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Form 8938 And Other IRS

Lief Simon by Lief Simon
Mar 22, 2012
in Offshore
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Every American With Interests Offshore Needs This Information Before April 15

The new IRS Form 8938 is official. If you meet the requirements, you must complete the form starting this year. Another document to add to the pile. Another measure of control by the U.S. government. And another, maybe big reason to think about no longer being an American.

Instructions for filing Form 8938 can be found here.

I covered the basics for this new filing requirement in the January issue of my Simon Letter. If you’re living in the United States, you have to complete the form if you have foreign financial assets of more than US$50,000 on the last day of the year or of more than US$75,000 at any point during the year. These are the amounts for single filers. The amounts double for married couples filing joint returns.

If you live outside the United States, the threshold amounts move to US$200,000 on the last day and to US$300,000 during the year for singles and double that for married filing jointly.

Foreign financial assets are defined in the instructions for the form as “any financial account maintained by a foreign financial institution” and “to the extent held for investment and not held in a financial account, any stock or securities issued by someone that is not a U.S. person, any interest in a foreign entity, and any financial instrument or contract with an issuer or counterparty that is not a U.S. person.”

That definition seems to stretch to include every and any asset that isn’t real estate or gold held in your own name.

Assets don’t have to be reported on this form if they are reported elsewhere…specifically on Form 3520 for foreign trusts, Form 5471 for foreign corporations, and a few other more obscure forms. You still have to complete the 8938 if you’re completing the TD F 90-22.1, which you likely would be required to complete if you are completing the 8938. So some redundancies have been eliminated, but not all.

The important thing is that now, even if you’re not required to complete a Form 5471 for shares you hold of a foreign corporation, you still have to report the existence of those shares if you meet the overall value threshold for Form 8938. Invest US$50,001 as a minority shareholder in some private company in Ecuador, and you have to report it. Invest US$10,001 in five difference private companies outside the United States, and you have to report all five investments.

To state the obvious, this new form creates a big additional filing burden for anyone who is diversified offshore. Failure to file the form subjects you to a US$10,000 penalty with further penalties up to a maximum of US$50,000 if you receive notice from the IRS that they think you needed to file the form and didn’t.

Interestingly, if you can prove reasonable cause for not filing the form, the penalty is to be waived (in theory). However, the threat of a civil or criminal penalty in a foreign jurisdiction where the asset is held isn’t considered reasonable cause. In other words, the IRS doesn’t care if you could be put in jail in another country for disclosing the information they require you to disclose.

I predict that this form is going to amount to one more straw (and maybe the final straw) for many Americans who have been considering walking away from U.S. citizenship and thereby separating themselves from these kinds of draconian tactics. See the article on economic citizenship options in St. Kitts & Nevis in the March issue of The Simon Letter…

Lief Simon

P.S. Note that the filing deadline for U.S. tax returns this year is April 17, not April 15 (because April 15 is a Sunday and April 16 is something called “Emancipation Day”).

Editor’s Note: The special expanded March issue of Lief’s Simon Letter, in final stages of production now, features a comprehensive guide to filing requirements and obligations of Americans with interests offshore. If you have an offshore bank account, own an offshore corporation, have formed a foreign trust, or are doing business or earning an income in a foreign country, you want to have a copy of this invaluable guide. Here’s how to get one.

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Lief Simon

Lief Simon

Lief Simon has lived and worked on five continents and traveled to more than 60 countries. In his long career as a global property investor, Lief has also managed multimillion-dollar portfolios of rental properties, for others and for himself. He offers advice on international diversification in his twice-weekly Offshore Living Letter and monthly Simon Letter dispatches.

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