Foreign Account Tax Compliance Act

Form 8938 Filing Thresholds | FATCA Tax Lawyer and Attorney Update

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Form 8938 is one of the most important US international tax forms with its own sophisticated penalty structure. Hence, taxpayers should strive to understand when they are required to file the form. In this context, I would like to focus in this essay on the Form 8938 Filing Thresholds.

General Relevant Criteria in the Determination of the Form 8938 Filing Thresholds

There are three most relevant criteria for determining the Form 8938 filing threshold that may apply to a taxpayer: (1) whether the taxpayer is a Specified Individual or a Specified Domestic Entity; (2) the taxpayer’s tax return filing status; and (3) whether the taxpayer resides in the United States or outside of the United States.

I have already described in other articles the criteria for determining whether a taxpayer is a Specified Individual or a Specified Domestic Entity. Hence, for the purposes of this essay, I will assume that the taxpayer satisfies the requirements of one of these categories. Therefore, I will focus solely on the Form 8938 filing thresholds based the filing status and the place of residence.

Form 8938 Filing Thresholds for Unmarried Taxpayers

If a taxpayer files his US tax returns with an unmarried filing status (i.e. “single” or “head of household”) and resides in the United States, he will satisfy the Form 8938 reporting threshold if the total value of the taxpayer’s Specified Foreign Financial Assets (“SFFA”) is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

If the unmarried taxpayer resides outside of the United States, then the values would go up to more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.

Form 8938 Filing Thresholds for Taxpayers Whose Filing Status is “Married Filing Jointly”

If a taxpayer files his US tax returns as “married filing jointly” and resides in the United States, he will satisfy the Form 8938 reporting threshold if the total value of his SFFA exceeds $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year. If this taxpayer resides outside of the United States, then the Form 8938 reporting thresholds will increase to more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.

Form 8938 Filing Thresholds for Taxpayers Whose Filing Status is “Married Filing Separately”

If a taxpayer files his US tax returns as “married filing separately”, then his Form 8938 reporting thresholds are going to be the same as those of an unmarried taxpayer.

Form 8938 Filing Thresholds for Specified Domestic Entities

Finally, a Specified Domestic Entity has the same Form 8938 Filing Thresholds as those of an unmarried taxpayer who resides in the United States – i.e. SFFA value must be more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

Contact Sherayzen Law Office for Professional Help With Form 8938

If you were required to file Forms 8938 in the previous years and you have not done so, you may be subject to Form 8938 penalties. In order to avoid or mitigate your Form 8938 penalties, you need to explore your offshore voluntary disclosure options as soon as possible.

Sherayzen Law Office can help You! We are an international tax law firm that specializes in offshore voluntary disclosures of unreported foreign assets and foreign income. We have successfully helped clients from close to 70 countries. You can be next!

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Specified Domestic Entity Form 8938 Filing Threshold | FATCA Lawyer

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The Specified Domestic Entity Form 8938 filing threshold is likely to be very easily satisfied by the majority of Specified Domestic Entities. With the major tax return filing deadlines just two or three months away (depending on whether an entity is a corporation, a partnership or a trust), every Specified Domestic Entity must assess whether it is required to file FATCA Form 8938. Failure to do so may result in imposition of Form 8938 penalties by the IRS.

Specified Domestic Entity Form 8938 Filing Threshold

For tax years beginning after December 31, 2015, a Specified Domestic Entity must file Form 8938 if the total value of its Specified Foreign Financial Assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year. This is an incredibly low Specified Domestic Entity Form 8938 filing threshold that pretty much means that virtually all Specified Domestic Entities will have to file a Form 8938.

Transition Years Are Most Dangerous

Transition tax years 2016, 2017 and 2018 are likely to be the most dangerous for Specified Domestic Entities. Since the Specified Domestic Entity Form 8938 filing threshold is very low and the awareness of the Specified Domestic Entity Form 8938 filing obligation is limited to a small number of specialized tax professionals, there can be no doubt that many Specified Domestic Entities will fail to comply with their Form 8938 filing obligations and may face steep Form 8938 penalties.

Contact Sherayzen Law Office for Help with the Specified Domestic Entity Form 8938 Filing Obligations

If your business or a trust is classified as a Specified Domestic Entity and your entity failed to file FATCA Form 8938,  contact Sherayzen Law Office for professional help. Our international tax law firm specializes in helping business and individuals with their US international tax compliance requirements, including Form 8938, and with their offshore voluntary disclosures involving a Form 8938.

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Specified Domestic Entity: Closely-Held Test | 8938 Lawyer & Attorney

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In a previous article, I introduced the key term of the Specified Domestic Entity (“SDE”) Definition for corporations and partnerships that may be required to file FATCA Form 8938: “formed or availed of”. At that point, I stated that this term required that a business entity satisfies two legal tests. One of these tests is a Closely-Held Test.

Closely-Held Test: Background Information

Starting tax year 2016, certain business entities and trusts that are classified as SDEs may be required to file Form 8938 with their US tax returns. Treas. Reg. §1.6038D-6(a) states that “a specified domestic entity is a domestic corporation, a domestic partnership, or a trust described in IRC Section 7701(a)(30)(E), if such corporation, partnership, or trust is formed or availed of for purposes of holding, directly or indirectly, specified foreign financial assets.”

In a previous article, I discussed the fact that “formed or availed of” is a term of art which has no relationship to the actual finding of intent. Rather, in the context of corporations and partnerships, the “formed or availed of” requirement is satisfied if two legal tests are met. One of these tests is a Closely-Held Test, which is the subject of this article.

Closely-Held Test: General Requirements

In order to meet the closely-held test, a corporation or partnership must be closely held by a specified individual. There are two separate parts of this test that need to be analyzed: (a) who is considered to be a specified individual, and (b) what percentage of ownership meets the “closely held” requirement.

Closely-Held Test: Specified Individual

In another article, I already defined the concept of a Specified Individual. It is, however, worth re-stating the definition here again for convenience purposes. Treas. Reg. §1.6038D-1(a)(2) defines Specified individual as anyone who is: (I) US citizen; (ii) resident alien of the United States for any portion of the taxable year; (iii) nonresident alien for whom an election under 26 U.S.C. §6013(g) or (h) is in effect; or (iv) nonresident alien who is a bona fide resident of Puerto Rico or a section 931 possession.

Closely-Held Test: Ownership Percentage for Corporations and Partnerships

The ownership requirement of the Closely-Held Test is explained in Treas. Reg. §1.6038D-6(b)(2) with respect to both, corporations and partnerships. A domestic corporation is considered to be “closely held” if “at least 80 percent of the total combined voting power of all classes of stock of the corporation entitled to vote, or at least 80 percent of the total value of the stock of the corporation, is owned, directly, indirectly, or constructively, by a specified individual on the last day of the corporation’s taxable year.” Treas. Reg. §1.6038D-6(b)(2)(I).

A domestic partnership is “closely held” if “at least 80 percent of the capital or profits interest in the partnership is held, directly, indirectly, or constructively, by a specified individual on the last day of the partnership’s taxable year.” Treas. Reg. §1.6038D-6(b)(2)(ii).

It is important to emphasize that the 80% threshold is met not only through direct ownership, but also through indirect and constructive ownership. So, one must closely look at the attribution rules of 26 U.S.C. §267 to determine whether the Closely-Held Test is met. Moreover, the constructive ownership rules for the purposes of the Closely-Held Test also contain an additional provision for the addition of spouses of individual family members.

Contact Sherayzen Law Office for Experienced Help with US International Tax Compliance Requirements for Corporations and Partnerships

If you are a minority or a majority owner of a corporation or partnership that either operates outside of the United States or has foreign assets, contact Sherayzen Law Office for professional help with US international tax compliance requirements. Our firm specializes in the are of US international tax law. We can Help You!

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Specified Domestic Entity: Formed or Availed Of | FATCA Lawyer & Attorney

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We are continuing our series of articles on the Specified Domestic Entity definition. In previous articles, I already explained what entities are considered to be domestic and what kind of foreign assets are included in the Specified Foreign Financial Assets. In this article, I would like to introduce the key part of the definition of a Specified Domestic Entity: formed or availed of.

Due to the fact that there is a significant difference in treatment of trusts versus business entities (partnerships and corporations), I will analyze these two types of entities separately. In this article, I will focus solely on introducing the concept of Formed or Availed Of as it applies to partnerships and corporations.

Formed or Availed Of: Context

It is first useful the remember the context in which the clause “Formed or Availed Of” arises.  Treas. Reg. §1.6038D-6(a) defines a Specified Domestic Entity as “a domestic corporation, a domestic partnership, or a trust described in 26 U.S.C. §7701(a)(30)(E), if such corporation, partnership, or trust is formed or availed of for purposes of holding, directly or indirectly, specified foreign financial assets” (italics added).

Thus, the concept of “formed or availed of” is the key part to the definition of a Specified Domestic Entity.

Formed or Availed Of: Main Legal Test

It may seem to a person unfamiliar with Form 8938 that Formed or Availed Of concept implies some sort of a factual finding of intent. This first impression is not correct.

On the contrary, Formed or Availed Of concept has nothing in common with the actual intent of the parties who formed the business entity. Rather, the IRS established a very specific legal test to determine if a business entity is formed or availed of for purposes holding specified foreign financial assets.

The Formed or Availed Of Test is in reality a combination of two legal tests found in Treas. Reg. §1.6038D-6(b). An entity is considered to be formed or availed of for purposes of holding specified foreign financial assets if: (1) the corporation or the partnership is closely held (the “Closely-Held Test”), AND (2) the corporation or the partnership meets the Passive Income or Passive Assets threshold requirement (the “Passive Test”). See Treas. Reg. §1.6038D-6(b). Please, note that both tests need to be satisfied in order for a business entity to be considered as formed or availed of for purposes of holding specified foreign financial assets.

In future articles, I will explore the Closely-Held Test and the Passive Test in more detail.

Contact Sherayzen Law Office for Professional Help Concerning US International Tax Compliance Requirements for Owners of US and Foreign Businesses

If you are an owner of a foreign business or a US domestic business which owns assets overseas, contact Sherayzen Law Office for professional help concerning relevant US tax compliance requirements. We have helped US business owners around the world, and We can Help You!

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Specified Individual | FATCA International Tax Lawyers and Attorneys

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Specified Individual is a key tax term that must be correctly understood in order to properly identify the persons who are required to file FATCA Form 8938. In this brief article, I will describe the general definition of a Specified Individual for Form 8938 purposes.

Specified Individual: FATCA Form 8938 Background

In 2010, one of the most important events in modern history of US taxation happened – the passage and signing of the Foreign Account Tax Compliance Act or FATCA. FATCA completely revolutionized the entire landscape of international tax law, elevating the international exchange of tax-related and account-related information to an unprecedented level. FATCA also created a brand-new requirement called Form 8938.

Form 8938 requires US taxpayers to report to the IRS their Specified Foreign Financial Assets (“SFFA”) together with the taxpayers’ US tax returns. Prior to tax year 2016, only a Specified Individual was required to report his SFFA to the IRS. Starting tax year 2016, a Specified Domestic Entity is also required to disclose its SFFA on Form 8938.

Specified Individual Definition

Treas. Reg. §1.6038D-1(a)(2) defines a “specified individual” as anyone who is: (I) US citizen; (ii) resident alien of the United States for any portion of the taxable year; (iii) nonresident alien for whom an election under 26 U.S.C. §6013(g) or (h) is in effect (i.e. nonresident alien who makes an election to be treated as a resident alien in order to file a joint US tax return); or (iv) nonresident alien who is a bona fide resident of Puerto Rico or a section 931 possession (as defined in Treas. Reg. §1.931-1(c)(1) – i.e. Guam, American Samoa and Northern Mariana Islands).

Resident alien includes anyone who is a US permanent resident or meets the substantial presence test.

Contact Sherayzen Law Office for Help With Form 8938 If You Are a Specified Individual

If you are a specified individual who has undisclosed foreign accounts or any other SFFA, contact Sherayzen Law Office as soon as possible to explore your offshore voluntary disclosure options. Sherayzen Law Office is a highly experienced international tax law firm that specializes in offshore voluntary disclosures, including Streamlined Compliance Procedures (both Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures), Delinquent FBAR Submission Procedures, Delinquent International Information Return Submission Procedures and Reasonable Cause (so-called Noisy) Disclosures.

We have helped hundreds of US taxpayers all around the globe to bring their US tax affairs into full compliance with US tax laws, and We can Help You! Contact Us Today to Schedule Your Confidential Consultation!