This site uses cookies to provide you with a more responsive and personalized service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.

Bookmark Email Print this page

Form 8938

Statement of specified foreign financial assets

The IRS recently released Form 8938, Statement of Specified Foreign Financial Assets, for use by certain individuals to report their interests in Specified Foreign Financial Assets ("SFFA") if the total value of those assets exceeds a certain threshold. The thresholds vary based on an individual's filing status and can be found in the form instructions here. This new form is the result of Congress' enactment of Internal Revenue Code (IRC) Section 6038D as part of the Hiring Incentives to Restore Employment (HIRE) Act in 2010.

In general, SFFAs include:

  • Financial accounts maintained by foreign financial institutions, or
  • To the extent held for investment and not held in a financial account,
  • Stock or securities issued by a person other than a U.S. person; and
  • Financial instruments or contracts that have an issuer or counterparty other than a U.S. person; and
  • Any interest in a foreign entity.

The new reporting requirements generally take effect for most individuals starting with the 2011 tax year. Note that for 2011 only individuals are required to file Form 8938 though certain entities (partnerships and corporations) may be required to file in the future. An individual's potential filing requirements for 2011 include SFFA interests held directly or held through disregarded entities (US or foreign) — such as single member LLCs, or deferred compensation, or retirement plans.

  • Alternative investment managers should consider their structures to determine where a filing requirement may exist. Some common scenarios include:
  • A partnership interest in a master-feeder or mini-master structure such as:
  • Where the GP is a single member LLC (wholly owned by an individual)
  • Where the GP is a foreign entity disregarded from its owner for U.S. tax purposes (and is wholly owned by an individual)
  • Where principals own a direct capital interest

Deferred compensation or retirement plans investing in an offshore fund
Certain foreign entity interests in foreign sub-advisor/GP structures

Although there are similarities between the types of financial accounts required to be reported on Form 8938 and Form TDF 90-22.1, Report of Foreign Bank and Financial Accounts ("FBAR"), the new Form 8938 does not eliminate, replace or change a taxpayer's obligation to file the FBAR. During a March 20, 2012, webcast sponsored by the American Institute for Certified Public Accountants, Joseph Henderson, an attorney-adviser with the IRS's Office of Associate Chief Counsel (International) said, "They're two totally distinct reporting regimes. They're like two circles that touch each other, but they don't overlap." Later that month, the IRS published a chart comparing the filing requirements on its website.

One notable difference between the two forms, as noted in the chart, is with respect to indirect interests. For FBAR purposes, indirect owners may be required to report the foreign financial assets of an entity in which it holds sufficient (generally more than 50 percent) ownership or beneficial interest. This is generally not the case for Form 8938 purposes.

The IRC Section 6038D rules contain exceptions to eliminate duplicate detail reporting where a SFFA interest is already reported on Forms 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations) or 8865 (Return of U.S. Persons With Respect to Certain Foreign Partnerships), though it does not completely eliminate the need for taxpayers to file Form 8938 with their 2011 tax returns. There is no exception for SFFA interests that may also be required to be reported under the FBAR rules.

For additional information or questions, please contact: Kathy Petronchak at +1 202 758 1480.

Ted Dougherty
National Managing Partner, Asset Management Tax
Deloitte Tax LLP
+1 212 436 2165

Share this page

Email this Send to LinkedIn Send to Facebook Tweet this More sharing options

Stay connected