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Tax Tip: Foreign Asset Tax Compliance Act

August 22, 2012

The IRS has created Form 8938 for purposes of disclosing U.S. owners of foreign financial assets if the value of such assets exceeds $50,000.

Form 8938 must be attached to and filed with the taxpayer’s annual return.  Most calendar year taxpayers will need to file a Form 8938 along with their 2011 tax returns.  Although the reporting requirement currently only applies to individual shareholders or owners of specified foreign assets the IRS anticipates issuing regulations that will require a domestic entity to file Form 8938 if the entity is formed to hold specified foreign assets.

Any individual shareholder holding specified foreign assets of $50,000 or more on the last day of the tax year or more than $75,000 at any time during the tax year must file Form 8938.  Married taxpayers filing joint income tax returns living in the United States satisfy the reporting threshold if the value of specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.

You have an interest in specified foreign financial assets if any income, gains, losses, deductions, credits, gross proceeds or distributions from holding or disposing of the asset are or would be required to be reported, included or otherwise reflected on your income tax return.   You are, also, deemed to have interest in a specified foreign financial asset even if there is no income, gains, losses, deductions, credits, gross proceeds or distributions from the holding or disposing of the asset included or reflected on your income tax return.

Dealers selling warranty contracts which are reinsured via Non Controlled Foreign Corporations (NCFC's), have direct ownership interest, and meet the above criteria would be required to comply under the tax legislation.   

You should consult with your tax advisor to determine whether you are required to file Form 8938.

 

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