IRS Finalizes Foreign Financial Asset Reporting

The IRS issued final regulations under Section 6038D requiring individuals that are U.S. citizens and residents to file copies of Form 8938 with their tax return to report their interest in "specified foreign financial assets," such as foreign financial accounts, stocks, bonds, and other financial instruments and contracts issued by non-U.S. persons, to the extent that the value of such assets exceeds the applicable threshold amount.

The regulations finalize Temporary Regulations issued in 2011 that would have expired at the end of 2014. Proposed regulations addressing the application of these rules to domestic entities were not finalized, but will be finalized at a subsequent date.

The final regulations generally adopt the Temporary Regulations with very few changes. The IRS rejected nearly all of the comments and requests for exemptions or clarifications that were filed by taxpayers and commentators. One of the few changes made to the regulations was a provision exempting dual residents of the United States and a Treaty country from filing Form 8938 if, under the Treaty tie break rules, the dual resident would be considered a nonresident of the United States. The final regulations also made clear that non-vested interests in property received in connection with the performance of services do not have to be reported until such interests vest unless a Section 83(b) election has been made.

The IRS also clarified that a U.S. taxpayer holding specified foreign financial assets through a foreign or domestic disregarded entity must report such assets on the taxpayer's Form 8938, and that, where a U.S. individual holds foreign stocks and bonds in a foreign financial account, the foreign financial account and not the specific stocks and bonds held in such account must be reported on Form 8938.

See: Final Regulations.