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Tax & Assurance Guidance

New Reporting Requirement for Ownership of Specified Foreign Financial Assets

Posted on February 15, 2012 by

Sue Tuson

Sue Tuson

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For years beginning after March 18, 2010 (for most individuals this will be calendar year-end 2011), certain individuals must file new Form 8938, Statement of Specified Foreign Financial Assets (“SFFA’s”).

What are SFFA’s?

Any depository or custodial account maintained by a foreign financial institution.

Equity or debt interest in a foreign financial institution (other than interests regularly traded on an established securities market).

Financial accounts maintained by a financial institution organized under the laws of a US possession (American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, or the US Virgin Islands).

Any of the following held for investment and not held in a financial account:

  • Stock issued by a foreign corporation
  • A capital or profits interest in a foreign partnership
  • A  note, bond, debenture, or other form of indebtedness issued by a foreign person
  • An interest in a foreign trust or foreign estate
  • An interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement with a foreign counterparty or issuer
  • An option or other derivative instruments with respect to any of the examples above or with respect to any currency or commodity that is entered into with a foreign counterparty or issuer

Who Must File

Whether a taxpayer needs to file will depend on filing status, tax home location, and the total value of the SFFA’s owned (see attached chart).  There is an exception if  the taxpayer has no income tax return filing requirement even if the value of the  SFFA’s  is more than the appropriate filing threshold.

Duplicative reporting

If you have reported SFFA’s on one or more of the following forms that were timely filed, you do not have to list the asset again on Form 8938, however, you must indicate in Part IV, the forms that were filed and the number of forms filed:

  • Form 3530, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts
  • Form 5471, Information Return of US Persons With Respect To Certain Foreign Corporations
  • Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund
  • Form 8865, Return of US Person With Respect to Certain Foreign Partnerships
  • Form 8891, US Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans

Filing Form 8938 does not relieve a taxpayer from the requirement to file Form TD F 90-22., Report of Foreign Bank and Financial Accounts (“FBAR”).

When and How To File

Form 8938 is used to report SFFA’s.  Form 8938 should be filed as an attachment to the taxpayer’s annual income tax return and filed by the due date including extensions for that return.


Statute of Limitations

If a taxpayer fails to file Form 8938 or fails to report an SFFA that was required to be reported, the statute of limitations for the tax year may remain open for all or part of the income tax return until 3 years after the date on which the Form 8938 is filed.

If a taxpayer fails to include in gross income an amount relating to one or more SFFA’s and the amount omitted is more than $5,000, tax can be assessed at any time within six years after the taxpayer’s return has been filed.


Failure to file a timely and correct Form 8938, or if there is an understatement of tax or omission of income related to an SFFA, may result in a penalty.  The failure to file penalty is $10,000.  Continued failure to file a correct and complete Form 8938 within 90 days of an IRS request can result in an additional penalty of $10,000 for each 30-day period (or part of a period) during which the failure continues.  The maximum failure to file penalty is $50,000.

Accuracy Related Penalty

If there is an underpayment of tax as a result of transactions involving an undisclosed SFFA’s, accuracy related penalty equal to 40% of that underpayment can be assessed.


If tax is underpaid due to fraud, a penalty of 75% of the underpayment due to fraud can be assessed.

Criminal Penalties

In addition to the penalties already discussed, a taxpayer may be subject to criminal penalties.

*Special rules for persons claiming to be a non-resident of the US under the provisions of a US Income Tax Treaty: the individual is still considered to be a resident alien for purposes of filing form 8938 if they meet the green card test or the substantial presence test.

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Sue Tuson

Shareholder, International Tax

As an international tax advisor, Sue helps businesses structure their operations globally to mitigate tax costs and maximize profits.

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