This article is for general information purposes only and is not intended as specific tax advice. Please consult your tax advisor for advice relevant to your situation.

For expats who have been anticipating the implementation of the Foreign Account Tax Compliance Act (FATCA) with increasing trepidation, the IRS recently delivered some good news to ring in the New Year. The minimum threshold values for foreign assets that trigger the requirement to file the Statement of Specified Foreign Financial Assets or Form 8938 have been raised significantly for both resident and non-resident American citizens. The upshot is that many expat Americans who fall below the threshold amounts will not be required to file Form 8938.

Form 8938 and FATCA

For those who don't know, FATCA is part of the Hiring Incentives to Restore Employment (HIRE) Act, which was designed to enforce higher tax compliance among U.S. taxpayers with foreign accounts and assets. FATCA created Form 8938, an additional foreign account reporting requirement over and above the Report of Foreign Bank and Financial Accounts (FBAR) or Form TD F 90-22.1 that needs to be filed with the U.S. Treasury every year. If a taxpayer has more than a certain amount of foreign assets, Form 8938 is included as part of their annual 1040 filing and requires reporting an expanded list of foreign assets not covered in the FBAR.

The increased reporting and enforcement followed in the wake of the UBS scandal, where UBS private bankers were flying to the U.S. to help U.S. citizens hide assets overseas. Unfortunately, many U.S. expats who legitimately live and work overseas have been caught up in the IRS's increased efforts to stem lost tax revenue and enforce tax compliance on unreported offshore foreign assets.  As a result, U.S. expats now face additional costs related to increased disclosure, stiffer penalties for non-compliance, and a doubling of the audit statute of limitations.

FATCA is effective for tax years beginning after March 18, 2010, when the HIRE Act was established. For most U.S. expats, the first exposure to the new Form 8938 will be the upcoming 2011 tax filing season.

Greater Foreign Assets Needed Before Form 8938 Required

In a significant easing from what was assumed to be a reporting threshold of just USD 50,000, the IRS recently clarified the reporting threshold limits on foreign accounts and assets for U.S. citizens, U.S. resident aliens, and nonresident aliens who have elected to be taxed as U.S. residents. A further distinction is also made between those residing in the United States and those living outside of the country, with those living overseas benefiting from the new standards the most. The new reporting thresholds are as follows.

U.S. Citizens Living Abroad:

For U.S. citizens who are considered by the IRS to be foreign residents for the entire tax year or who meet the physical presence test for living in a foreign county, the new limits are:

• Single: Aggregate foreign assets of USD 200,000 on the last day of the year or USD 300,000 at any time during the year.
• Married Filing Jointly: Aggregate foreign assets of USD 400,000 on the last day of the year or USD 600,000 at any time during the year.

For more details on who needs to file, what constitutes foreign assets, and other details, check out the IRS article, "Do I need to file Form 8938, 'Statement of Specified Foreign Financial Assets?'"

Resident U.S. Citizens and Resident Aliens:

• Single: Aggregate foreign assets of exceeding USD 50,000 on the last day of the year or USD 75,000 at any time during the year.
• Married Filing Jointly: The threshold is USD 100,000 on the last day or the year or USD 150,000 at any time during the year.

Some Other Considerations:

• Form 8938 is due at the time of your normal tax filing including extensions.
• Filing Form 8938 does not exempt you from the requirement to file Form TD 90-22.1, the Report of Foreign Bank and Financial Accounts (FBAR).
• If you are not required to file a tax return, you do not need to file Form 8938.
• If you are required to file a Form 8938 and you have a specified foreign financial asset reported on Form 3520, Form 3520-A, Form 5471, Form 8621, Form 8865, or Form 8891, you do not need to report the asset on Form 8938. On the Form 8938, however, you do have to identify which and how many of each of these forms you file.
• Even if a foreign financial asset is reported on one of the forms listed above, it still must be included it in your calculation of specified foreign financial assets.
• The penalty for failing to file Form 8938 is USD 10,000, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40% penalty on any understatement of tax attributable to non-disclosed assets can also be imposed and special statute of limitation rules apply.

With the enactment of FATCA, it appears that the era of benign neglect when it comes to enforcing tax compliance among U.S. taxpayers with foreign assets has come to an end. At least the IRS has made a distinction and tried to ease the filing burden for many U.S. citizens who legitimately live and earn a living overseas.

Creveling & Creveling is a private wealth advisory firm specializing in helping expatriates living in Thailand and throughout Southeast Asia build and preserve their wealth. Through a unique, integrated consulting approach, Creveling & Creveling is dedicated to helping clients cut through the financial intricacies of expat life, make better decisions with their money, and take the steps necessary to provide a more secure future. For more information visit http://crevelingandcreveling.com/.

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