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The IRS has issued final regulations on the application of the rules that require certain domestic entities to annually report their interest in certain foreign assets effective for tax years beginning after Dec. 31, 2015.

Previously only specified individuals, namely: US citizens, US resident aliens, or nonresidents electing to be taxed as a US resident, were required to disclose their interest in certain foreign financial instruments by attaching Form 8938 (Statement of Specified Foreign Assets) to their individual tax return. However, beginning Jan. 1, 2016, the IRS now requires specified domestic entities - partnerships, corporations, or trusts to also attach Form 8938 to their tax return.

A domestic corporation or partnership will be required to complete the disclosure if:

  • The corporation or partnership holds specified foreign financial assets such as: accounts with foreign financial institutions, stocks or securities issued by foreign persons, an interest in a foreign entity, that are in excess of $50,000 on the last day of the year or exceed $75,000 at any time during the year,

  • 80 percent or more of the corporation or partnership is owned by 1 individual, and

  • At least 50 percent of the gross income is passive income or 50 percent of the assets held are assets that produce passive income.

  • A trust will be required to complete the disclosure if:
  • The trust holds specified foreign financial assets that are in excess of $50,000 on the last day of the year or exceed $75,000 at any time during the year and

  • Has current income beneficiary that is a specified person such as a U.S citizen, resident alien or a corporation or partnership described above. A current income beneficiary is any beneficiary that may receive an income or principal distribution from the trust or a person that holds a general power of appointment that is exercisable during the year.

  • Penalties for not complying with these expanded disclosure rules are severe, starting at $10,000 for the non-filing of the form.

    For more information or questions on this topic, please contact your local UHY LLP professional, or visit us on the web at www.uhy-us.com.

    By Joe Pyrc, CPA