Notice 2011-55, 2011-29 IRB
A new Notice suspends information reporting required under the Hiring Incentives to Restore Employment Act (HIRE Act, P.L. 111-147), for certain individuals with an interest in a “specified foreign financial asset,” as well as for shareholders of a passive foreign investment company (PFIC). The information reporting is suspended until IRS issues the forms necessary to report the requisite information.
Observation: Once the requisite forms become available, affected taxpayers will have to disclose the information for the suspended period with their next income tax or information return.
Background. For tax years beginning after Mar. 18, 2010, the HIRE Act provides that individuals with an interest in a “specified foreign financial asset” during the tax year must attach a disclosure statement to their income tax return for any year in which the aggregate value of all such assets is greater than $50,000. (Code Sec. 6038D(a)) In addition, to the extent provided by IRS in regs or other guidance, Code Sec. 6038D will apply to any domestic entity formed or availed of for purposes of holding, directly or indirectly, specified foreign financial assets, in the same manner as if the entity were an individual. (Code Sec. 6038D(f))
“Specified foreign financial assets” are: (1) depository or custodial accounts at foreign financial institutions, and (2) to the extent not held in an account at a financial institution, (a) stocks or securities issued by foreign persons, (b) any other financial instrument or contract held for investment that is issued by or has a counterparty that is not a U.S. person, and (c) any interest in a foreign entity. (Code Sec. 6038D(b))
The HIRE Act also added new Code Sec. 1298(f) which, effective Mar. 18, 2010, requires U.S. persons who are shareholders of a PFIC to file an annual report containing such information as IRS may require. Before the enactment of Code Sec. 1298(f), PFIC shareholders had to file Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) under certain circumstances.
In Notice 2010-34, 2010-17 IRB 612, IRS said that until it issued guidance on Code Sec. 1298(f), those required to file Form 8621 before the enactment of Code Sec. 1298(f) should continue to file it as provided in the instructions (e.g., upon disposition of stock of a PFIC, or with respect to a qualified electing fund under Code Sec. 1293). IRS also said PFIC shareholders not otherwise required to file Form 8621 annually before Mar. 18, 2010, won't have to file an annual report as a result of Code Sec. 1298(f) for tax years beginning before Mar. 18, 2010.
Regs on the way. Notice 2011-55 says that IRS will issue:
... new regs on Code Sec. 6038D and Code Sec. 1298(f);
... new Form 8938, “Statement of Specified Foreign Financial Assets,” to be used to report an interest in one or more specified foreign financial assets under Code Sec. 6038D. Individuals will have to attach this form to their income tax return for the tax year; and
... a revised Form 8621 modified to reflect Code Sec. 1298(f). Affected PFIC shareholders will be required to attach the revised Form 8621 to their income tax return or information return (e.g., Form 1065, “U.S. Return of Partnership Income”) for the tax year.
Filing suspended till forms become available. Notice 2011-55 suspends the Code Sec. 6038D reporting requirements until IRS releases Form 8938. Similarly, PFIC shareholders that would not be required to file Form 8621 under the current instructions to this form may, under Code Sec. 1298(f), have to file an income tax return or information return (e.g., Form 1065) for a tax year beginning on or after Mar. 18, 2010, but before the IRS releases revised Form 8621. Pending the release of the revised Form 8621, the Code Sec. 1298(f) reporting requirement is suspended for tax years beginning on or after Mar. 18, 2010, for PFIC shareholders not otherwise required to file Form 8621. PFIC shareholders with Form 8621 reporting obligations as provided in the current instructions to Form 8621 (e.g., upon disposition of stock of a PFIC or with respect to a qualified electing fund under Code Sec. 1293) must continue to file the current Form 8621 with an income tax or information return filed before the release of revised Form 8621.
After new Form 8938 or revised Form 8621 is released, individuals and PFIC shareholders for which the filing of Form 8938 or 8621 is suspended for a tax year will have to attach Form 8938, Form 8621, or both, as appropriate, for the suspended tax year to their next income tax or information return required to be filed with the IRS.
When assessment period begins to run. Under Code Sec. 6501(c)(8), the limitations period for tax assessments for periods for which reporting is required under sections Code Sec. 6038D or Code Sec. 1298(f) doesn't expire before three years after the date on which the IRS receives Forms 8938 or 8621, as appropriate, for the tax year. A Form 8938 or 8621 filed for a suspended tax year with a timely filed income tax or information return (taking into account extensions) as required by Notice 2011-55 will be treated as having been filed on the date that the income tax or information return for the suspended tax year was filed. Failure to furnish Forms 8938 and 8621 for the suspended tax year may result in the extension of the limitations period for the suspended taxable year under Code Sec. 6501(c)(8), and penalties may apply.
Notice 2011-55 reminds taxpayers that compliance with Code Sec. 6038D or Code Sec. 1298(f) doesn't relieve them of the responsibility to file Form TD F 90-22.1, “Report of Foreign Bank and Financial Accounts,” (FBAR) if the FBAR is otherwise required to be filed.
References: For reporting requirement for individuals with foreign assets, see FTC 2d/FIN ¶S-3650.1; United States Tax Reporter ¶60,38D4; TaxDesk ¶815,516; TG ¶60613. For annual information reporting by PFIC shareholders, see FTC 2d/FIN ¶O-2201.1; United States Tax Reporter ¶12,984; TG ¶30301.