Form 8938

[AccTaxMan]

Taxpayer has an investment account in oversea which is holding some foreign stocks.

First of all, I think stocks are considered "Other Foreign Assets" and reported in Part II of Form 8938. Please correct me if I am incorrect here.

Then in Part II, question (7), it says "If asset reported in Part II, line 1, is stock of a foreign entity or an interest in a foreign entity, report the following information....."

Shall I take this to mean that if the taxpayer has stocks of 10 different companies in that oversea account, he has to report each of the 10 companies one by one in this section? So what about if someone has hundreds of different stocks in an oversea account?

Or have I interpreted the reporting requirement wrongly? I definitely hope so.

[FEDUKE404]

Accounts vs stocks

I had a situation like this last year.

Client had investment account (Bank of Whatever) that held several assets (stocks/bonds/whatever), and also held in his own name certificated shares of IM Foreign Corp stock.

Rightly or wrongly, after researching the matter, I made only two entries on the Form 8938 - one for the "account" and another for the "stock."

Be careful of the wording for what is deemed to be a "foreign account." Remember mere ownership of foreign stocks is not an issue, such as in a situation where a Merrill Lynch account based at a Berlin branch is not "foreign."

In any case, I strongly urge you to read the rules re Form 8938, as well as TD F 90-22.1, and make your own informed decisions as the stakes for error are quite high!

Oh yes: Have fun with converting all those foreign currency amounts! There is even an "official" protocol for doing that.

FE

[AccTaxMan]

Rightly or wrongly, after researching the matter, I made only two entries on the Form 8938 - one for the "account" and another for the "stock."

It is an account in an investment company in Asia. So I guess it must be reported in Form 8938.

If you don't mind, can you elaborate on what you said in the quote? I am desperately looking for a feasible way to report the investment account.

Thank you.

[FEDUKE404]

Form details

It is an account in an investment company in Asia. So I guess it must be reported in Form 8938.

If you don't mind, can you elaborate on what you said in the quote? I am desperately looking for a feasible way to report the investment account.

Thank you.

On the 2011 Form 8938, I placed the custodial account in Part I and the certificated shares in Part II. The questions are fairly straight-forward, but you will need to obtain all of the gory details of the account(s) involved.

Part III was somewhat challenging tracking all the income/conversions which transferred there from Sch B (interest and dividends) and from Form 1116 (other stuff).

One poor guy had the misfortune of having whatever the British equivalent of a Roth IRA is (an ISA??). Yep - had to be reported on the forms and the income was US taxable.

I suggest a fresh pot of coffee and a good night's sleep beforehand. Filing extensions can also be beneficial!

FE

[Gary2]

An ISA may seem like a Roth, but it's not, since it can be withdrawn at any time without tax or penalty.

[FEDUKE404]

He says . . . OK

An ISA may seem like a Roth, but it's not, since it can be withdrawn at any time without tax or penalty.

I only went by the information from my client, who also holds a British passport.

It was my understanding the UK ISA allows (perhaps sheltered) funds to grow absent taxation. Perhaps I made a poor comparison. My bad!!

Any details of the ISA account were of no further concern to me other than the earnings (there were not any withdrawals) could not be excluded from worldwide "income" for US tax purposes. The client ran this issue through several very knowledgeable persons (employed by accounting firms whose name you would recognize) on both sides of the Atlantic.

Were I to have been preparing a UK tax return, I likely would have shown more due diligence.

FE

[Gary2]

I only went by the information from my client, who also holds a British passport.

It was my understanding the UK ISA allows (perhaps sheltered) funds to grow absent taxation. Perhaps I made a poor comparison. My bad!!

Any details of the ISA account were of no further concern to me other than the earnings (there were not any withdrawals) could not be excluded from worldwide "income" for US tax purposes. The client ran this issue through several very knowledgeable persons (employed by accounting firms whose name you would recognize) on both sides of the Atlantic.

Were I to have been preparing a UK tax return, I likely would have shown more due diligence.

It wasn't my intent to criticize in any way, you did right. And you're correct, the money left inside the ISA continues to grow (UK) tax-free. I was just tossing out a quick explanation for why it's taxable in the US.

[AccTaxMan]

On the 2011 Form 8938, I placed the custodial account in Part I and the certificated shares in Part II. The questions are fairly straight-forward, but you will need to obtain all of the gory details of the account(s) involved.
FE

Is it true that you could place the investment account in Part I only because it is a custodial account? If the investment account is not a custodial account, can we still place it in Part I?

[AccTaxMan]

Is it true that you could place the investment account in Part I only because it is a custodial account? If the investment account is not a custodial account, can we still place it in Part I?

Hi FE, need your help on this one...

[FEDUKE404]

Finding the answers

Hi FE, need your help on this one...

I never really gave it much thought....the instructions for Form 8938 (specifically page 4 of http://www.irs.gov/pub/irs-pdf/i8938.pdf ) should cover things, especially as for what is reported in Part I and Part II. Does your software have a Q&A? In cases like this, such can be useful!

I did find this (source: http://www.irs.gov/irb/2012-08_IRB/ar10.html ) :


A. Financial account maintained by a foreign financial institution


For purposes of section 6038D, a financial account is defined by reference to section 1471(d)(2) and the regulations.

A foreign financial institution is defined by reference to section 1471(d)(4). For this purpose, a foreign financial institution is a financial institution (as determined under section 1471(d)(5)) that is a foreign entity (as determined under section 1473(5)). Under section 1471(d)(5), a financial institution is any entity that—

(1) Accepts deposits in the ordinary course of a banking or similar business;

(2) Holds financial assets for the account of others as a substantial portion of its business; or

(3) Is engaged, or holds itself out as being engaged, primarily in the business of investing, reinvesting, or trading in securities (as defined in section 475(c)(2) without regard to the last sentence thereof), partnership interests, commodities (as defined in section 475(e)(2)), or any interest (including a futures or forward contract or option) in such securities, partnership interests, or commodities.

Notwithstanding that a financial institution organized under the laws of a U.S. territory is not generally a foreign financial institution for purposes of section 1471(d)(4), for purposes of section 6038D and the regulations, a specified foreign financial asset includes a financial account maintained by a financial institution organized under the laws of a U.S. territory. Accordingly, such an account must be reported, except when owned by a bona fide resident of the relevant U.S. territory.

A financial account maintained by a U.S. payor as defined in §1.6049-5(c)(5)(i) (including assets held in such an account) is not a specified foreign financial asset for purposes of section 6038D and the regulations thereunder. For example, a specified person is not required to report a financial account maintained by a U.S. branch of a foreign financial institution described in §1.1441-1(b)(2)(iv).

An asset held in a financial account maintained by a foreign financial institution is not required to be reported on Form 8938 separately from the reported financial account in which the asset is held. The value of an asset held in a financial account maintained by a foreign financial institution is included in determining the maximum value of that account.

The truth is out there somewhere. . .

FE

[AccTaxMan]

I never really gave it much thought....the instructions for Form 8938 (specifically page 4 of http://www.irs.gov/pub/irs-pdf/i8938.pdf ) should cover things, especially as for what is reported in Part I and Part II. Does your software have a Q&A? In cases like this, such can be useful!

I did find this (source: http://www.irs.gov/irb/2012-08_IRB/ar10.html ) :


A. Financial account maintained by a foreign financial institution


For purposes of section 6038D, a financial account is defined by reference to section 1471(d)(2) and the regulations.

A foreign financial institution is defined by reference to section 1471(d)(4). For this purpose, a foreign financial institution is a financial institution (as determined under section 1471(d)(5)) that is a foreign entity (as determined under section 1473(5)). Under section 1471(d)(5), a financial institution is any entity that—

(1) Accepts deposits in the ordinary course of a banking or similar business;

(2) Holds financial assets for the account of others as a substantial portion of its business; or

(3) Is engaged, or holds itself out as being engaged, primarily in the business of investing, reinvesting, or trading in securities (as defined in section 475(c)(2) without regard to the last sentence thereof), partnership interests, commodities (as defined in section 475(e)(2)), or any interest (including a futures or forward contract or option) in such securities, partnership interests, or commodities.

Notwithstanding that a financial institution organized under the laws of a U.S. territory is not generally a foreign financial institution for purposes of section 1471(d)(4), for purposes of section 6038D and the regulations, a specified foreign financial asset includes a financial account maintained by a financial institution organized under the laws of a U.S. territory. Accordingly, such an account must be reported, except when owned by a bona fide resident of the relevant U.S. territory.

A financial account maintained by a U.S. payor as defined in §1.6049-5(c)(5)(i) (including assets held in such an account) is not a specified foreign financial asset for purposes of section 6038D and the regulations thereunder. For example, a specified person is not required to report a financial account maintained by a U.S. branch of a foreign financial institution described in §1.1441-1(b)(2)(iv).

An asset held in a financial account maintained by a foreign financial institution is not required to be reported on Form 8938 separately from the reported financial account in which the asset is held. The value of an asset held in a financial account maintained by a foreign financial institution is included in determining the maximum value of that account.

The truth is out there somewhere. . .

FE

Thank you FE.

The explanation there is very clear.

I just do not understand why they would only say "deposit and custodial accounts" on the form. It implies that an investment account should be reported somewhere else than Part I. It's very misleading to say the very least. Do you think so too?