Academic journal article Journal of Accountancy

Final Rules Govern Reporting of Specified Foreign Financial Assets: The Regulations Provide an Exception for Dual-Resident Taxpayers Taxed as Residents of a Treaty Partner Country; IRS Requests Comments on Virtual Currency

Academic journal article Journal of Accountancy

Final Rules Govern Reporting of Specified Foreign Financial Assets: The Regulations Provide an Exception for Dual-Resident Taxpayers Taxed as Residents of a Treaty Partner Country; IRS Requests Comments on Virtual Currency

Article excerpt

Individuals who are required to report interests in foreign financial assets to the IRS received guidance in final regulations issued in December. The regulations finalize temporary regulations (T.D. 9567) issued in 2011, with some changes.

Sec. 6038D, enacted as part of the Foreign Account Tax Compliance Act, requires individuals to report interests in specified foreign financial assets (SFFAs) when filing their federal income tax returns for tax years beginning after March 18, 2010, using Form 8938, Statement of Specified Foreign Financial Assets. SFFAs include, among other things, interests in:

* Foreign bank and financial accounts;

* Foreign trusts and foreign estates;

* Stock issued by foreign corporations;

* Foreign partnerships;

* Notes, bonds, debentures, or other debt issued by a foreign person;

* Interest rate swaps, currency swaps, and other similar agreements with a foreign counterparty; and

* Certain foreign derivatives.

The IRS is also authorized under Sec. 6038D to apply the reporting requirement to any domestic entity that is formed or availed of principally to avoid reporting (a specified domestic entity). When it issued the 2011 temporary regulations, the IRS also issued Prop. Regs. Sec. 1.6038D-6, under which specified domestic entities would be required to report SFFAs. However, until that proposed regulation is finalized, the requirement to report SFFAs applies only to individual taxpayers.

The SFFA reporting requirement is triggered by a statutory threshold of $50,000 in aggregate value of SFFAs during the tax year, with the IRS authorized to set higher amounts. As provided by the regulations, the current thresholds for taxpayers living in the United States are:

* For single taxpayers and married taxpayers filing separately: $50,000 on the last day of the year or $75,000 anytime during the year; and

* For married taxpayers filing jointly: $ 100,000 on the last day of the year or $150,000 anytime during the year.

For taxpayers living abroad, the thresholds are:

* For single taxpayers and married taxpayers filing separately: $200,000 on the last day of the year or $300,000 anytime during the year; and

* For married taxpayers filing jointly: $400,000 on the last day of the year or $600,000 anytime during the year. …

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