Step-by-Step Guide to Form 8938 Foreign Asset Reporting 2021

Step-by-Step Guide to Form 8938 Foreign Asset Reporting

Step-by-Step Guide to Form 8938 Foreign Asset Reporting

Step-by-Step Guide to Form 8938 Foreign Asset Reporting: The Form 8938 is a relative newcomer in the world of IRS International Tax Law. The Form was developed in accordance with FATCA (Foreign Account Tax Compliance Act) — and acts as a counterpart to the FBAR (Foreign Bank and Financial Account Form aka FinCEN Form 114). The Form has multiple parts to it, and while the Form can be a burden and a headache to US Person Taxpayers — the Form 8938 is not as bad as some of the other international information reporting forms, such as Form 5471 or 3520-A. Let’s walk through each section of the Form 8938:

Part I Form 8938 Foreign Deposits & Custodial Accounts

Part I of form 8938 it Is used to provide a summary of the Internal Revenue Service regarding General information about the Foreign Deposit and Custodial Account Summary. Depending on which type of software the Taxpayer uses (if any) — the software will ordinarily calculate this information for you.

Specifically, Part I of Form 8938 requires:

• • • Number of deposit accounts (reported in Part V)

    • Maximum value of all deposit accounts

    • Number of custodial accounts (reported in Part V

    • Maximum value of all custodial

    • Were any foreign deposit or custodial accounts closed during the tax year?

One important aspect of the section of form 8938 is that depending on whether the Taxpayer is a US resident or a foreign resident — and married filing jointly for single/married filing separately — will determine what the threshold requirement is for you to file.

There is no need to file the form if Taxpayer does not meet the threshold requirements for Filing.

Part II Other Foreign Assets Summary

Part II a form 8938 refers to assets that are not included as foreign deposit and custodial accounts. For example, if the US taxpayer has foreign pension plans or stocks — those generally do not fall under foreign deposit and custodial accounts. Rather, they fall under the category of other foreign assets.

Unlike the bank and other accounts that are reported on Form 8938, Part I — the reporting for other foreign assets is more complex and detailed –but not by much. In other words, this section may still require reporting beyond what is required in part I, but overall it should not be too complicated.

Specifically, Part II of Form 8938 requires:

• • • Number of foreign assets (reported in Part Vl)

    • Maximum value of all assets (reported in Part Vl

    • Were any foreign assets acquired or sold during the tax year? (Yes/No)

Part III Summary of Tax Items Attributable to Specified Foreign Financial Assets

Unlike Parts I and II of form 8938 that focuses on the number of accounts and the maximum value of the accounts — form 8938 a par II focuses on the income and Tax Items associated with Specified Foreign Financial Assets. Specifically, this section require the Taxpayer to summarize tax items attributable to specified foreign financial assets.

Depending on the type of income and the different categories of income will determine where on part III of the 8938 Form will the foreign income generated from specified foreign financial assets be reported:

Specifically, Part III of Form 8938 requires:

• • • Interest

    • Dividends

    • Royalties

    • Other income

    • Gains (losses)

    • Deductions

Taxpayer must complete the section for each asset category: foreign deposit in custodial accounts and other foreign assets.

Part IV Excepted Specified Foreign Financial Assets

Part IV of the form 8938 refers to excepted specified foreign financial assets. Specifically, Taxpayers are required to identify if they reported excepted specified foreign financial assets on other forms. The reason being, is because if they are reported on other forms — and they (generally) may not have to be duplicated on form 8938.

Specifically, part IV of form 8938 refers to:

• • Form 3520 — gift and trust distributions

  • Form 3520-A — ownership of a foreign trust

  • Form 5471 — foreign corporations

  • Form 8621 — passive foreign investment companies (PFIC)

  • Form 8865 — foreign partnerships

Part V Detailed Information for Each Foreign Deposit and Custodial Account Included in the Part I Summary of Form 8938

Part V of Form 8938 requires the taxpayer to provide detailed information of each foreign deposit and custodial account included in the part I summary. In other words, the taxpayer must provide specific information regarding each account that was identified as a custodial or deposit account, such as:

• • • Type of account: Deposit or Custodial

    • Account number or other designation

    • Check all that apply

      • Account opened during tax year

      • Account closed during tax year

      • Account jointly owned with spouse

      • No tax item reported in Part III with respect to this asset

    • Maximum value of account during tax year

    • Did you use a foreign currency exchange rate to convert the value of the account into U.S. dollars? (Yes/No)

    • If you answered “Yes” to line 5, complete all that apply.

      • (a) Foreign currency in which account is maintained

      • (b) Foreign currency exchange rate used to convert to U.S. dollars

      • (c) Source of exchange rate used if not from U.S. Treasury Department’s Bureau of the Fiscal Service

    • Name of financial institution in which account is maintained b Global Intermediary Identification Number (GIIN) (Optional)

    • Mailing address of financial institution in which account is maintained.

      • Number, street, and room or suite no.

    • City or town, state or province, and country (including postal code)

Part VI Detailed Information for Each “Other Foreign Asset” Included in the Part II Summary of Form 8938

Part VI is similar to part V, but refers to detailed information for each “other foreign assets” included in the Part II Summary. In order to account for all the different type of other assets a Taxpayer may own, there are different types of reporting requirements for other assets:

• • • Description of asset

    • Identifying number or other designation

    • Complete all that apply.

      • Date asset acquired during tax year, if applicable

      • Date asset disposed of during tax year, if applicable

      • Check if asset jointly owned with spouse

      • Check if no tax item reported in Part III with respect to this asset 4

    • Maximum value of asset during tax year (check box that applies)

      • $0–$50,000

      • $50,001–$100,000

      • $100,001–$150,000

      • $150,001–$200,000

    • If more than $200,000, list value

    • Did you use a foreign currency exchange rate to convert the value of the asset into U.S. dollars? . . . (Yes/No)

      • If you answered “Yes” to line 5, complete all that apply

      • Foreign currency in which asset is denominated

      • Foreign currency exchange rate used to convert to U.S. dollars

      • Source of exchange rate used if not from U.S. Treasury Department’s Bureau of the Fiscal Service

      • If asset reported on line 1 is stock of a foreign entity or an interest in a foreign entity, enter the following information for the asset.

        • Name of foreign entity

        • GIIN (Optional)

        • Type of foreign entity

          • (1) Partnership

          • (2) Corporation

          • (3) Trust

          • (4) Estate

        • Mailing address of foreign entity.

          • Number, street, and room or suite no.

          • City or town, state or province, and country (including postal code)

        • If asset reported on line 1 is not stock of a foreign entity or an interest in a foreign entity, enter the following information for the asset.

          • Note: If this asset has more than one issuer or counterparty, attach a continuation statement with the same information for each additional issuer or counterparty. See instructions.

            • Name of issuer or counterparty

            • Counterparty Type of issuer or counterparty

              • (1) Individual

              • (2) Partnership

              • (3) Corporation

              • (4) Trust

              • (5) Estate

            • Check if issuer or counterparty is a U.S. person Foreign person

            • Mailing address of issuer or counterparty. Number, street, and room or suite no.

            • City or town, state or province, and country (including postal code)

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