US tax filing: New IRS form 8938 will impact Indian Americans significantly
Friday, 17/02/2012
http://economictimes.indiatimes.com/news/nri/nri-tax/us-tax-filing-new-irs-form-8938-will-impact-indian-americans-significantly/articleshow/11914595.cms
As if the various filing requirements were not enough, the US Internal Revenue Service (IRS) has added one more form to collect information from its citizens and residents on their foreign financial assets. With effect from 2012, the IRS has introduced 'Form 8938 - Statement of Specified Foreign Financial Assets' to be filed along with the income tax return.
That is, all those filing their tax returns of 2011 will have to include Form 8938, if applicable to them. This form, which has already earned synonyms like 'Son of FBAR' and 'FBAR Turbo,' will be in addition to the already existing requirement of Foreign Bank and Financial Accounts Report (FBAR) that must be filed by June 30th each year.
Parag Patel, an attorney and Partner at New Jersey based Patel Law Offices says, "Form 8938 is and will be a significant tool for the IRS to identify the scope of international tax non-compliance of a given US taxpayer. The reason why Form 8938 is so useful for the IRS is that Form 8938 now requires a taxpayer to disclose more information, which connects various parts of a taxpayer's international tax compliance including the information that escaped disclosure on other forms earlier."
"This summary, in turn, allows the IRS to effectively identify the overall scope of a taxpayer's noncompliance. Form 8938 may lay the foundation (and road map) for an IRS investigation of whether the taxpayer has been in compliance previously. For example, Question 3a of Form 8938 indirectly asks a problematic question: the date of the account opening (the question specifically asks whether the account was opened in the tax year).
For older accounts, this is a dangerous question. Answering that the account was not opened in the tax year, implicitly (and affirmatively by omission) states that account was opened in a prior year. As a result, prior years FBARs should have been filed. The answer to question 3a could provide incriminating evidence to the IRS," Patel explains.
The IRS is tracking foreign accounts in all countries, but thanks to recent indictments of account holders in countries like Switzerland and India (several HSBC India account holders have been indicted), there could be increased focus on these countries.
Given the serious implications of Form 8938, let's look at its applicability so you do it right when you file your taxes for 2011.
Who must file Form 8938?
You must file Form 8938 if:
- You are a specified individual AND
- You have an interest in specified foreign financial assets required to be reported AND
- The aggregate value of your specified foreign financial assets is more than the reporting thresholds that applies to you
- A specified individual is:
- - A US citizen
- - A resident alien of the United States for any part of the tax year (you can find a definition of resident alien in this article)
- - A nonresident alien who makes an election to be treated as resident alien for purposes of filing a joint income tax return
