The IRS has adopted final regulations that provide guidance on the reporting requirements imposed by the Hiring Incentives to Restore Employment (HIRE) Act for “specified foreign financial assets.” The regulations specifically address the requirement to attach a statement to your income tax return that provides information on specified foreign financial assets in which you have an interest.
The HIRE Act imposes additional reporting and disclosure requirements for taxpayers with any interest in a “specified foreign financial asset” if the aggregate value of all such assets exceeds $50,000. Penalties are provided for failure to comply with these requirements. These provisions of the HIRE Act are commonly referred to as the Foreign Account Tax Compliance Act (FATCA).
GUIDANCE ON REPORTING REQUIREMENTS
The final regulations modify the temporary regulations in a number of ways, including those discussed below:
Dual resident taxpayers. A dual resident taxpayer is exempt from the FATCA reporting requirements if his or her United States tax liability is determined as if he or she were a nonresident alien, and if the dual resident taxpayer claims a treaty benefit as a nonresident.
Assets related to the performance of personal services. The final rules clarify that if you have nonvested interests in property received in connection with the performance of personal services, you are not required to report them. If a property is transferred to you in connection with the performance of personal services and you make a valid election to include the excess of the fair market value at the time of transfer over the amount (if any) paid for the transferred property in gross income, you are deemed to have an interest in the property on the date of its transfer.
Assets held by a disregarded entity. If you own a foreign or domestic entity that is a disregarded entity, you are treated as having an interest in any specified foreign financial assets held by the disregarded entity. As a result, you must include the value of the assets attributed to you through the disregarded entity to determine whether you meet the reporting thresholds under FATCA. If the threshold amount is met, you must report the assets on Form 8938, Statement of Foreign Financial Assets.
Jointly owned assets. The final regulations clarify if you are a joint owner of specified foreign financial assets and are not married to the other owner, you must include the full value of the asset in determining whether the aggregate value of your foreign financial assets exceed the applicable reporting thresholds. Under this scenario, you must report the full value of the asset, rather than your interest in the asset, on Form 8938.
Joint owners who are married to each other but file separate returns must report the full value of the asset, rather than only the value of his or her interest in the asset, on Form 8938.
Retirement and non-retirement savings accounts. Under the final regulations, consistent reporting is required with respect to retirement and pension accounts and certain nonretirement savings accounts by modifying the definition of a financial account. This is true even if your account is excluded from the definition of a financial account under an applicable Model 1 or Model 2 intergovernmental agreement (IGA).
Financial assets issued by person organized under laws of a U.S. possession. Specified foreign financial assets include stock, securities, financial instruments, and contracts that are held for investment and not held in an account maintained by a financial institution. They are issued by a person organized under the laws of a United States possession.
Assets with no positive value during the year. If you own a specified foreign financial asset with no positive value during the year, the maximum fair market value is treated as zero.
Foreign currency. Two changes are made to the valuation rules relating to foreign currency:
A foreign currency conversion shown on a periodic financial account statement may be relied on to determine the financial account’s maximum value unless you have actual knowledge, or reason to know based on readily accessible information, that the statements do not reflect a reasonable estimate of the maximum account value during the taxable year.
Foreign currency rates are now issued by the Treasury Department’s Bureau of the Fiscal Service.
Because these regulations became effective on December 12 2014, it is important that you have a complete understanding of your obligations if you have an interest in a specified foreign financial asset. Please contact to our office for more information.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, information contained in this article is not intended by TOPC Potentia P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.