Tax & Accounting Blog

IRS Postpones Information Reporting by Domestic Entities for Specified Foreign Financial Assets

Information Reporting for Wealth Management, International Reporting & Compliance, Trust Tax, Trusts September 27, 2013

On January 23, 2013, the IRS issued Notice 2013-10. The Notice postpones the date that domestic entities, including trusts, will be required to report their interests in specified foreign financial assets on Form 8938.

Background

Code § 6038D was enacted by section 511 of the Hiring Incentives to Restore Employment Act (the HIRE Act). It applies to taxable years beginning after March 18, 2010.

Section 6038D(a) requires an individual who holds any interest in a specified foreign financial asset during any taxable year to attach a statement to that individual’s tax return for the year to report the information identified in section 6038D(c) if the aggregate value of all such assets in which the individual holds an interest exceeds $50,000 (or such higher amount as the Secretary may specify) for such taxable year.

Section 6038D(f) authorizes the Secretary to issue regulations or other guidance applying the provisions of section 6038D to any domestic entity as if the domestic entity were an individual, if the domestic entity is formed or availed of for purposes of holding, directly or indirectly, specified foreign financial assets.

On December 19, 2011, the Internal Revenue Service and the Department of the Treasury published temporary regulations providing guidance to individuals required to report specified foreign financial assets with their annual return pursuant to section 6038D. The IRS and the Treasury Department also published a notice of proposed rulemaking that cross-referenced those temporary regulations and also included proposed regulations.

Prop.  Reg. §1.6038D-6 sets out the conditions under which a domestic entity will be considered a specified domestic entity and, therefore, required to report specified foreign financial assets in which the entity holds an interest. Prop. Reg. §1.6038D-6 is proposed to apply to taxable years beginning after December 31, 2011.

IRS Postpones Reporting for Domestic Entities

The IRS and the Treasury Department intend that, when final regulations are issued under section 6038D, those final regulations will modify the effective/applicability date of Prop. Reg. §1.6038D-6. Reporting by domestic entities of interests in specified foreign financial assets will not be required before the date specified by final regulations, which will not be earlier than taxable years beginning after December 31, 2012.

The effect of Notice 2013-10 is that domestic entities, including trusts, did not have to file Form 8938 with their tax year 2012 federal income tax returns. The first year that domestic entities will have to file the form will depend on when the IRS issues final regulations, and on what date those regulations specify as the effective date. Stay tuned.

Form 8938 does not replace or otherwise affect a taxpayer’s obligation to file a Report of Foreign Bank and Financial Accounts (FBAR). Therefore, notwithstanding the temporary relief granted by Notice 2013-10, taxpayers still might need to file an FBAR.