Foreign Asset (FATCA) guidance from the IRS | Q&As

27 Apr

The IRS has posted Q&As on their website answering many of the most common questions regarding FATCA reporting (Form 8938, Statement of Specified Foreign Financial Assets.)

Here are some of the most common questions and the answers from the IRS:

 

Q: Must a taxpayer report foreign real estate on Form 8938?
A: Foreign real estate is not a specified foreign financial asset required to be reported on Form 8938. For example, a personal residence or a rental property does not have to be reported. If the taxpayer owns the property in his or her own name, reporting is not required.

 

** The key to understanding FATCA reporting requirements is to keep in mind what asset the taxpayer actually owns. If the real estate is held through a foreign entity, such as a corporation, partnership, trust, or estate, then the taxpayer owns an interest in the foreign entity and that interest is a specified foreign financial asset that is reported on Form 8938.

 

Q: I directly hold foreign currency (that is, the currency isn’t in a financial account.) Must I report this on Form 8938
A. Foreign currency is not a specified foreign financial asset and is not reportable on Form 8938.

 

Q: I have an interest in a foreign pension or deferred compensation plan. Must I report it on Form 8938? If so, do I value it?
A: If you have an interest in a foreign pension or deferred compensation plan, you must report this interest on Form 8938.

  • If you know the value: Its value on the last day of the taxable year.
  • If you don’t know the value: The amount of cash and/or value of other property distributed during the year; or
  • If you don’t know the value and didn’t receive a distribution during the year, use a value of zero

 

Q: I am a U.S. taxpayer and have earned a right to foreign social security. Must I report this on Form 8938?
A: The rights to receive the foreign equivalent of Social Security, social insurance benefits, or another similar program of a foreign government are not specified foreign financial assets and are not reportable.

 

Q: I am a beneficiary of a foreign estate. Do I need to report my interest in a foreign estate of Form 8938?
A: Yes. An interest in a foreign estate is a specified foreign financial asset.

 

Q: Is life insurance a reportable foreign asset?
A: Yes, if it has a cash surrender value.

 

** The IRS didn’t state how to value the policy. Presumably, it would be the cash surrender value.

 

Q: Is a Mexican residential trust a specified foreign financial asset?
A: The key to determining whether an asset is a reportable asset is to look to what is actually owned. Real estate is not a reportable asset, but an interest in a trust is a reportable asset. In this case, the taxpayer owns an interest in a trust, not the property itself.

 

Q: What about foreign assets owned by a single-member LLC?
A: Reporting requirements for entities other than individuals are in proposed regulations and will not be in effect until those regulations are finalized. The IRS anticipates having those regulations in place for tax years beginning after 2011.

 

To date, they have provided no guidance regarding single-member LLCs. Nevertheless, single-member LLCs that have not elected to be treated as corporations are disregarded entities and all income is treated as the income of the owner/member. Therefore, it would seem, the LLC should be disregarded for FATCA purposes and the assets held by the LLC should be reported by the owner.

 

Q: What about a Canadian RRSP?
A: A Canadian Registered Retirement Plan is treated as a pension and is a reportable asset. However, if the owner of  the account has made the election to defer the income in the plan, the owner must file Form 8891, which is one of the forms that counts as duplicative reporting.

 

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