U.S. taxpayers who own assets in other countries must meet a number of requirements when filing tax returns with the IRS. Reporting of foreign assets can be complex, and in some cases, taxpayers may wish to avoid providing the IRS with more information than is necessary. Form 8938 (Statement of Specified Foreign Financial Assets) will provide information about multiple types of foreign accounts, and taxpayers may be required to submit this form along with their annual tax return. However, there are some exceptions to this requirement, and depending on the tax strategies a person uses and the extent of their assets, they may be able to avoid submitting Form 8938 in certain situations.
Exceptions to Form 8938 Requirements
Taxpayers who are considered “specified individuals” or “specified domestic entities” are required to submit Form 8938 if they own foreign assets with a value above a certain threshold. However, a person who is not required to file a tax return for a certain year will not need to submit Form 8938.
Specified individuals include U.S. citizens, people who are considered resident aliens, and nonresident aliens who choose to be treated as resident aliens so that they can file a joint tax return with their spouse. If a nonresident alien does not elect to be treated as a U.S. resident, they will not be required to file Form 8938. Specified domestic entities include closely held domestic corporations or partnerships that earn at least 50% of their gross income from passive income or hold at least 50% of their assets for the production of passive income. Entities that own foreign assets but do not use at least 50% of their assets for passive income will not be required to file Form 8938.
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