Individuals must report specified foreign financial assets on new IRS Form 8938 for 2011 tax year.

A new information reporting form, Form 8938, Statement of Specified Foreign Financial Assets, was recently released by the IRS; temporary and proposed regulations have been released providing guidance for reporting these assets. This new form to report specified foreign financial assets for tax year 2011 will be filed by taxpayers with specific types and amounts of foreign financial assets or foreign accounts. The form will be filed with the annual individual income tax return and has the same due date (including extension). Initially the reporting will only apply to individuals, but to the extent provided in future IRS regulations, it will apply to specified domestic entities.

Form 8938 is required to be filed when the total value of specified foreign assets exceeds certain thresholds. 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. 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. On the other hand, 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.

It is important for taxpayers to determine whether they are subject to this new filing requirement. 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 nondisclosed assets can also be imposed. Special statute of limitation rules apply to Form 8938, which will also be explained in the instructions. Form 8938 is not required of individuals who do not have an income tax return filing requirement. Additionally, the filing of Form 8938 does not relieve anyone from the filing requirements of Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts with the U.S. Dept. of Treasury.

Form 8938, Statement of Specified Foreign Financial Assets (Nov. 2011) can be viewed on the IRS website at http://www.irs.gov/pub/irs-pdf/f8938.pdf. The Instructions for Form 8938 (Nov. 2011) can be viewed at http://www.irs.gov/pub/irs-pdf/i8938.pdf.