January 2012

An informational newsletter from Apatoff Peters Ebersohl

A Note About New IRS Form 8938 . . .

We are advising our clients to consult with their attorney or tax consultant regarding the applicability of the new Internal Revenue Service (“IRS”) Form 8938 regarding the reporting of owned assets located outside of the United States and filing of their upcoming 2011 tax returns.  Form 8938 requires certain U.S. taxpayers holding specified foreign financial assets with an aggregate value exceeding certain thresholds to disclose those assets for tax year 2011.

Who must file:

Generally, you must file Form 8938 if you meet the following criteria:

1. You are an individual that is either: (a) a U.S. citizen, (b) a resident alien of the United States for any part of the tax year, (c) a nonresident alien who makes an election to be treated as resident alien for purposes of filing a joint income tax return, or (d) a nonresident alien who is a bona fide resident of American Samoa or Puerto Rico; AND

1. You have any interest in either of the following specified foreign financial assets: (a) any financial account maintained by a foreign financial institution, or (b) other foreign financial assets held for investment that are not in an account maintained by a U.S. or foreign financial institution (namely stock or securities issued by someone other than a U.S. person, any interest in a foreign entity, and any financial instrument or contract that has as an issuer or counterparty that is other than a U.S. person); AND

1. The aggregate value of your specified foreign financial assets is more than the applicable threshold below:

1. For persons living in the US. The total value of your specified foreign assets is more than: (i) $50,000 on the last day of the tax year or $75,000 at any time during the tax year for unmarried taxpayers, (ii) $100,000 on the last day of the tax year or $150,000 at any time during the tax year for married taxpayers filing a joint income tax return, or (iii) $50,000 on the last day of the tax year or $75,000 at any time during the tax year for married taxpayers filing separate tax returns.

OR

1. For persons living abroad. The total value of your specified foreign assets is more than: (i) $200,000 on the last day of the tax year or $300,000 at any time during the year and you are filing a return other than a joint return, or (ii) $400,000 on the last day of the tax year or $600,000 at any time during the year and you are filing a joint return.  The IRS will consider you as living abroad if you are either (i) a U.S. citizen whose tax home is in a foreign country and you are either a bona fide resident of a foreign country or countries for an uninterrupted period that includes the entire tax year, or (ii) a U.S. citizen or resident, who during a period of 12 consecutive months ending in the tax year is physically present in a foreign country or countries at least 330 days.

As a note, if you are required to file Form 8938, you do not have to report financial accounts maintained by any of the following:

• a U.S. payer (such as a U.S. domestic financial institution),
• the foreign branch of a U.S. financial institution, or
• the U.S. branch of a foreign financial institution.

Currently, only the above identified individuals are required to file Form 8938, however it is possible specified domestic entities may also be required to file Form 8938 in the future.  Additionally, if you do not have to file an income tax return for the 2011 tax year, you do not need to file Form 8938, even if the value of your specified foreign assets is more than the appropriate reporting threshold.

Penalties for Non-Compliance:

If you are required to file Form 8938 and fail to do so, you may be assessed a penalty up to $10,000.  If you fail to remedy non-compliance within 90 days of notice from the IRS, you may be subject to an additional $10,000 penalty for each 30-day period you fail to file Form 8938.

If you file Form 8938 but fail to disclose certain foreign financial assets and thus underpay taxes, you may be assessed a penalty equivalent to 40% of the applicable tax underpayment.

If you underpay your tax due to fraud, you must pay a penalty of 75% of the underpayment.

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IRS Circular 230 Disclosure:

To ensure compliance with requirements imposed by the IRS, Apatoff | Peters | Ebersohl informs you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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About Apatoff | Peters | Ebersohl, LLC:

Apatoff | Peters | Ebersohl, LLC counsels clients on Technology, Tax, Corporate and Estate Planning matters.  The firm enables success for technology firms, growing businesses, established companies and individuals by putting clients first, balancing each client’s unique concerns with sound legal advice and business guidance.  In 2005, 2006, 2008, and 2009, the Washington Business Journal named the firm among the Top Washington Lawyers.

To learn how the firm can help you see your path™ to success, please visit www.apatoffpeters.com.