New IRS form 8938

I thought it would be a good idea to start this new thread so as to discuss the new 8938 form. It's going to affect so many U.S citizens, green card holder and some other tax residents. There are three points that I was unclear about with this form:

1, If you file on a calendar year basis, under the 2010 transitional rules,(per the forms instructions), does this mean that you have to file from say March 19th – December 31 2010 and file with your 2011 8938 and current tax return, meaning you file two 8938? Or, you only file the one 2011 8938 for filing this tax season?

2, The instructions for the valuation of a pension plan had been something I had to read a few times before it made sense. Although the instructions are long winded, it looks like you only state the distribution amount taken in the year. So if you take no distribution from the plan, then the value is $0. In part two of the form, this would mean checking the $0-50k box. If you do take a distribution, then you would put the amount taken.

3, if you take no distribution from your pension plan, (value of $0) then is the plan includable in determining your total specified financial assets? Does the IRS look at the undistributed value, (the plans worth), or the distributed value ($0). This could be an important question for those that have a very high U.K pension total worth, but other assets, that in total fall below the reporting threshold.

It looks like you only need to file that if your total holdings are 200,00 on the last day of the tax year, or reach 300,000 at any point.  Or am I reading that incorrectly?

I should have such problems!

Thank you Bookgrl. You are correct, but as I don't qualify for the 2555(EZ) for 2010/2011, then the holdings are $50k.

Here's a link to the draft instructions.

http://www.irs.gov/pub/irs-pdf/i8938.pdf

If you are single and a bona fide resident abroad the reporting thresholds are $200k on the last day of the tax year and $300k during the year.

Maybe there's a silver lining to this particular cloud. Form 8938 almost duplicates the information required on the FBAR (but with far higher thresholds for expats). Why require both? An optimist might speculate that the FBAR will soon go away. Perhaps this is too logical to be true?

I was thinking the same thing!

Form 8938 almost duplicates the information required on the FBAR (but with far higher thresholds for expats).

I hate to be a pessimist on this, but that could be a really big 'almost'. I'm very uneasy about some of the detail statements contained in the instructions. As always, they could be interpreted various ways.

For a starter:
Define investment.
Define contract (like foreign mortgage).
At this time, I'm not sure I agree with nun's (2) reading in the original post.
    Clarification: I do agree benefits received during the year must be included.
I do agree with nun's (3) reading. 'This could be an important question....'.
The old question: are debit/prepaid credit cards a specified foreign account?
Is a credit card a specified foreign account?
If an asset is owned jointly with an Foreign Person, you report the maximum value. Nothing new there, but if the asset is something larger than a bank account?

And the champion, a Specified Foreign Asset is anything that could be this year, or any future year, in any way reportable as a gain,...etc. on a US tax return. (capital gains on non-business related sale of collectible cars, antiques, your home if the projected profit after costs exceeds the allowance?).

$200,000 may not be that large of a threshold. I'll be more than pleased if someone can confirm that I'm reading too much into this.

My interpretation of the final instructions would be:

1, any financial account with a foreign financial institution. So any pre-paid debt card, normal check account ISA, pension plan, debt securities, such as individual bonds etc. Credit cards, I can’t see would be classed as an investment.

2, Any other financial asset, if held for investment. I think the key here is if held for investment. If you own your home and live in it, you just live there. It’s not your plan to make money from the eventual sell. If on the other hand you own an investment property, then this would be (I believe) held for investment. The tricky part is where the instructions state that you have an interest in a foreign asset even if you show no gain, loss etc. on your current tax year. My theory here is that if for example you owned shares with your local hardware store and in that year you made no gain, or loss, then these shares would be reportable, as you bought them for investment, (to make money), even though you didn’t. 

Another interesting point is that the reporting thresholds change with individual circumstances. So those married in the U.K have a 400k/600k limit. If you find yourself single and Stateside, then you’re in the 50k/75k bracket. One to be mindful of I believe.

Hi Barcrest,

Thanks for your interpretation. After the recent concerns regarding the FBAR, I think everyone is rather anxious about 8938. I would guess your conclusions won't vary that much from mine.

I fear many will judge 8938 to be simply a duplicate of the reporting requirements of FBAR. I personally don't think this is the case. Form 8938 has the additional asset reporting, and is I believe also an attempt to expand and reconcile the financial and asset reporting (Parts 1 and 2) with what is declared on the 1040 (through Parts 3 and 4). The question remains, in my opinion, as to the extent of the increased asset reporting and the items covered. We know the obvious items, but to be absolutely thorough, it must include more. This is where the normal, average filer may get caught short. I'm sure the big4 have been spending considerable time on ascertaining just what that extended reporting will cover. It's probably too early for anyone to come to an definitive opinion. I have a feeling my return will be filed much closer to June 15th this year than normal, in case there are any last minute discoveries/enlightenment's.

If products labelled 'investment' were the only ones to be included, then the exercise would be simple. Somehow, I don't believe that is the case.

I received professional opinion on question 1,(my first post). As I'm a calender year tax payer, then I start with the 2011 form, no need to file 2010. The other two points I'll clarify with my accountant next month.

I believe that the "held for investment" criteria  would rule out assets such as your main home etc. I mean where would it stop, your new T.V, bed, camera, shirt on your back! they're all financial assets. It's a good point though, I intend to add this question to the others that I have.

I'm minded that the penalties for failure to file can reach $50,000...

I filed form 8938 last week with my accountant and all was well. In his professional opinion, each separate account amounts to one return. He believes that penalties will be per account and not for all of them put together per tax year filing, (penalties up to $50,000 per account for those recalcitrant). On the copy my accountant gave me, each account is listed on a separate page, the IRS software would not allow for example a bank account (listed in part one) and a pension plan, (listed in part two), to be on the same page. One to be mindful of if you have lots of pension plans, bank accounts, or none financial assets that are held for investment. Essentially, you're going to get a page per account. He went on to say that the software looks deeply at the account number, perhaps for cross reference purposes for U.K banks to report back on to the IRS on USC and GC holders from next year as part of FATCA,(HIRE Act 2010).
Although the threshold is $200,000 for none residents, (single), there is uncertainty if the IRS look at the physical cash, or the on paper amount. For example, if you have $50,000 in your term deposit, it matures, you then decide to open a new one, but before this happens, the $50,000 moves to your checking account as a holding point for a few minutes. From there, it's then transferred into the new term deposit. Assuming then it's a short term deposit, on maturity; you move it into a completely different account with another bank. Although it's only $50,000, it's been moved into four distinct accounts, amassing $200,000 on paper and now reportable? The permutations can work many ways, but this is as an example. None distributed values of pension plans are stated as zero in part two (0-50k bracket). Should you take any distribution then this is the stated value. I had posed a hypothetical question to my accountant regarding the fair market value of a pension plan, (or any other part two item), where a zero distribution had taken place. If you have $5,000 in a bank account and an undistributed retirement pension account with a fair market value of $195,000, do you need to report? Those with high value U.K pension plans, might well fall into this scenario, despite otherwise modest means. Again, the numbers can be moved around so as to provide different permutations. Given the breathtaking penalties, professional/IRS London Embassy advice would be pertinent for anyone that might find themselves in one of the above mentioned hypothetical situations

For example, if you have $50,000 in your term deposit, it matures, you then decide to open a new one, but before this happens, the $50,000 moves to your checking account as a holding point for a few minutes. From there, it's then transferred into the new term deposit. Assuming then it's a short term deposit, on maturity; you move it into a completely different account with another bank. Although it's only $50,000, it's been moved into four distinct accounts, amassing $200,000 on paper and now reportable?

Like magic $50k becomes $200k. This sounds like a Ponzi scheme rather than taxation. I sincerely hope you are not correct!

When I move to the UK this just gives me more impetus to get as much of my money into ROTH accounts to keep my taxes as simple as possible. A small (under $10k) UK cash account that is regularly topped up from the ROTHs will also keep things simple. I just have to be careful about currency risk.

That's why I put a "?" at the end, professional opinion is uncertain. Ramping thing up, could the same be said for the FBAR? Move $4,000 three times and as if by magic you have a $12,000 on paper! Do you report? Food for thought...

http://www.irs.gov/businesses/corporations/article/0,,id=251217,00.html

An important point is the value of the accounts on the last day of the year. This implies that transfers during the year between accounts are not necessarily what we need to be concerned about.

In any case, it doesn't affect tax owed, so if in doubt, fill out the form, attach an explanation that it's the *same* pot of money moved from account A to account B and so on and so on.

Last day of the year values determine whether the reporting threshold is reached, so Barcrest's $4,000 is only counted once.

But when it comes to completing 8938 Line 4 requires the maximum value of every account for the year. So Barcrest's $4,000 gets included in every account it has been in during the year.

To me this seems nonsense, but we have the same issue with the FBAR.