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Feb 07, 2017

Additional Entity Level Foreign Asset Reporting Form 8938, Statement of Specified Foreign Financial Assets

Featuring Anand Madhusudanan

The Internal Revenue Service (IRS) recently issued final regulations, expanding the obligation of certain domestic entities to file Form 8938, Statement of Specified Foreign Financial Assets.
 
For tax years beginning after December 31, 2015, certain domestic corporations, partnerships, and trusts that are considered formed for the purpose of holding, directly or indirectly, specified foreign financial assets must file Form 8938, if the total value of those assets exceeds $50,000 on the last day of the tax year, or $75,000, at any time during the tax year.
 
 
Specified Domestic Entity
The IRS defines a specified domestic entity as one of the following:

1.       
(a) A closely held domestic corporation that has at least 50% of its gross income from passive income.  
  • A domestic corporation is closely held if, on the last day of the corporation’s taxable year, a specified individual directly, indirectly, or constructively owns at least 80% of the total combined voting power of all classes of stock of the corporation entitled to vote or at least 80% of the total value of the stock of the corporation.
(b) A closely held domestic corporation if at least 50% of its assets produce or are held for the production of passive income.
  • A domestic partnership is closely held if, on the last day of the partnership’s taxable year, a specified individual directly, indirectly, or constructively holds at least 80% of the capital or profits interest in the partnership.
2.       
(a) A closely held domestic partnership that has at least 50% of its gross income from passive income.

(b) A closely held domestic partnership if at least 50% of its assets produce or are held for the production of passive income.
 
Passive income
The IRS defines passive income as the portion of gross income that consists of:
  • Dividends, including substitute dividends;
  • Interest;
  • Rents and royalties, other than rents and royalties derived in the active conduct of a trade or business conducted, at least in part, by employees of the corporation;   
  • Partnership;
  • Annuities;
  • The excess of gains over losses from the sale or exchange of property that give rise to the types of passive income listed above; and
  • The excess of gains over losses from transactions (including futures, forwards, and similar transactions) in any commodity, but not including, any commodity hedging transaction or active business gains or losses from the sale of commodities.