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IRS NEWSWIRE WASHINGTON—The Internal Revenue Service in coming days will release a new information reporting form that taxpayers will use starting this coming tax filing season to report specified foreign financial assets for tax year 2011.

Form 8938 (Statement of Specified Foreign Financial Assets) will be filed by taxpayers with specific types and amounts of foreign financial assets or foreign accounts. It is important for taxpayers to determine whether they are subject to this new requirement because the law imposes significant penalties for failing to comply.

The Form 8938 filing requirement was enacted in 2010 to improve tax compliance by U.S. taxpayers with offshore financial accounts. Individuals who may have to file Form 8938 are U.S. citizens and residents, nonresidents who elect to file a joint income tax return and certain nonresidents who live in a U.S. territory.

Form 8938 is required when the total value of specified foreign assets exceeds certain thresholds.  For example, a married couple living in the U.S. and filing a joint tax return would not file Form 8938 unless their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.

The thresholds for taxpayers who reside abroad are higher. For example in this case, a married couple residing abroad and filing a joint return would not file Form 8938 unless the value of specified foreign assets exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

Instructions for Form 8938 explain the thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted, and what information must be provided.

Form 8938 is not required of individuals who do not have an income tax return filing requirement.

The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR (Report of Foreign Bank and Financial Accounts). 

Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification.  A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed. Special statute of limitation rules apply to Form 8938, which are also explained in the instructions.

Form 8938, the form’s instructions, regulations implementing this new foreign asset reporting, and other information to help taxpayers determine if they are required to file Form 8938 can be found on the FATCA page of irs.gov.

The Internal Revenue Service Dec. 14 released temporary regulations (T.D. 9567)relating to the provisions of the Hiring Incentives to Restore Employment (HIRE) Act that require foreign financial assets to be reported to IRS for taxable years beginning after March 18, 2010.

The temporary regulations provide guidance concerning the requirement that individuals attach a statement to their income tax return on foreign financial assets in which they have an interest. The temporary regulations affect individuals required to file Form 1040, U.S. Individual Income Tax Return, and certain individuals required to file Form 1040-NR, Nonresident Alien Income Tax Return.

The temporary regulations also serve as the text of proposed regulations contained in a cross-reference notice of proposed rulemaking (REG-130302-10). The proposed regulations describe requirements for certain domestic entities to report foreign financial assets in the same manner as an individual.

This document is unpublished, but on 12/19/2011 it is scheduled to be published.

The Internal Revenue Service announced in Action on Decision 2011-05 that it will not acquiesce on a U.S. Tax Court finding that, after weighing each of the 11 badges of fraud equally, the service did not establish taxpayers' intent to fraudulently evade taxes.

In Norris v. Commissioner, T.C. Memo. 2011-161, the Tax Court found that the service was only able to prove four badges of fraud in regard to William and Sharon Norris's failure to pay taxes on the income from illegal gambling machines in their convenience store in 1996.

William pleaded guilty to tax evasion for 1998, and IRS issued a notice of deficiency claiming the pair failed to report income for 1996 and 1998. While the Tax Court found the couple was collaterally estopped from claiming they intended to evade taxes for 1998, it said the service failed to prove they intended to evade the 1996 taxes, as well.