In the continued effort to require the disclosure of foreign assets, Treasury released final regulations under IRC 6038D. These regulations specifically address the reporting requirements for domestic entities, whereas much of the previous focus has been on individual reporting. Specifics were given to determine if a domestic entity is categorized as a “specified domestic entity” that will require disclosure on Form 8938, Statement of Specified Foreign Financial Assets. This reporting requirement for entities goes into effect for 2016 tax years and forward. Failure to file Form 8938 subjects the taxpayer to a potential $10,000 penalty as well as keeps open the statute of limitation for audit.
The proposed regulations were issued in 2011, but several modifications were contained in the final version. Key provisions in the new regulations address issues with trust ownership, aggregation rules and aligning the definition of passive income to conform to other sections of the code. Also of particular note, the “principal purpose test” was eliminated from the proposed regulations and now a pure mechanical approach is allowed to determine filing requirement.
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