacts at the firm or any of our partners and counsel listed under Executive Compensation and ERISA in the Practices section of our website (http://www.cgsh.com) if you have any questions. CLEARY GOTTLIEB STEEN & HAMILTON LLP 2
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Form 8938 (November 2011) Department of the Treasury Internal Revenue Service Name(s) shown on return Statement of Specified Foreign Financial Assets See separate instructions Attach to your tax return If you have attached additional sheets, check here Number, street, and room or suite no. (if a P.O. box, see instructions) City or town, province or state, and country (including postal code) Identifying number Draft as of 06/21/2011 OMB No. 1545-2195 Attachment Sequence No. 175 For tax year beginning, 20, and ending, 20 Note. All information must be in English. Show all amounts in U.S. dollars. Show currency conversion rates in Part I, line 6(2), or Part II, line 6(2). Type of filer a Specified individual (1) Married filing a joint return (2) Other individual b Specified domestic entity (1) Partnership (2) Corporation (3) Trust (4) Estate Check this box if this is an original, amended, or supplemental Form 8938 for attachment to a previously filed return..... Part I Foreign Deposit and Custodial Accounts (see instructions) If you have more than one account to report, attach a continuation sheet with the same information for each additional account (see instructions). 1 Type of account Deposit Custodial 2 Account number or other designation 3 Check all that apply a Account opened during tax year b Account closed during tax year c Account jointly owned with spouse d No tax item reported in Part III with respect to this asset 4 Maximum value of account during tax year..................... $ 5 Did you use a foreign currency exchange rate to convert the value of the account into U.S. dollars?.. Yes No 6 If you answered Yes to line 5, complete all that apply. (1) Foreign currency in which account is maintained (2) Foreign currency exchange rate used to convert to U.S. dollars (3) Source of exchange rate used if not from U.S. Treasury Financial Management Service 7 Name of financial institution in which account is maintained 8 Mailing address of financial institution in which account is maintained. Number, street, and room or suite no. 9 City or town, province or state, and country (including postal code) Part II Other Foreign Assets (see instructions) Note. If you reported specified foreign financial assets on Forms 3520, 3520-A, 5471, 8621, or 8865, you do not have to include the assets on Form 8938. You must complete Part IV. See instructions. If you have more than one asset to report, attach a continuation sheet with the same information for each additional asset (see instructions). 1 Description of asset 2 Identifying number or other designation 3 Complete all that apply a Date asset acquired during tax year, if applicable.................. b Date asset disposed of during tax year, if applicable................. c Check if asset jointly owned with spouse d Check if no tax item reported in Part III with respect to this asset 4 Maximum value of asset during tax year (check box that applies) a $0 - $50,000 b $50,001 - $100,000 c $100,001 - $150,000 d $150,001 - $200,000 e If more than $200,000, list value........................ $ 5 Did you use a foreign currency exchange rate to convert the value of the asset into U.S. dollars?... Yes No For Paperwork Reduction Act Notice, see the separate instructions. Cat. No. 37753A Form 8938 (11-2011)
Form 8938 (11-2011) Page 2 Part II Other Foreign Assets (continued) 6 If you answered Yes to line 5, complete all that apply. (1) Foreign currency in which asset (2) Foreign currency exchange rate used to is denominated convert to U.S. dollars Draft as of 06/21/2011 (3) Source of exchange rate used if not from U.S. Treasury Financial Management Service 7 If asset reported in Part II, line 1, is stock of a foreign entity or an interest in a foreign entity, report the following information. a Name of foreign entity b Type of foreign entity (1) Partnership (2) Corporation (3) Trust (4) Estate c Check if foreign entity is a PFIC d Mailing address of foreign entity. Number, street, and room or suite no. e City or town, province or state, and country (including postal code) 8 If asset reported in Part II, line 1, is not stock of a foreign entity or an interest in a foreign entity, enter the following information for the asset. Note. If this asset has more than one issuer or counterparty, attach a continuation sheet with the same information for each additional issuer or counterparty (see instructions). a Name of issuer or counterparty Check if information is for Issuer Counterparty b Type of issuer or counterparty (1) Individual (2) Partnership (3) Corporation (4) Trust (5) Estate c Check if issuer or counterparty is a U.S. person Foreign person d Mailing address of issuer or counterparty. Number, street, and room or suite no. e City or town, province or state, and country (including postal code) Part III Summary of Tax Items Attributable to Specified Foreign Financial Assets (see instructions) Amount reported on Where reported Asset Category Tax item form or schedule Form and line Schedule and line I. Foreign Deposit and a Interest $ Custodial Accounts b Dividends $ c Royalties $ d Other income $ e Gains (losses) $ f Deductions $ g Credits $ II. Other Foreign Assets a Interest $ b Dividends $ c Royalties $ d Other income $ e Gains (losses) $ f Deductions $ g Credits $ Part IV Excepted Specified Foreign Financial Assets (see instructions) If you reported specified foreign financial assets on the following forms, check the appropriate box(es). Indicate number of forms filed. You do not need to include these assets on Form 8938 for the tax year. 3520 Number of forms 3520-A Number of forms 5471 Number of forms 8621 Number of forms 8865 Number of forms Form 8938 (11-2011)
Instructions for Form 8938 (November 2011) Statement of Specified Foreign Financial Assets Department of the Treasury Internal Revenue Service Section references are to the Internal Filing Form 8938 does not See Notice 2011-55, 2011-29 Revenue Code unless otherwise noted.! relieve you of the requirement I.R.B. 53, available at CAUTION to file Form TD F 90-22.1, http://www.irs.gov/irb/2011-29_irb/ Report of Foreign Bank and Financial ar06.html. You must now satisfy your General Instructions Accounts (FBAR), if you are filing obligation for any such prior tax Future developments. The IRS has otherwise required to file Form TD F year by filing Form 8938 for such created a page on IRS.gov for 90-22.1. prior year with your annual return for information about Form 8938 and its your current tax year. If you are Statute of limitations. If you fail to instructions, at www.irs.gov/ required to complete a Form 8938 for file Form 8938 or fail to report a form8938. Information about any your prior tax year and your current specified foreign financial asset that future developments affecting Form tax year, attach both forms to your you are required to report, the statute 8938 (such as legislation enacted income tax return for the current tax of limitations for the tax year may after we release it) will be posted on year. remain open for all or a part of your that page. income tax return until 3 years after Note. If you are filing Form 8938 for the date on which you file Form 8938. a prior year under this transitional What s New rule, check the box on Form 8938 to New reporting requirements. For Purpose of Form show it is being filed for a prior tax tax years beginning after March 18, Use Form 8938 to report your year. 2010, certain individuals must file specified foreign financial assets if new Form 8938 to report the the total value of all the specified Who Must File ownership of specified foreign foreign financial assets in which you Unless an exception applies, you financial assets if the total value of have an interest is more than the must file Form 8938 if you are a those assets exceeds an applicable appropriate reporting threshold. See specified person that has an interest threshold amount (the reporting Determining the Reporting Threshold in specified foreign financial assets threshold ). The reporting threshold That Applies to You, later. and the value of those assets is more varies depending on whether an than the applicable reporting individual lives in the United States or When and How To File threshold. See Determining the files a joint income tax return with his Attach Form 8938 to your annual Reporting Threshold That Applies to or her spouse. return and file by the due date You, later. Specified foreign financial assets (including extensions) for that return. A specified person includes any generally include the following assets. An annual return includes the specified individual or, to the extent Any financial account maintained following returns. provided in future regulations, a by a foreign financial institution. Form 1040. specified domestic entity. If the value To the extent held for investment Form 1120. of your specified foreign financial and not held in a financial account, Form 1065. assets is more than the appropriate any stock or securities issued by Form 1041. reporting threshold and no exception someone that is not a U.S. person, Form 1120-S. applies, file Form 8938 even if none any interest in a foreign entity, and Form 1040NR. of the specified foreign financial any financial instrument or contract assets affect your tax liability for the with an issuer or counterparty that is A reference to an annual return tax year. not a U.S. person. or income tax return in the For more information on who must instructions includes a reference to Exception if no income tax file and the types of foreign financial any return listed here, whether it is an TIP return required. If you do not assets that must be reported, see income tax return or an information have to file an income tax Who Must File, Specified Foreign return. return for the tax year, you do not Financial Assets, Interests in Transitional rule for 2011. Your have to file Form 8938, even if the Specified Foreign Financial Assets, obligation to file Form 8938 in 2011 is value of your specified foreign and Exceptions to Reporting, later. deferred to 2012 if you are an financial assets is more than the New failure-to-file and individual who satisfies all of the appropriate reporting threshold. accuracy-related penalties. If you following. Specified individual. You are a are required to file Form 8938 and fail You had a tax year that began after specified individual if you are one of to do so, or if you have an March 18, 2010. the following. understatement of tax or omission of You were required to file Form A U.S. citizen. income relating to a specified foreign 8938. A resident alien of United financial asset, you may owe a You filed an annual return before States for any part of the tax year penalty. See Penalties, later. Form 8938 was released. (but see Reporting Period, later). Dec 15, 2011 Cat. No. 55389W
A nonresident alien who makes an threshold only if the total value of rules on determining and applying the election to be treated as a resident your specified foreign financial assets appropriate foreign currency alien for purposes of filing a joint is more than $50,000 on the last day exchange rate. income tax return. of the tax year or more than $75,000 Value of an interest in a foreign A nonresident alien who is a bona at any time during the tax year. trust during the tax year. If you do fide resident of American Samoa or Taxpayers living abroad. If your not know or have reason to know Puerto Rico. See Pub. 570, Tax tax home is in a foreign country and based on readily accessible Guide for Individuals With Income you meet one of the presence abroad information the fair market value of From U.S. Possessions, for a tests described next, you satisfy the your interest in a foreign trust during definition of bona fide resident. reporting threshold if you are not filing the tax year, the value to be included Special rules for resident aliens. a joint return and the total value of in determining the total value of your You are a resident alien if you are your specified foreign financial assets specified foreign financial assets treated as a resident alien for U.S. tax is more than $200,000 on the last day during the tax year is the maximum purposes under the green card test or of the tax year or more than $300,000 value of your interest in the foreign the substantial presence test. For at any time during the tax year. trust. See Valuing interests in foreign more information, see Pub. 519, U.S. If you are married and file a joint trusts in Reporting Maximum Value, Tax Guide for Aliens. If you qualify as income tax return, you satisfy the later, for rules on determining the a resident alien under either rule, you reporting threshold only if the total maximum value of an interest in a are a specified individual even if you value of all specified foreign financial foreign trust. elect to be taxed as a resident of a assets you or your spouse owns is foreign country under the provisions Value of an interest in a foreign more than $400,000 on the last day of a U.S. income tax treaty. If you estate, foreign pension plan, and of the tax year or more than $600,000 have to file Form 8938, attach it to foreign deferred compensation at any time during the tax year. your Form 1040NR. plan. If you do not know or have Presence abroad. You satisfy reason to know based on readily Specified domestic entity. The IRS the presence abroad test if you are accessible information the fair market anticipates issuing regulations that one of the following. value of your interest in a foreign will require a domestic entity to file A U.S. citizen who has been a estate, foreign pension plan, or Form 8938 if the entity is formed or bona fide resident of a foreign country foreign deferred compensation plan availed of to hold specified foreign or countries for an uninterrupted during the tax year, the value to be financial assets and the value of period that includes an entire tax included in determining the total value those assets exceeds the appropriate year. of your specified foreign financial reporting threshold. Until the IRS A U.S. citizen or resident who is assets during the tax year is the fair issues such regulations, only present in a foreign country or market value, determined as of the individuals must file Form 8938. countries at least 330 full days during last day of the tax year, of the Determining the Reporting any period of 12 consecutive months currency and other property Threshold That Applies to You that ends in the tax year being distributed during the tax year to the reported. specified person as a beneficiary or If you satisfy the reporting threshold participant. If you received no discussed next that applies to you Determining the Total Value of distributions during the tax year and and no exception applies, file Form Your Specified Foreign do not know or have reason to know 8938 with your income tax return. Financial Assets based on readily accessible Unmarried taxpayer living in the You must figure the total value of the information the fair market value of United States. If you are not specified foreign financial assets in your interest, use a value of zero for married and not living abroad, you which you have an interest to the interest. satisfy the reporting threshold only if determine if you satisfy the reporting the total value of your specified Asset with no positive value. If the threshold that applies to you. To foreign financial assets is more than maximum value of a specified foreign determine if you have an interest in a $50,000 on the last day of the tax financial asset is less than zero, use specified foreign financial asset, see year or more than $75,000 at any a value of zero for the asset. Interests in Specified Foreign time during the tax year. Financial Assets, later. Assets reported on another form. Married taxpayers filing a joint Valuing specified foreign financial In determining if you satisfy the income tax return and living in the assets. The value of a specified reporting threshold that applies to United States. If you are married foreign financial asset for purposes of you, include the value of all specified and you and your spouse file a joint determining the total value of foreign financial assets, even if they income tax return and do not live specified foreign financial assets in are reported on another form listed in abroad, you satisfy the reporting which you have an interest during the Part IV. See Part IV. Excepted threshold only if the total value of tax year or on the last day of the tax Specified Foreign Financial Assets, your specified foreign financial assets year is the asset s fair market value. later. is more than $100,000 on the last day For purposes of figuring the total Joint interests. If you jointly own an of the tax year or more than $150,000 value of specified foreign financial asset with someone else, the value at any time during the tax year. assets, the value of a specified that you use to determine the total Married taxpayers filing separate financial asset denominated in value of all of your specified foreign income tax returns and living in a foreign currency must be first financial assets depends on whether the United States. If you are determined in the foreign currency the other owner is your spouse and, if married, file a separate income tax and then converted to U.S. dollars. so, whether your spouse is a return from your spouse, and do not See Foreign currency conversion in specified individual and whether you live abroad, you satisfy the reporting Reporting Maximum Value, later, for file a joint or separate return. -2- Instructions for Form 8938 (2011)
Joint ownership with spouse In addition, I own a specified My spouse and I file separate filing joint income tax return. If foreign financial asset valued at income tax returns, jointly and you and your spouse file a joint $25,000. You have to file Form individually own specified foreign income tax return and, therefore, 8938. You own both the specified financial assets, and do not live would file one combined Form 8938 foreign financial asset owned by the abroad. On the last day of the tax for the tax year, include the value of disregarded entity and the specified year, my spouse and I jointly own a the asset jointly owned with your foreign financial asset you own specified foreign financial asset spouse only once to determine the directly, for a total value of $55,000. with a value of $90,000. My spouse total value of all of the specified You satisfy the reporting threshold of has a separate interest in a foreign financial assets you and your more than $50,000 on the last day of specified foreign financial asset spouse own. the tax year. with a value of $10,000. I have a Joint ownership with spouse separate interest in a specified My spouse and I do not live filing separate income tax return. foreign financial asset with a value abroad and file a joint income tax If you and your spouse are specified of $1,000. You do not have to file return. We jointly own a single individuals and you each file a Form 8938 but your spouse does. specified foreign financial asset separate annual return, include Your spouse has an interest in valued at $60,000. You and your one-half of the value of the asset specified foreign financial assets in spouse do not have to file Form 8938. jointly owned with your spouse to the amount of $55,000 on the last You do not satisfy the reporting determine the total value of all of your day of the tax year. This is one-half of threshold of more than $100,000 on specified foreign financial assets. the value of the asset that you jointly the last day of the tax year or more own, $45,000, plus the entire value of Joint ownership with a spouse than $150,000 at any time during the the asset that your spouse separately who is not a specified individual or tax year. owns, $10,000. You have an interest someone other than a spouse. My spouse and I do not live in specified foreign financial assets in Each joint owner includes the entire abroad, file a joint income tax the amount of $46,000 on the last value of the jointly owned asset to return, and jointly and individually day of the tax year. This is one-half of determine the total value of all of that own specified foreign financial the value of the asset that you jointly joint owner s specified foreign assets. On the last day of the tax own, $45,000, plus the entire value of financial assets. year, my spouse and I jointly own a the asset that you separately own, Examples. These examples may specified foreign financial asset $1,000. Your spouse satisfies the help you decide if you have to file with a value of $90,000. My spouse reporting threshold of more than Form 8938. has a separate interest in a $50,000 on the last day of the tax I am not married and do not live specified foreign financial asset year. You do not satisfy the reporting abroad. The total value of my with a value of $10,000. I have a threshold of more than $50,000 on specified foreign financial assets separate interest in a specified the last day of the tax year or more does not exceed $49,000 during foreign financial asset with a value than $75,000 at any time during the the tax year. You do not have to file of $1,000. You and your spouse tax year. Form 8938. You do not satisfy the have to file a combined Form 8938. My spouse and I are U.S. reporting threshold of more than You and your spouse have an citizens but live abroad for the $50,000 on the last day of the tax interest in specified foreign financial entire tax year and file a joint year or more than $75,000 at any assets in the amount of $101,000 on income tax return. The total value time during the tax year. the last day of the tax year. This is of our combined specified foreign I am not married and do not live the entire value of the specified financial assets on any day of the abroad. I sold my only specified foreign financial asset that you jointly tax year is $150,000. You and your foreign financial asset on October own, $90,000, plus the value of the spouse do not have to file Form 8938. 15, when its value was $125,000. asset that your spouse separately You do not satisfy the reporting You have to file Form 8938. You owns, $10,000, plus the value of the threshold of more than $400,000 on satisfy the reporting threshold even asset that you separately own, the last day of the tax year or more though you do not hold any specified $1,000. You and your spouse satisfy than $600,000 at any time during the foreign financial assets on the last the reporting threshold of more than tax year for married individuals who day of the tax year because you did $100,000 on the last day of the tax live abroad and file a joint income tax own specified foreign financial assets year. return. of more than $75,000 at any time during the tax year. My spouse and I do not live My spouse and I live abroad and abroad, file separate income tax file separate income tax returns. I am not married and do not live returns, and jointly own a specified My spouse is not a specified abroad. An unrelated U.S. resident foreign financial asset valued at individual. On the last day of the and I jointly own a specified $60,000 for the entire year. Neither tax year, my spouse and I jointly foreign financial asset valued at you nor your spouse has to file Form own a specified foreign financial $60,000. You each have to file Form 8938. You each use one-half of the asset with a value of $150,000. My 8938. You each satisfy the reporting value of the asset, $30,000, to spouse has a separate interest in a threshold of more than $50,000 on determine the total value of specified specified foreign financial asset the last day of the tax year. foreign financial assets that you each with a value of $10,000. I have a I am not married and do not live own. Neither of you satisfies the separate interest in a specified abroad. I own an entity reporting threshold of more than foreign financial asset with a value disregarded for tax purposes, $50,000 on the last day of the tax of $60,000. You have to file Form which owns one specified foreign year or more than $75,000 at any 8938 but your spouse, who is not a financial asset valued at $30,000. time during the tax year. specified individual, does not. You Instructions for Form 8938 (2011) -3-
have an interest in specified foreign It is engaged (or holds itself out as Interests in assets held by financial assets in the amount of being engaged) primarily in the disregarded entities. If you are the $210,000 on the last day of the tax business of investing, reinvesting, or owner of a disregarded entity, you year. This is the entire value of the trading securities, partnership have an interest in any specified asset that you jointly own, $150,000, interests, commodities, or any foreign financial assets owned by the plus the entire value of the asset that interest (including a futures or forward disregarded entity. you separately own, $60,000. You contract or option) in such securities, Interests in jointly owned assets. satisfy the reporting threshold for a partnership interests, or commodities. A joint owner of an asset has an married individual living abroad and A foreign financial institution interest in the entire asset. For filing a separate return of more than includes investment vehicles such as special rules for interests in assets $200,000 on the last day of the tax foreign mutual funds, foreign hedge jointly owned by spouses, see Joint year. funds, and foreign private equity interests in Determining the Total Specified Foreign Financial funds. Value of Your Specified Foreign Assets Other specified foreign financial Financial Assets, earlier, and Specified foreign financial assets assets. Examples of other specified Reporting the value of jointly owned include the following assets. foreign financial assets include the assets, in Reporting Maximum Value, following, if they are held for later. 1. Financial accounts maintained investment and not held in a financial by a foreign financial institution. account. Interests in assets held in financial 2. The following foreign financial Stock issued by a foreign accounts. If you have an interest in assets if they are held for investment corporation. a financial account that holds and not held in an account A capital or profits interest in a specified foreign financial assets, you maintained by a financial institution: foreign partnership. do not have to report the assets held a. Stock or securities issued by A note, bond, debenture, or other in the account. someone that is not a U.S. person, form of indebtedness issued by a Interests in assets generating b. Any interest in a foreign entity, foreign person. certain unearned income of and An interest in a foreign trust or children. If you file Form 8814, c. Any financial instrument or foreign estate. Parents Election To Report Child s contract that has an issuer or An interest rate swap, currency Interest and Dividends, with your counterparty that is not a U.S. swap, basis swap, interest rate cap, income tax return to elect to include person. interest rate floor, commodity swap, in your gross income certain equity swap, equity index swap, credit unearned income of your child (the For foreign financial assets default swap, or similar agreement kiddie tax election), you have an excepted from reporting, see with a foreign counterparty. interest in any specified foreign Exceptions to Reporting, later. An option or other derivative financial asset held by the child. Foreign social security. An instrument with respect to any of interest in a social security, social these examples or with respect to any Interests in assets held by entities insurance, or other similar program of currency or commodity that is entered that are not disregarded entities. a foreign government is not a into with a foreign counterparty or In most cases, you do not own an specified foreign financial asset. issuer. interest in any specified foreign financial asset held by a partnership, Financial account. A financial Assets held for investment. You corporation, trust, or estate solely as account is any depository or custodial hold an asset, including a partnership a result of your status as a partner, account maintained by a foreign interest, for investment if you do not shareholder, or beneficiary. financial institution as well as any use it in, or hold it for use in, the equity or debt interest in a foreign conduct of any trade or business. Interests in assets held by grantor financial institution (other than Stock is not considered used or trust. If you are considered the interests that are regularly traded on held for use in the conduct of a trade owner under the grantor trust rules of an established securities market). A or business. any part of a trust, you have an specified foreign financial asset interest in any specified foreign includes a financial account Interests in Specified Foreign financial asset held by that part of the maintained by a financial institution Financial Assets trust you are considered to own. For that is organized under the laws of a You have an interest in a specified exceptions from reporting for owners U.S. possession (American Samoa, foreign financial asset if any income, of certain domestic investment or Guam, the Northern Mariana Islands, gains, losses, deductions, credits, bankruptcy trusts, see Domestic Puerto Rico, or the U.S. Virgin gross proceeds, or distributions from investment trusts and Domestic Islands). holding or disposing of the asset are bankruptcy trusts in Exceptions to or would be required to be reported, Reporting, later. Foreign financial institution. In most cases, a foreign financial included, or otherwise reflected on Interests in foreign estates and institution is any financial institution your income tax return. foreign trusts. An interest in a that is not a U.S. entity and satisfies You have an interest in a specified foreign trust or a foreign estate is not one or more of the following. foreign financial asset even if there a specified foreign financial asset It accepts deposits in the ordinary are no income, gains, losses, unless you know or have reason to course of a banking or similar deductions, credits, gross proceeds, know based on readily accessible business. or distributions from holding or information of the interest. If you It holds financial assets for the disposing of the asset included or receive a distribution from the foreign account of others as a substantial reflected on your income tax return trust or foreign estate, you are part of its business. for this tax year. considered to know of the interest. -4- Instructions for Form 8938 (2011)
Interests in foreign pension plans In most cases, you must use the maximum value of the entire and foreign deferred compensation the U.S. Treasury Department s asset. If you file Form 8814, you must plans. Report in Part II your interest Financial Management Service report any specified foreign financial in the foreign pension plan or foreign foreign currency exchange rate asset your child owns and include the deferred compensation plan. Do not for purchasing U.S. dollars. maximum value of the entire asset. separately report the assets held by You can find this rate on the plan. See Valuing interests in www.fms.treas.gov/intn.html. If no Other joint ownership. If you are foreign estates, foreign pension Financial Management Service a joint owner of a specified foreign plans, and foreign deferred exchange rate is available, you must financial asset and you cannot use compensation plans in Reporting use another publicly available foreign one of the special rules for married Maximum Value, later. currency exchange rate for individuals who file a joint tax return, purchasing U.S. dollars and disclose you must report the specified foreign Reporting Period the rate on Form 8938. financial asset and include the Unless an exception applies, the maximum value of the entire asset. Currency determination date. reporting period for Form 8938 is your Use the currency exchange rate on Valuing financial accounts. You tax year. the last day of the tax year to figure may rely on periodic account Exception for partial tax years of the maximum value of a specified statements for the tax year to report a specified individuals. If you are a foreign financial asset or the value of financial account s maximum value specified individual for less than the a specified foreign financial asset for unless you know or have reason to entire tax year, the reporting period is the purpose of determining the total know based on readily accessible the part of the year that you are a value of your specified foreign information that the statements do not specified individual. financial assets to see whether you reflect a reasonable estimate of the Example 1. John is a calendar have met the reporting threshold. Use maximum account value during the year taxpayer. The Form 8938 this rate even if you sold or otherwise tax year. reporting period begins on January 1 disposed of the specified foreign Valuing other specified foreign and ends on December 31. financial asset before the last day of financial assets. In most cases, the tax year. Example 2. Agnes was a single, you may use the value of a specified Reporting the value of jointly calendar year taxpayer who died on foreign financial asset, other than a owned assets. If you own an asset March 6. The Form 8938 reporting financial account, as of the last day of jointly with one or more persons, you period begins on January 1 and ends the tax year, unless you know or have must report the asset s maximum on March 6. reason to know based on readily value as follows. accessible information that the value Example 3. George, a calendar Married specified individuals does not reflect a reasonable year taxpayer, is not a U.S. citizen or filing a joint income tax return. If estimate of the maximum value of the married. George arrived in the United you are married and you and your asset during the tax year. States on February 1 and satisfied spouse file a joint income tax return, the substantial presence test for the report any specified foreign financial Example. I have publicly-traded tax year. The Form 8938 reporting asset that you jointly own only once foreign stock not held in a financial period begins on George s U.S. and include the maximum value of account that has a fair market residency starting date, February 1, the entire asset (and not just the value as of the last day of the tax and ends on December 31. maximum value of your interest in the year of $100,000, although, based asset). Also, you must report any on daily price information that is Reporting Maximum Value specified foreign financial asset that readily available, the 52-week high You must report the maximum value either you or your spouse separately trading price for the stock results during the tax year of each specified owns and include the maximum value in a maximum value of the stock foreign financial asset reported on of the entire asset. If you and your during the tax year of $150,000. If Form 8938. In most cases, the value spouse file a joint income tax return you are required to file Form 8938, of a specified foreign financial asset that includes Form 8814, you must the maximum value of the foreign is its fair market value. An appraisal report any specified foreign financial stock to be reported is $150,000, by a third party is not necessary to asset your child owns only once and based on readily available information estimate the maximum fair market include the maximum value of the of the stock s maximum value during value during the year. See Valuing entire asset. the tax year. financial accounts and Valuing other specified foreign financial assets, Married specified individuals Valuing interests in foreign trusts. later. filing separate income tax returns. If you are a beneficiary of a foreign If you are married and you and your trust, the maximum value of your Assets with no positive value. If spouse are specified individuals who interest in the trust is the sum of the the maximum value of a specified file separate income tax returns, both following amounts. foreign financial asset is less than you and your spouse report any The value of all of the cash or other zero, use a value of zero as the specified foreign financial asset that property distributed during the tax maximum value of the asset. you jointly own on your separate year from the trust to you as a Foreign currency conversion. If Forms 8938, and both you and your beneficiary, and your specified foreign financial asset spouse must include the maximum The value using the valuation is denominated in a foreign currency value of the entire asset on your tables under section 7520 of your during the tax year, the maximum separate Forms 8938. You also must right as a beneficiary to receive value of the asset must be report any specified foreign financial mandatory distributions as of the last determined in the foreign currency asset that you own individually on day of the tax year. and then converted to U.S. dollars. your separate Form 8938 and include Instructions for Form 8938 (2011) -5-
Valuing interests in foreign Duplicative reporting. You do not Domestic bankruptcy trusts. If you estates, foreign pension plans, and have to report a specified foreign are considered the owner under the foreign deferred compensation financial asset on Form 8938 if you grantor trust rules of any part of a plans. If you have an interest in a report it on one or more of the domestic liquidating trust under foreign estate, foreign pension plan, following forms that you timely file Regulations section 301.7701-4(d) or foreign deferred compensation with the IRS the same tax year. that is created under chapter 7 or plan, the maximum value of your Form 3520, Annual Return To chapter 11 of the Bankruptcy Code, interest is the fair market value of Report Transactions With Foreign you do not have to report any your beneficial interest in the assets Trusts and Receipt of Certain Foreign specified foreign financial asset held of the estate, pension plan, or Gifts. by the part of the trust you are deferred compensation plan as of the Form 5471, Information Return of considered to own. last day of the tax year. If you do not U.S. Persons With Respect To Bona fide resident of a U.S. know or have reason know based on Certain Foreign Corporations. possession. If you are a bona fide readily accessible information the fair Form 8621, Information Return by resident of a U.S. possession market value as of the last day of the a Shareholder of a Passive Foreign (American Samoa, Guam, the tax year, the maximum value is the Investment Company or Qualified Northern Mariana Islands, Puerto fair market value, determined as of Electing Fund. Rico, or the U.S. Virgin Islands) who the last day of the tax year, of the Form 8865, Return of U.S. Persons is required to file Form 8938, you do cash and other property distributed With Respect to Certain Foreign not have to report the following during the tax year to you as a Partnerships. specified foreign financial assets on beneficiary or participant. If you Form 8891, U.S. Information Form 8938. received no distributions during the Return for Beneficiaries of Certain A financial account maintained by tax year and do not know or have Canadian Registered Retirement a financial institution organized under reason to know based on readily Plans. the laws of the U.S. possession of accessible information the fair market Instead, you must identify on Form which you are a bona fide resident. value of your interest as of the last 8938 the form(s) on which you report A financial account maintained by a day of the tax year, use a value of the specified foreign financial asset branch of a financial institution not zero as the maximum value of the and how many of these forms you organized under the laws of the U.S. asset. file. See Part IV. Excepted Specified possession of which you are a bona Foreign Financial Assets, later. fide resident, if the branch is subject Exceptions to Reporting to the same tax and information You are not required to report a You must include the value of reporting requirements that apply to a specified foreign financial asset if one! the assets reported on these financial institution organized under of the following exceptions applies. CAUTION forms in determining whether the laws of the U.S. possession. Excepted financial accounts. The you satisfy the reporting threshold Stock or securities issued by an following financial accounts and the that applies to you. See Determining entity organized under the laws of the assets held in such accounts are not the Reporting Threshold That Applies U.S. possession of which you are a specified foreign financial assets and to You, earlier. bona fide resident. do not have to be reported on Form An interest in an entity organized Foreign grantor trusts. If you are 8938. under the laws of the U.S. possession considered the owner under the of which you are a bona fide resident. 1. A financial account that is grantor trust rules of any part of a A financial instrument or contract maintained by a U.S. payer, such as foreign trust, you do not have to held for investment, provided each a domestic financial institution. In report any of the specified foreign issuer or counterparty that is not a general, a U.S. payer also includes a financial assets held by the part of the U.S. person is either an entity domestic branch of a foreign bank or trust you are considered to own if you organized under the laws of the U.S. foreign insurance company and a satisfy the following conditions. possession of which you are a bona foreign branch or foreign subsidiary of You report the trust on a Form fide resident or a bona fide resident of a U.S. financial institution. 3520 that you timely file with the IRS the U.S. possession of which you are 2. A financial account that is for the same tax year. a bona fide resident. maintained by a dealer or trader in The trust timely files Form 3520-A, securities or commodities if all of the Annual Information Return of Foreign Penalties holdings in the account are subject to Trust With a U.S. Owner, with the IRS You may be subject to a penalty if the mark-to-market accounting rules for the same tax year. you fail to file a correct Form 8938 on for dealers in securities or an election Instead, you must identify on Form time or if you have an understatement under section 475(e) or (f) is made for 8938 how many of these forms you of tax or omission of income relating all of the holdings in the account. file. See Part IV. Excepted Specified to a specified foreign financial asset. Foreign Financial Assets, later. Other excepted specified foreign Failure-to-File Penalty financial assets. You do not have Domestic investment trusts. If If you are required to file Form 8938 to report any specified foreign you are considered the owner under but do not file a complete and correct financial asset that is not held in a the grantor trust rules of any part of a Form 8938 by the due date (including financial account if the asset is domestic widely-held fixed investment extensions), you may be subject to a subject to the mark-to-market trust under Regulations section penalty of $10,000. accounting rules for dealers in 1.671-5, you do not have to report Continuing failure to file. If you do securities or commodities or an any specified foreign financial asset not file a correct and complete Form election under section 475(e) or (f) is held by the part of the trust you are 8938 within 90 days after the IRS made for the asset. considered to own. mails you a notice of the failure to file, -6- Instructions for Form 8938 (2011)