The Internal Revenue Service recently issued temporary regulations relating to the provisions of the Hiring Incentives to Restore Employment (HIRE) Act [Act] that require foreign financial assets to be reported to the 1RS. In particular, the temporary regulations provide guidance concerning the requirement that individuals attach a statement to their income tax return to provide required information on foreign financial assets in which they have an interest.
The Act creates new reporting requirements for individuals and domestic entities with a $50,000 specified foreign financial asset threshold. In addition, the Act specifically creates a new 30 percent withholding tax, effective January 1, 2013, on payments made to foreign financial institutions. [IRC Section 1471]
The temporary regulations are designed to provide preliminary guidance regarding priority issues involving the implementation of the new laws created under the Act, including but not limited to, procedures to be followed by participating foreign financial institutions in identifying U.S. accounts among their preexisting individual accounts and obligations of participating foreign financial institutions to report with respect to U.S. accounts.
As a general matter, a "specified person" must file Form 8938 if the person has an interest in one or more specified foreign financial asset, and those assets have an aggregate fair market value exceeding either $50,000 on the last day of the taxable year, or $75,000 at any time during the taxable year. For married specified individuals filing a joint annual return, the threshold amount is Sl00,000 on the last day of the taxable year, or $150,000 at any time during the taxable year.
Notably, the temporary regulations provide an increase in the reporting threshold in the case of a specified individual who is a qualified individual (generally an individual residing outside the United States). The regulations provide that such a qualified individual is not required to file Form 8938 unless the aggregate value of the specified foreign financial assets in which the individual has an interest exceeds $200,000 on the last day of the taxable year, or S 300,000 at any time during the taxable year. For married qualified individuals who file a joint annual return, the aggregate value threshold for filing is if either spouse has an interest that exceeds $400,000 on the last day of the taxable year, or $600,000 at any time during the taxable year.
Moreover, certain "specified foreign financial assets'' are excepted from the new reporting obligations. Assets reported by a specified person on certain other forms filed with the 1RS are not required to be separately identified on Form 8938. In addition, the value of specified foreign financial assets that qualify for this exception is included for purposes of determining whether the aggregate value of specified foreign financial assets in which a specified individual has an interest exceeds the applicable reporting threshold.
Another category of assets excepted from reporting are assets considered owned by a specified person who is treated as the owner of certain trusts. Additionally, certain assets held by a specified individual who is a bona fide resident of a U.S. territory are also excepted from reporting.
The temporary regulations define a specified individual as a U.S. citizen, a resident alien of the U.S., or a nonresident alien who has elected to be taxed as a U.S. resident.
The regulations also state that a specified person is generally considered to have an interest in a specified foreign financial asset if any income, gains, losses, deductions, credits, gross proceeds, or distributions attributable to the holding or disposition of the asset are or would be required to be reported, included, or otherwise reflected on the specified person's annual return filed with the 1RS (even if no income, gains, losses, deductions, credits, gross proceeds, or distributions are attributable to the asset for a particular taxable year).