U.S. Entities Obligated to File Form 8938

 

The Foreign Account Tax Compliance Act (“FATCA”) was signed into law by President Obama on March 18, 2010. This legislation introduced the obligation of Form 8938, Statement of Specified Foreign Financial Assets reporting for U.S. individual taxpayers. This form became applicable to individual taxpayers beginning with the 2011 tax year. However, the new law also left open the possibility that this expanded version of reporting would eventually be extended by the IRS to other entities.

Starting with the 2016 tax year, the IRS has extended the obligation to report specified foreign financial assets to certain domestic entities.

Prior to 2016, the reporting of specified foreign financial assets on Form 8938 only applied to individuals, provided that the value of the reportable foreign assets satisfied the prescribed thresholds. For tax years beginning on or after Jan. 1, 2016, the reporting requirement was expanded to apply to domestic corporations (including S corporations), partnerships and trusts that meet the definition of “specified domestic entities”.

Under the final treasury regulations, a “specified domestic entity” is generally defined to include a domestic corporation or partnership if:

The corporation or partnership is “closely held” (an 80% holding interest) by a U.S. citizen or resident;

(1) At least 50 percent of the corporation or partnership’s gross income for the taxable year is “passive” income (e.g., dividends, interest, rent, royalties, annuities, etc.) or at least 50 percent of the assets held by the corporation or partnership for the taxable year are assets that produce or are held for the production of passive income; and

(2) The total value of the entity’s specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
Thus, an example of a “specified domestic entity” where a Form 8938 would be required would be a domestic family partnership owned by U.S. family members that has a foreign portfolio.

Furthermore, the final regulations also extend the term “specified domestic entity” to include certain domestic trusts. A domestic trust will have a filing obligation if one or more of the trust’s current beneficiaries is a U.S. citizen or resident alien and the above asset value thresholds are surpassed.

Determining if you are required to file is a complex process. We are available to discuss and assist you in meeting your filing requirements and tax compliance under these new measures. Please do not hesitate to contact us at (212) 239-1931 or cjbyrne@byrnellc.com.