IRS issues Final Regulations with respect to foreign financial assets (Form 8938)


The Final rules do not significantly alter previous guidance

On December 12, 2014, the US Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) released final regulations implementing Section 6038D, which requires individuals to report interests in specified foreign financial assets (SFFAs) using Form 8938, Statement of Foreign Specified Assets when filing their federal income tax returns. Section 6038D was enacted and added to the Internal Revenue Code by the Hiring Incentives to Restore Employment Act (the ‘HIRE Act’) in March 2010. It is effective for tax years beginning after March 18, 2010. These regulations finalize temporary regulations issued in December of 2011. See PwC Global Watch (December 21, 2011), Global IRW Newsbrief (December 23, 2011), and PwC Asset Management Alert (February 2012) for a comprehensive overview of the rules and temporary regulations.

While the final regulations largely mirror the temporary guidance, there are some clarifications and modifications worth noting, including rules:

  • Clarifying the treatment of nonvested property transferred in connection with the performance of services under Section 83
  • Easing the reporting requirements for dual-resident taxpayers claiming treaty benefits as a resident of a foreign country
  • Clarifying reporting requirements for owners of disregarded entities holding SFFAs
  • Clarifying the reporting requirements for joint owners of SFFAs
  • Expanding the definition of ‘financial account’

The IRS also had issued Prop. Reg. Section 1.6038D-6 in conjunction with the December 2011 temporary regulations which required certain closely held domestic entities to report their SFFAs for tax years beginning after December 31, 2011. However, the final regulations did not adopt the proposed guidance. Thus, the Form 8938 filing obligation will continue to apply only to individuals until the proposed regulations are finalized.

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