Foreign Financial Asset Reporting Rules: IRS Releases Temporary and Proposed Regulations on the Reporting of Specified Foreign Financial Assets

Sullivan & Cromwell LLP - December 20, 2011

On December 14, 2011, the Internal Revenue Service (the “IRS”) and Treasury Department issued temporary regulations (the “Temporary Regulations”) under Section 6038D of the Internal Revenue Code of 1986, as amended (the “Code”), which require individuals (generally U.S. citizens or residents) to file Form 8938 with their annual federal income tax return providing information on their foreign financial assets. At the same time, the IRS issued a notice of proposed rulemaking containing proposed regulations (the “Proposed Regulations”) applying these reporting rules to certain domestic entities. The Proposed Regulations also adopt the Temporary Regulations as Proposed Regulations by cross-reference. On December 19, 2011, the IRS released Form 8938 and accompanying instructions in final form.

While the Temporary Regulations provide some exclusions from the 6038D reporting requirements to avoid duplicating other reporting obligations, there is no exclusion relating to the requirement to file a Report of Foreign Bank and Financial Accounts (an “FBAR”). Therefore, taxpayers that are required to file an FBAR in June of each year are also required to file a Form 8938 with their federal income tax return.

The IRS and Treasury Department are soliciting comments on all aspects of the Proposed Regulations.