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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.

Contact Us today to Schedule Your Confidential Consultation!

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!

Contact Us Today to Schedule Your Confidential Consultation!