One “tiny” box on an information return can mean so much. US taxpayers with foreign accounts and assets have become accustomed to filing Form 8938, Statement of Specified Foreign Financial Assets. Because duplicate disclosure requirements arise when additional foreign information returns are also required, Form 8938 provides for minimization of the duplication of disclosure when such additional returns are filed.

Several of the 2015 foreign information returns have a new question, however, that helps the IRS to better cross reference all of these forms to ensure that proper and complete disclosures have been made. Failure to properly and completely disclose required information can lead to penalties and the potential tolling of applicable statute of limitations.

Part IV of Form 8938 requires the taxpayer to quantify the number of additional (if any) foreign information returns on which specified reported foreign financial assets have been reported in lieu of being reported on Form 8938. The foreign information returns listed in Part IV are: Forms 3520 and 3520-A (foreign trusts), Form 5471 (foreign corporations), Form 8621 (Passive Foreign Investment Companies), and Form 8865 (foreign partnerships). Prior to 2015, these foreign information returns have not included any questions to associate them with a Form 8938 for which they may include relevant disclosures.

Beginning in 2015, an additional disclosure statement that can be easily overlooked has been added to each of these foreign information returns. On the first page of each of Forms 3520, 3520-A, 5471, 8621, and 8865, there is one small line item with a check box that states: “Check if any excepted specified foreign financial assets are reported on this form.” In the current foreign disclosure environment, this is a small but very important disclosure statement for a taxpayer who is satisfying a Form 8938 filing requirement with the particular information return. It should not be overlooked.

What Does this Mean for Taxpayers?

With this new disclosure statement, the IRS now has a mechanism to cross-check whether a taxpayer has filed the specified foreign information returns that are indicated on Form 8938. Furthermore, the IRS will have a better road map for the identification and evaluation of the entirety of disclosures of a taxpayer’s specified foreign financial assets.

The IRS continues to increase its foreign disclosure requirements each year in order to enhance its identification, audit and assessment abilities. This “tiny” change, and likely others to come, can be easily overlooked, potentially resulting in unexpected inquiries and assessments from the IRS. Therefore, special attention and additional effort must be given to the preparation of each foreign disclosure form in order protect against scrutiny and challenge.

Questions? Contact a member of our Global Tax Services Group.