Reporting of Specified Foreign Financial Assets, 78553-78566 [2011-32263]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 76, Number 243 (Monday, December 19, 2011)]
[Rules and Regulations]
[Pages 78553-78566]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32263]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9567]
RIN 1545-BK17


Reporting of Specified Foreign Financial Assets

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations relating to the 
provisions of the Hiring Incentives to Restore Employment (HIRE) Act 
that require foreign financial assets to be reported to the Internal 
Revenue Service for taxable years beginning after March 18, 2010. In 
particular, the temporary regulations provide guidance relating to the 
requirement that individuals attach a statement to their income tax 
return to provide required information regarding foreign financial 
assets in which they have an interest. The temporary regulations affect 
individuals required to file Form 1040, ``U.S. Individual Income Tax 
Return,'' and certain individuals required to file Form 1040-NR, 
``Nonresident Alien Income Tax Return.'' The text of these temporary 
regulations also serves as the text of proposed regulations contained 
in a cross-reference notice of proposed rulemaking (REG-130302-10) 
published in the Proposed Rules section in this issue of the Federal 
Register.

DATES: Effective Date: These regulations are effective on December 19, 
2011.
    Applicability Dates: For dates of applicability, see Sec. Sec.  
1.6038D-1T(b), 1.6038D-2T(e), 1.6038D-3T(e), 1.6038D-4T(b), 1.6038D-
5T(g), 1.6038D-7T(d), and 1.6038D-8T(g).

FOR FURTHER INFORMATION CONTACT: Joseph S. Henderson, (202) 622-3880 
(not a toll-free call).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    These temporary regulations are being issued without prior notice 
and public comment pursuant to the Administrative Procedure Act (5 
U.S.C. 553). For this reason, the collection of information contained 
in these regulations has been reviewed and pending receipt and 
evaluation of public comments, approved by the Office of Management and 
Budget under Control Number 1545-2195. Responses to this collection of 
information are mandatory.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number. The collection of 
information contained in these regulations is satisfied by filing Form 
8938, ``Statement of Specified Foreign Financial Assets,'' OMB No. 
1545-2195, with the respondent's income tax return.
    For further information concerning this collection of information, 
and where to submit comments on the collection of information and the 
accuracy of the estimated burden, and suggestions for reducing this 
burden, please refer to the preamble to the cross-referencing notice of 
proposed rulemaking published in the Proposed Rules section of this 
issue of the Federal Register.
    Books and records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) for reporting specified foreign financial assets under 
section 6038D of the Internal Revenue Code (Code).
    Section 6038D was enacted by section 511 of the HIRE Act. Section 
6038D(a) requires an individual who holds any interest in a specified 
foreign financial asset during the taxable year to attach a statement 
to that individual's return of tax imposed by subtitle A of the Code to 
report the information identified in section 6038D(c), if the aggregate 
value of the specified foreign financial assets in which the individual 
holds an interest exceeds $50,000 for the taxable year, or such higher 
dollar amount as the Secretary may prescribe.
    Section 6038D(b) defines specified foreign financial assets. For 
purposes of section 6038D, a specified foreign financial asset is any 
financial account maintained by a foreign financial institution and, to 
the extent not held in an account at a financial institution: (i) Any 
stock or security issued by any person other than a United States 
person; (ii) any financial instrument or contract held for investment 
that has an issuer or counterparty that is not a United States person; 
and (iii) any interest in a foreign entity.
    Section 6038D(c) sets forth the information an individual must 
include on the statement reporting specified foreign financial assets. 
For a financial account, the name and address of the financial 
institution in which the account is maintained must be reported, as 
well as the account number. For any stock or security, the name and 
address of the non-U.S. issuer, as well as information necessary to 
identify the class or issue of which the stock or security is a part, 
must be reported. In the case of any other instrument, contract, or 
interest, the names and addresses of all issuers and counterparties 
must be reported, together with the information necessary to identify 
the instrument, contract, or interest. The maximum value of each 
specified foreign financial asset during the taxable year also must be 
reported.
    An individual who fails to disclose the information required to be 
reported

[[Page 78554]]

by section 6038D(c) is subject to a $10,000 penalty under section 
6038D(d)(1). Section 6038D(d)(2) provides that if the failure to comply 
continues for more than 90 days after the day on which the Secretary 
mails notice of the failure to the individual, the individual must pay 
an additional penalty of $10,000 for each 30-day period (or fraction 
thereof) during which the failure to disclose continues after the 
expiration of the 90-day period. This continuation penalty is not to 
exceed $50,000 with respect to any such failure.
    Under section 6038D(e), the aggregate value of any specified 
foreign financial assets in which an individual has an interest is 
presumed to exceed the reporting thresholds set forth in section 
6038D(a) if the Secretary determines that the individual has an 
interest in one or more specified foreign financial assets and has not 
provided sufficient information to demonstrate the aggregate value of 
the assets. This presumption applies for purposes of assessing the 
penalties imposed under section 6038D.
    Section 6038D(f) authorizes the Secretary to issue regulations or 
other guidance applying the provisions of section 6038D to any domestic 
entity as if the domestic entity were an individual, if the domestic 
entity is formed or availed of for the purposes of holding, directly or 
indirectly, specified foreign financial assets.
    Section 6038D(g) provides that no penalty will be imposed by 
section 6038D for any failure to report that is shown to be due to 
reasonable cause and not due to willful neglect. A foreign law 
restriction, whether civil or criminal, on disclosing the information 
required to be reported is not reasonable cause.
    Section 6038D(h) authorizes the Secretary to issue regulations or 
other guidance as may be necessary or appropriate to carry out the 
purposes of section 6038D. This guidance may include appropriate 
exceptions from reporting for nonresident aliens, bona fide residents 
of U.S. possessions, and classes of assets identified by the Secretary, 
such as assets subject to duplicative reporting requirements. The term 
``U.S. possession'' means American Samoa, Guam, the Northern Mariana 
Islands, Puerto Rico, or the U.S. Virgin Islands, each of which is 
generally referred to as a U.S. territory in this explanation.
    Section 6038D is effective for taxable years beginning after March 
18, 2010 (the date of enactment of the HIRE Act). Notice 2011-55, 2011-
29 IRB 53 (July 18, 2011), provides that an individual that has a 
taxable year that begins after March 18, 2010, and is required to 
attach a statement of specified foreign financial assets to an annual 
return to be filed prior to the issuance of Form 8938, ``Statement of 
Specified Foreign Financial Assets,'' is to satisfy his or her 
obligation under section 6038D for such taxable year by attaching Form 
8938 for such taxable year to his or her next annual return required to 
be filed after the issuance of Form 8938. See Sec.  
601.601(d)(2)(ii)(b) of this chapter.

Explanation of Provisions

1. Requirement To Report Specified Foreign Financial Assets

    Section 1.6038D-1T sets forth the definitions of certain terms for 
purposes of section 6038D and the regulations. Section 1.6038D-2T 
provides rules for determining if a specified individual (as defined in 
Sec.  1.6038D-1T(a)(2)) or a specified domestic entity (collectively 
referred to as a specified person) must file a Form 8938 with the 
specified person's annual return (as defined in Sec.  1.6038D-
1T(a)(11)).
    For purposes of section 6038D, a specified person's annual return 
includes an annual federal income tax return of a specified individual 
or an annual federal income tax return or information return of a 
specified domestic entity filed with the Internal Revenue Service under 
section 876, 6011, 6012, 6013, 6031, or 6037, and the regulations . For 
example, a partnership that is a specified domestic entity is required 
to attach Form 8938 to its Form 1065, ``U.S. Return of Partnership 
Income,'' for the taxable year.
    A specified person must file Form 8938 if the person has an 
interest in one or more specified foreign financial assets and those 
assets have an aggregate fair market value exceeding either $50,000 on 
the last day of the taxable year or $75,000 at any time during the 
taxable year. Married specified individuals filing a joint annual 
return are not required to file Form 8938 unless the aggregate value of 
all of the specified foreign financial assets in which either spouse 
has an interest exceeds $100,000 on the last day of the taxable year or 
$150,000 at any time during the taxable year.
    An individual residing outside the United States can reasonably be 
expected to have a greater amount of specified foreign financial assets 
for reasons unrelated to the policies underlying section 6038D. 
Accordingly, the regulations increase the reporting threshold of 
section 6038D(a) in the case of a specified individual who is a 
qualified individual under section 911(d)(1). The regulations provide 
that such a specified individual is not required to file Form 8938 
unless the aggregate value of the specified foreign financial assets in 
which the specified individual has an interest exceeds $200,000 on the 
last day of the taxable year or $300,000 at any time during the taxable 
year. If married specified individuals file a joint annual return and 
either spouse is a qualified individual under section 911(d)(1), the 
regulations provide that they are not required to file Form 8938 unless 
the aggregate value of all of the specified foreign financial assets in 
which either spouse has an interest exceeds $400,000 on the last day of 
the taxable year or $600,000 at any time during the taxable year.
    As discussed in section 6 of this explanation, certain specified 
foreign financial assets are excepted from the reporting obligations 
imposed under section 6038D. Assets reported by a specified person on 
certain other forms timely filed with the Internal Revenue Service are 
not required to be separately identified on Form 8938, but if a 
specified person is required to file Form 8938, the number of such 
other forms filed with the Internal Revenue Service must be reported on 
Form 8938. In addition, the value of specified foreign financial assets 
that qualify for this exception is included for purposes of determining 
whether the aggregate value of specified foreign financial assets in 
which a specified individual has an interest exceeds the applicable 
reporting threshold.
    Another category of assets excepted from reporting are assets 
considered owned by a specified person that is treated as the owner of 
certain trusts. Additionally, certain assets held by a specified 
individual who is a bona fide resident of a U.S. territory are also 
excepted from reporting. Specified foreign financial assets that 
qualify for either of these two exceptions are not included for 
purposes of determining whether the aggregate value of specified 
foreign financial assets in which a specified person has an interest 
exceeds the applicable reporting threshold.
    The Form 8938 reporting period is the taxable year for a specified 
individual who is a U.S. citizen, a resident alien, or a bona fide 
resident of a U.S. territory for the entire taxable year. The Form 8938 
reporting period for a specified domestic entity is the entity's 
taxable year. The Form 8938 reporting period for a specified individual 
who is a U.S. citizen or resident alien for less than the entire 
taxable year is the portion of the taxable year for which the specified 
individual is a U.S. citizen or resident

[[Page 78555]]

alien. The Form 8938 reporting period for a specified individual who is 
bona fide resident of Puerto Rico for less than the entire taxable year 
under Sec.  1.937-1(f)(2)(ii) is the portion of the taxable year for 
which the specified individual is a U.S. citizen.
    A specified person is not required to file Form 8938 for any 
taxable year for which the specified person is not required to file an 
annual return (for example, a Form 1040, ``U.S. Individual Income Tax 
Return,'' Form 1041, ``U.S. Income Tax Return for Estates and Trusts,'' 
Form 1120, ``U.S. Corporation Income Tax Return,'' Form 1120-S, ``U.S. 
Income Tax Return for an S Corporation,'' or Form 1065, ``U.S. Return 
of Partnership Income'') with the Internal Revenue Service.
    If a specified domestic entity is a member of an affiliated group 
of corporations that files a consolidated return, the Form 8938 of the 
specified domestic entity must be filed with the consolidated federal 
income tax return of the affiliated group.
A. Individuals Required To File Form 8938, ``Statement of Specified 
Foreign Financial Assets''
    For section 6038D purposes, a specified individual is a U.S. 
citizen, a resident alien of the United States (as determined under 
section 7701(b) and Sec. Sec.  301.7701(b)-1 through 301.7701(b)-9 of 
this chapter), or a nonresident alien who has elected under section 
6013(g) or (h) to be taxed as a U.S. resident. A resident alien who 
elects to be taxed as a resident of a foreign country pursuant to a 
U.S. income tax treaty's residency tie-breaker rules is a specified 
individual for purposes of section 6038D and the regulations.
    In addition, certain nonresident aliens who are treated as 
residents under other sections of the Code are specified individuals 
for the purposes of section 6038D and the regulations . Under section 
876 and Sec.  1.876-1, nonresident alien individuals of the United 
States under section 7701(b) who are bona fide residents of Puerto Rico 
or a section 931 possession (as defined in Sec.  1.931-1(c)(1)) are 
subject to tax under sections 1 and 55 in generally the same manner as 
a U.S. resident. Therefore, the rules under section 6038D apply to a 
nonresident alien who is a bona fide resident of Puerto Rico or 
American Samoa in the same manner as they apply to a U.S. citizen or 
resident.
    As noted in this preamble, a specified person is not required to 
file Form 8938 if the specified person is not required to file an 
annual return with the Internal Revenue Service. With respect to bona 
fide residents of U.S. territories, this rule means that a bona fide 
resident of a U.S. territory has a filing requirement under section 
6038D and the regulations only if he or she is required to file a 
federal income tax return for the taxable year. In general, bona fide 
residents of the U.S. Virgin Islands and U.S. territories to which 
section 935 applies (currently, Guam and the Northern Mariana Islands) 
are not required to file a federal income tax return provided they 
correctly report and pay tax on their worldwide income to their U.S. 
territory taxing authority. Bona fide residents of Puerto Rico or a 
section 931 possession (currently, American Samoa) generally are 
required to file a federal income tax return with the Internal Revenue 
Service only if they have income from sources without the relevant U.S. 
territory, because sections 931(a) and 933 generally exclude from gross 
income any income derived from sources within the relevant U.S. 
territory. Section 6038D and these regulations generally require only 
bona fide residents of Puerto Rico or a section 931 possession that are 
required to file a federal income tax return with the Internal Revenue 
Service to file a Form 8938 with the Internal Revenue Service.
B. Interest in a Specified Foreign Financial Asset
    For section 6038D purposes, a specified person is generally 
considered to have an interest in a specified foreign financial asset 
if any income, gains, losses, deductions, credits, gross proceeds, or 
distributions attributable to the holding or disposition of the asset 
are or would be required to be reported, included, or otherwise 
reflected on the specified person's annual return filed with the 
Internal Revenue Service (even if no income, gains, losses, deductions, 
credits, gross proceeds, or distributions are attributable to the asset 
for a particular taxable year).
    For purposes of section 6038D and the regulations, a parent that 
makes an election under section 1(g)(7) to include certain unearned 
income of a child in the parent's gross income required to be reported 
for the taxable year has an interest in any specified foreign financial 
asset held by the child.
    A specified person that is the owner of an entity disregarded as an 
entity separate from its owner (as provided in Sec.  301.7701-
2(c)(2)(i) of this chapter) (disregarded entity) is treated as having 
an interest in any specified foreign financial assets held by the 
disregarded entity. A specified person that is treated as the owner of 
a trust or any portion of a trust under sections 671 through 679 is 
treated as having an interest in any specified foreign financial assets 
held by the trust or by the portion of the trust that the specified 
person owns, except as described in section 6(B) of this explanation. A 
specified person is not treated as having an interest in any specified 
foreign financial assets held by a partnership, corporation, trust 
(except as described in this explanation), or estate solely as a result 
of the specified person's status as a partner, shareholder, or 
beneficiary.
C. Jointly Owned Assets
    A joint interest in a specified foreign financial asset is subject 
to reporting under section 6038D and Sec.  1.6038D-2T(a) by each 
specified person that is a joint owner of the asset. In general, each 
joint owner includes the full value of the jointly owned asset for 
purposes of determining whether the aggregate value of all specified 
foreign financial assets in which the joint owner has an interest 
exceeds the reporting thresholds set forth in Sec.  1.6038D-2T(a).
    1. Married individuals filing jointly.
    Married specified individuals who file a joint annual return for 
the taxable year must fulfill their reporting requirements under 
section 6038D and Sec.  1.6038D-2T(a) by filing a single Form 8938 that 
reports all of the specified foreign financial assets in which either 
married specified individual has an interest. A specified foreign 
financial asset that is jointly owned by married specified individuals 
or a specified foreign financial asset held by a child for which the 
married specified individuals have made an election under section 
1(g)(7) is reported once on the single Form 8938. Married specified 
individuals who file a joint annual return include the value of a 
specified foreign financial asset that they jointly own together or a 
specified foreign financial asset held by a child for which they have 
made an election under section 1(g)(7) only once in determining whether 
the aggregate value of all of the specified foreign financial assets in 
which either married specified individual has an interest exceeds the 
appropriate reporting threshold set forth in Sec.  1.6038D-2T(a).
    2. Married individuals filing separately.
    A married specified individual who files a separate annual return 
for the taxable year must fulfill the reporting requirements under 
section 6038D and Sec.  1.6038D-2T(a) by filing a separate Form 8938 
that reports all of the specified foreign financial assets in which the 
married specified individual has an interest, including assets jointly 
owned with the married specified individual's spouse. A married 
specified individual that files a separate annual

[[Page 78556]]

return and whose spouse is a specified person includes only one-half of 
the value of a specified foreign financial asset that the married 
specified individual jointly owns with his or her spouse in determining 
whether the married specified individual has an interest in specified 
foreign financial assets the aggregate value of which exceeds the 
appropriate reporting threshold set forth in Sec.  1.6038D-2T(a).

2. Specified Foreign Financial Assets

    For purposes of section 6038D, specified foreign financial assets 
include financial accounts maintained by foreign financial 
institutions, as well as certain other foreign financial assets or 
instruments. An asset or instrument may be a specified foreign 
financial asset subject to reporting under section 6038D and the 
regulations even if the asset or instrument does not have a positive 
value.
A. Financial Account Maintained by a Foreign Financial Institution
    For purposes of section 6038D, a financial account is defined by 
reference to section 1471(d)(2) and the regulations.
    A foreign financial institution is defined by reference to section 
1471(d)(4). For this purpose, a foreign financial institution is a 
financial institution (as determined under section 1471(d)(5)) that is 
a foreign entity (as determined under section 1473(5)). Under section 
1471(d)(5), a financial institution is any entity that--
    (1) Accepts deposits in the ordinary course of a banking or similar 
business;
    (2) Holds financial assets for the account of others as a 
substantial portion of its business; or
    (3) Is engaged, or holds itself out as being engaged, primarily in 
the business of investing, reinvesting, or trading in securities (as 
defined in section 475(c)(2) without regard to the last sentence 
thereof), partnership interests, commodities (as defined in section 
475(e)(2)), or any interest (including a futures or forward contract or 
option) in such securities, partnership interests, or commodities.
    Notwithstanding that a financial institution organized under the 
laws of a U.S. territory is not generally a foreign financial 
institution for purposes of section 1471(d)(4), for purposes of section 
6038D and the regulations, a specified foreign financial asset includes 
a financial account maintained by a financial institution organized 
under the laws of a U.S. territory. Accordingly, such an account must 
be reported, except when owned by a bona fide resident of the relevant 
U.S. territory.
    A financial account maintained by a U.S. payor as defined in Sec.  
1.6049-5(c)(5)(i) (including assets held in such an account) is not a 
specified foreign financial asset for purposes of section 6038D and the 
regulations thereunder. For example, a specified person is not required 
to report a financial account maintained by a U.S. branch of a foreign 
financial institution described in Sec.  1.1441-1(b)(2)(iv).
    An asset held in a financial account maintained by a foreign 
financial institution is not required to be reported on Form 8938 
separately from the reported financial account in which the asset is 
held. The value of an asset held in a financial account maintained by a 
foreign financial institution is included in determining the maximum 
value of that account.
B. Other Specified Foreign Financial Assets
    Under Sec.  1.6038D-3T(b), specified foreign financial assets also 
include certain assets that are held outside of a financial account 
maintained by a financial institution. Specifically, a specified 
foreign financial asset includes any asset that is held for investment 
and is described in one or more of the following three categories: 
Stock or securities issued by a person other than a U.S. person; a 
financial instrument or contract issued by a person other than a U.S. 
person or that has a counterparty that is a person other than a U.S. 
person; and any interest in a foreign entity. For these purposes, a 
U.S. person is defined under section 7701(a)(30). Whether an entity is 
a foreign entity is determined under section 1473(5). These three 
categories are broad and overlap in certain cases such that an asset 
not held in a financial account may be within more than one of the 
statutory categories of section 6038D(b)(2). For example, stock issued 
by a foreign corporation is stock that is issued by a person other than 
a U.S. person, and is also an interest in a foreign entity.
    An asset not held in an account maintained by a financial 
institution is held for investment for purposes of section 6038D and 
the regulations if the asset is not used or held for use in the 
specified person's trade or business. For purposes of determining 
whether an asset is used or held for use in the specified person's 
trade or business, the regulations apply principles based on the asset-
use test of Sec.  1.864-4(c)(2), with certain modifications. The 
regulations provide that stock is never considered to be used or held 
for use in a trade or business in applying the trade or business 
exception. The Department of the Treasury and the Internal Revenue 
Service believe this rule is appropriate given the broad exception for 
section 475 mark-to-market accounting discussed in section 2(D) of this 
explanation, and the exception from reporting for stock held in a 
financial account maintained by a foreign financial institution 
(provided the financial account is reported on Form 8938). The 
Department of the Treasury and the Internal Revenue Service request 
comments that concern the treatment of stock under these regulations 
and, more generally, what refinements, if any, to the regulation's 
trade or business standard would facilitate the implementation of the 
trade or business reporting exception.
C. Special Rule for Foreign Estates and Foreign Trusts
    A beneficial interest in a foreign trust or a foreign estate is not 
a specified foreign financial asset of a specified person unless the 
specified person knows or has reason to know based on readily 
accessible information of the interest. Receipt of a distribution from 
the foreign trust or foreign estate is deemed for this purpose to be 
actual knowledge of the interest.
D. Assets Not Subject to Reporting Under Section 6038D
    The following assets are not specified foreign financial assets--
    (1) An asset for which a specified person uses mark-to-market 
accounting under section 475;
    (2) A financial account maintained by a foreign financial 
institution for which the specified person uses mark-to-market 
accounting under section 475 for all of the holdings in the account; 
and
    (3) An interest in a social security, social insurance, or other 
similar program of a foreign government.

3. Required Information

    A specified person required to report on Form 8938 must provide the 
following information with regard to each specified foreign financial 
asset:
    (A) In the case of a financial account maintained by a foreign 
financial institution, the name and address of the foreign financial 
institution and the account number of the account;
    (B) In the case of stock or a security, the name and address of the 
issuer, and information that identifies the class or issue of which the 
stock or security is a part;
    (C) In the case of a financial instrument or contract held for 
investment, information that identifies

[[Page 78557]]

the financial instrument or contract, including the names and addresses 
of all issuers and counterparties;
    (D) In the case of an interest in a foreign entity, information 
that identifies the interest, including the name and address of the 
entity;
    (E) The maximum value of the specified foreign financial asset 
during the portion of the taxable year in which the specified person 
has an interest in the asset;
    (F) In the case of a financial account that is a depository or 
custodial account under section 1471(d)(2), whether such financial 
account was opened or closed during the taxable year;
    (G) The date, if any, on which the specified foreign financial 
asset, other than a financial account that is a depository or custodial 
account under section 1471(d)(2), was either acquired or disposed of 
(or both) during the taxable year;
    (H) The amount of any income, gain, loss, deduction, or credit 
recognized for the taxable year with respect to the reported specified 
foreign financial asset, and the schedule, form, or return filed with 
the Internal Revenue Service on which the income, gain, loss, 
deduction, or credit, if any, is reported or included by the specified 
person;
    (I) The foreign currency exchange rate and, if the source of such 
rate is other than as described in Sec.  1.6038D-5T(d)(1), the source 
of the rate used to determine the specified foreign financial asset's 
U.S. dollar value, including maximum value; and
    (J) For a specified foreign financial asset excepted from reporting 
on Form 8938 under Sec.  1.6038D-7T(a), the specified person must 
report the number of each type of form on which the asset is reported 
directly (for example, Form 3520, ``Annual Return To Report 
Transactions With Foreign Trusts and Receipt of Certain Foreign 
Gifts,'' Form 3520-A, ``Annual Information Return of Foreign Trust With 
a U.S. Owner,'' Form 5471, ``Information Return of U.S. Persons With 
Respect To Certain Foreign Corporations,'' Form 8621, ``Return by a 
Shareholder of a Passive Foreign Investment Company or a Qualified 
Electing Fund,'' Form 8865, ``Return of U.S. Persons With Respect To 
Certain Foreign Partnerships,'' or Form 8891, ``U.S. Information Return 
for Beneficiaries of Certain Canadian Registered Retirement Plans.'')

4. Valuation Guidelines

    The value of a specified foreign financial asset must be determined 
both for purposes of determining if the aggregate value of the 
specified foreign financial assets in which a specified person holds an 
interest exceeds the reporting thresholds set forth in Sec.  1.6038D-
2T(a) and for purposes of reporting the maximum value of a specified 
foreign financial asset on Form 8938 as required by Sec.  1.6038D-
4T(a)(5). Under Sec.  1.6038D-5T, the value of a specified foreign 
financial asset for both of these purposes generally is the asset's 
fair market value. The maximum value of a specified foreign financial 
asset is the asset's highest fair market value during the taxable year, 
except as otherwise provided in Sec.  1.6038D-5T, and must be reported 
on Form 8938 in U.S. dollars. If the maximum value of a specified 
foreign financial asset is less than zero, the value of the specified 
foreign financial asset is treated as zero for the purposes of 
determining the aggregate value of specified foreign financial assets 
in which a specified person has an interest and determining the maximum 
value of a specified foreign financial asset required to be reported on 
Form 8938.
A. Foreign Currency Conversion
    If a specified foreign financial asset is denominated in a foreign 
currency, the value of the asset for purposes of determining both the 
aggregate value of specified foreign financial assets in which a 
specified person holds an interest and the maximum value of the 
specified foreign financial asset is first determined in the foreign 
currency prior to conversion into U.S. dollars (that is, independently 
of exchange rate fluctuations during the year). The asset's foreign 
currency value is then converted into U.S. dollars at the taxable year-
end spot rate for converting the foreign currency into U.S. dollars 
(that is, the rate to purchase U.S. dollars). The U.S. Treasury 
Department's Financial Management Service foreign currency exchange 
rate is to be used to convert the value of a specified foreign 
financial asset into U.S. dollars. If no U.S. Treasury Department 
Financial Management Service foreign currency exchange rate is 
available, another publicly available foreign currency exchange rate 
may be used to determine an asset's maximum value, but the use of such 
rate must be disclosed on Form 8938.
B. Valuing Financial Accounts
    The maximum value of a financial account means a reasonable 
estimate of the maximum value of the holdings of the financial account 
at any time during the taxable year. Periodic account statements 
provided at least annually may be relied upon for reporting a financial 
account's maximum value absent actual knowledge or reason to know based 
on readily accessible information that the statements do not reflect a 
reasonable estimate of the maximum account value during the taxable 
year.
C. Valuing Other Specified Foreign Financial Assets
    Except as described in sections 5(D) and 5(E) of this explanation, 
for purposes of determining the maximum value of a specified foreign 
financial asset other than a financial account maintained with a 
foreign financial institution, a specified person may treat the asset's 
fair market value on the last day during the taxable year on which the 
specified person has an interest in the asset as the maximum value of 
the asset. The specified person may not use this valuation approach if 
the specified person has actual knowledge or reason to know based on 
readily accessible information that the fair market value determined as 
of such date does not reflect a reasonable estimate of the maximum 
value of the asset during the year (for example, because there is a 
reason to know that the asset's value declined significantly during the 
year).
    A specified person may determine the fair market value of a 
specified foreign financial asset based on information publicly 
available from reliable financial information sources or from other 
verifiable sources. Even if there is no information from reliable 
financial information sources regarding the fair market value of a 
reported asset, the regulations do not require a specified person to 
obtain an appraisal by a third party in order to reasonably estimate 
the asset's fair market value.
D. Special Valuation Rules for Interests in Foreign Trusts
    If a specified person is a beneficiary of a foreign trust, the 
maximum value of the specified person's interest in the trust is the 
sum of the fair market value, determined as of the last day of the 
taxable year, of all of the currency or other property distributed from 
the foreign trust during the taxable year to the specified person, plus 
the value as of the last day of the taxable year of the specified 
person's right as a beneficiary to receive mandatory distributions from 
the foreign trust as determined under section 7520.
    For purposes of determining the aggregate value of specified 
foreign financial assets in which a specified person has an interest, 
if the specified person does not know or have reason to know based on 
readily accessible information the fair market value of the person's 
interest in a foreign trust

[[Page 78558]]

during the taxable year, the value to be included in determining the 
aggregate value of the specified foreign financial assets is the 
maximum value of the specified person's interest in the foreign trust.
E. Special Valuation Rule for Interests in Foreign Estates, Pension 
Plans, and Deferred Compensation Plans
    The maximum value of a specified person's interest in a foreign 
estate, foreign pension plan, or a foreign deferred compensation plan 
is the fair market value, determined as of the last day of the taxable 
year, of the specified person's beneficial interest in the assets of 
the foreign estate, foreign pension plan, or foreign deferred 
compensation plan. If the specified person does not know or have reason 
to know based on readily accessible information such fair market value, 
the maximum value to be reported is the fair market value, determined 
as of the last day of the taxable year, of the currency and other 
property distributed during the taxable year to the specified person as 
a beneficiary or participant.
    For purposes of determining the aggregate value of specified 
foreign financial assets in which a specified person has an interest, 
if the specified person does not know or have reason to know based on 
readily accessible information the fair market value of the person's 
interest in a foreign estate, foreign pension plan, or foreign deferred 
compensation plan during the taxable year, the value to be included in 
determining the aggregate value of the specified foreign financial 
assets is the fair market value, determined as of the last day of the 
taxable year, of the currency and other property distributed during the 
taxable year to the specified person as a beneficiary or participant.
F. Jointly Owned Assets
    Except for certain married specified individuals who jointly own a 
specified foreign financial asset with a spouse, a specified person 
that jointly owns a specified foreign financial asset must use the 
value of the entire asset, and not the value of the specified person's 
separate interest, for purposes of determining whether the reporting 
thresholds set forth in Sec.  1.6038D-2T(a) are exceeded. A specified 
person, including a married specified individual, that jointly owns a 
specified foreign financial asset must report the maximum value of the 
entire asset during the portion of the taxable year that the specified 
person has an interest in the asset. Married specified individuals that 
jointly own a specified foreign financial asset and that file a joint 
annual income return tax are only required to report the asset once on 
the single Form 8938 filed with their return.

5. Application to Entities Formed or Availed of for Purposes of 
Holding, Directly or Indirectly, Specified Foreign Financial Assets

    The notice of proposed rulemaking accompanying these regulations 
(REG-130302-10) includes Prop. Reg. Sec.  1.6038D-6, which applies 
section 6038D to certain domestic entities that are formed or availed 
of for purposes of holding, directly or indirectly, specified foreign 
financial assets. The Department of the Treasury and the Internal 
Revenue Service anticipate that Prop. Reg. Sec.  1.6038D-6 will be 
issued as a final regulation during 2012 and will apply to taxable 
years beginning after December 31, 2011. Until Prop. Reg. Sec.  
1.6038D-6 is issued as a final regulation, no domestic entity is 
required to file Form 8938 to report specified foreign financial assets 
with its annual return.

6. Exceptions From the Application of Section 6038D

A. Duplicative Reporting of Assets
    A specified person required to file Form 8938 with the Internal 
Revenue Service is not required to report a specified foreign financial 
asset on Form 8938 if the asset is reported or reflected on a Form 3520 
(in the case of a specified person who is the beneficiary of a foreign 
trust), Form 5471, Form 8621, Form 8865, or Form 8891 timely filed with 
the Internal Revenue Service by the specified person for the taxable 
year, and the Form 8938 indicates the filing of the form on which the 
asset is reported.
    A specified person required to file Form 8938 that is treated as an 
owner of a foreign trust or any portion of such a trust under sections 
671 through 679 is not required to report any specified foreign 
financial asset held by the trust on Form 8938 provided the specified 
person reports the trust on a Form 3520 timely filed with the Internal 
Revenue Service for the taxable year, the trust timely files Form 3520-
A with the Internal Revenue Service for the taxable year, and the Form 
8938 filed by the specified person for the taxable year indicates the 
filing of the Form 3520 and the Form 3520-A.
B. Owner of Certain Trusts
    A specified person that is treated as an owner of a domestic 
liquidating trust described in Sec.  301.7701-4(d) of this chapter 
created pursuant to a court order issued in a bankruptcy under Chapter 
7 (11 U.S.C. 701 et seq.) or a confirmed plan under Chapter 11 (11 
U.S.C. 1101 et seq.) of the Bankruptcy Code, a domestic widely held 
fixed investment trust under Sec.  1.671-5, or any portion of such a 
trust under sections 671 through 679 is not required to file Form 8938 
to report any specified foreign financial asset held by the trust.
C. Certain Specified Foreign Financial Assets Held by a Bona Fide 
Resident of a U.S. Territory
    As described in section 1(A) of this explanation, bona fide 
residents of the U.S. Virgin Islands and U.S. territories to which 
section 935 applies (currently, Guam and the Northern Mariana Islands) 
generally are not required to file a federal income tax return and, 
therefore, generally would not be required to file a Form 8938 with the 
Internal Revenue Service. By contrast, certain bona fide residents of 
Puerto Rico or a section 931 possession as defined in Sec.  1.931-
1(c)(1) (currently, American Samoa) who have income from sources 
outside their U.S. territory of residence may be required to file a 
federal income tax return; thus, the reporting requirements of section 
6038D and the regulations may apply to such persons.
    No reporting is required by a bona fide resident of a U.S. 
territory with respect to certain specified foreign financial assets 
that have certain connections to the U.S. territory of which the 
individual is a bona fide resident. Reporting is not required with 
respect to a financial account maintained by a financial institution 
organized under the laws of the U.S. territory of which the specified 
person is a bona fide resident. Reporting also is not required with 
respect to a financial account maintained by a branch of a financial 
institution not organized under the laws of the U.S. territory of which 
the specified person is a bona fide resident, if the branch is subject 
to the same income tax and information reporting requirements 
applicable to a financial institution organized under the laws of the 
U.S. territory.
    Reporting is also not required with respect to stock or securities 
or any other interest in an entity organized under the laws of the U.S. 
territory of which the specified person is a bona fide resident. 
Similarly, reporting is not required with respect to a financial 
instrument or contract held for investment if the issuer or 
counterparty is: (i) An entity organized under the laws of the U.S. 
territory of which the specified person is a bona fide resident; or 
(ii) a bona fide resident of the U.S.

[[Page 78559]]

territory of which the specified person is a bona fide resident.
    These reporting exceptions for certain U.S. territory-connected 
assets do not apply to assets held by a U.S. citizen or resident who is 
not a bona fide resident of any U.S. territory or an individual who is 
a bona fide resident of a U.S. territory other than the one to which 
the assets are connected.
D. Form TD F 90-22.1, ``Report of Foreign Bank and Financial Accounts'' 
(FBAR)
    Reporting on Form TD F 90-22.1 is required under Title 31 (31 
U.S.C. 5314) for other law enforcement purposes in addition to tax 
administration. As a consequence, different policy considerations apply 
to Form 8938 and FBAR reporting. These are reflected in the different 
categories of persons required to file Form 8938 and the FBAR, the 
different filing thresholds for Form 8938 and FBAR reporting, and the 
different assets (and accompanying information) required to be reported 
on each form. Although certain information may be reported on both Form 
8938 and the FBAR, the information required by the forms is not 
identical in all cases, and reflects the different rules, key 
definitions (for example, ``financial account''), and reporting 
requirements applicable to Form 8938 and FBAR reporting.
    These differing policy considerations were recognized during the 
passage of the HIRE Act and the enactment of section 6038D, and the 
intention to retain FBAR reporting notwithstanding the enactment of 
section 6038D was specifically noted in the Technical Explanation Of 
The Revenue Provisions Contained In Senate Amendment 3310, The ``Hiring 
Incentives To Restore Employment Act,'' Under Consideration by the 
Senate (Staff of the Joint Comm. on Taxation, JCX-4-10 (February 23, 
2010)) (Technical Explanation) accompanying the HIRE Act. The Technical 
Explanation states that ``[n]othing in this provision [section 511 of 
the HIRE Act enacting section 6038D] is intended as a substitute for 
compliance with the FBAR reporting requirements, which are unchanged by 
this provision.'' (Technical Explanation at p. 60). Against this 
background, reporting on Form 8938 and the FBAR is not duplicative and 
both forms must be filed, if required.

7. Penalties for Failure To Disclose

A. In General
    If a specified person fails to file a Form 8938 that includes the 
information required by section 6038D(c) and Sec.  1.6038D-4T with 
respect to any taxable year at the time and in the manner described in 
section 6038D(a) and Sec.  1.6038D-2T, a penalty of $10,000 will apply 
to that specified person under section 6038D(d) and Sec.  1.6038D-8T. 
If any such failure continues for more than 90 days after the day on 
which the Commissioner or his delegate mails a notice of the failure to 
the specified person required to file the Form 8938, the specified 
person is subject to an additional penalty of $10,000 for each 30-day 
period (or fraction thereof) during which the failure continues after 
the 90-day period has expired. The additional (or continuation) penalty 
is limited to a maximum of $50,000 for each such failure.
    Married specified individuals who file a joint annual return and 
fail to file a required Form 8938, ``Statement of Specified Foreign 
Financial Assets,'' that includes the information required by section 
6038D(c) and Sec.  1.6038D-4T with respect to any taxable year at the 
time and in the manner described in section 6038D(a) and Sec.  1.6038D-
2T are subject to penalties under section 6038D(d) and Sec.  1.6038D-8T 
as if the married specified individuals are a single specified person. 
The liability of married specified individuals who file a joint annual 
return with respect to penalties under this section is joint and 
several.
B. Presumption of Aggregate Value
    For the purpose of assessing the penalties for failure to disclose, 
if the Commissioner or his delegate determines that a specified person 
has an interest in one or more specified foreign financial assets, and 
the specified person has not provided sufficient information to 
demonstrate the aggregate value of the assets upon request by the 
Secretary, then the aggregate value of the assets is treated as being 
in excess of the applicable reporting threshold set forth in Sec.  
1.6038D-2T(a).
C. Reasonable Cause Exception
    If a specified person shows that the failure to report the 
information required under section 6038D and Sec.  1.6038D-4T is due to 
reasonable cause and not due to willful neglect, no penalty will be 
imposed under section 6038D(d) or Sec.  1.6038D-8T. To show that the 
failure to report is due to reasonable cause and not due to willful 
neglect, the specified person must make an affirmative showing of all 
the facts alleged as reasonable cause for the failure to report.
    The determination of whether a failure to disclose a specified 
foreign financial asset on Form 8938 was due to reasonable cause and 
not due to willful neglect is made on a case-by-case basis, taking into 
account all pertinent facts and circumstances. For this purpose, the 
fact that a foreign jurisdiction would impose a civil or criminal 
penalty on the specified person (or any other person) for disclosing 
the required information is not reasonable cause.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. For the 
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), 
please refer to the Special Analyses section of the preamble to the 
cross-referenced notice of proposed rulemaking published in the 
Proposed Rules section in this issue of the Federal Register. Pursuant 
to section 7805(f) of the Internal Revenue Code, these regulations have 
been submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small business.

Drafting Information

    The principal author of these regulations is Joseph S. Henderson, 
Office of Associate Chief Counsel (International). However, other 
personnel from the Internal Revenue Service and the Treasury Department 
participated in the development of the regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1---INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order to read as follows:

    Authority:  26 U.S.C. 7805 * * *

Section 1.6038D-0T also issued under 26 U.S.C. 6038D.
Section 1.6038D-1T also issued under 26 U.S.C. 6038D.
Section 1.6038D-2T also issued under 26 U.S.C. 6038D.
Section 1.6038D-3T also issued under 26 U.S.C. 6038D.

[[Page 78560]]

Section 1.6038D-4T also issued under 26 U.S.C. 6038D.
Section 1.6038D-5T also issued under 26 U.S.C. 6038D.
Section 1.6038D-7T also issued under 26 U.S.C. 6038D.
Section 1.6038D-8T also issued under 26 U.S.C. 6038D.* * *


0
Par. 2. Section 1.6038D-0T is added to read as follows:


Sec.  1.6038D-0T  Outline of regulation provisions (temporary).

    This section lists the table of contents for Sec. Sec.  1.6038D-1T 
through 1.6038D-8T.


Sec.  1.6038D-1T  Reporting with respect to specified foreign financial 
assets, definition of terms (temporary).

    (a) In general.
    (1) Specified person.
    (2) Specified individual.
    (3) Resident alien.
    (4) Bona fide resident of a U.S. possession.
    (5) U.S. possession.
    (6) Specified foreign financial asset.
    (7) Financial account.
    (8) Financial institution.
    (9) Foreign financial institution.
    (10) Foreign entity.
    (11) Annual return.
    (12) Specified domestic entity. [Reserved]
    (b) Effective/applicability dates.
    (c) Expiration date.


Sec.  1.6038D-2T  Requirement to report specified foreign financial 
assets (temporary).

    (a) Reporting requirement.
    (1) In general.
    (2) Special rule for married specified individuals filing a joint 
annual return.
    (3) Special rule for certain specified individuals living abroad.
    (4) Special rule for qualified individuals filing a joint annual 
return.
    (5) Assets with no positive value.
    (6) Excepted assets.
    (7) Form 8938 filed with annual return.
    (i) General rule.
    (ii) Consolidated returns.
    (8) Reporting required regardless of tax result.
    (9) Reporting period.
    (10) Successor forms.
    (b) Interest in a specified foreign financial asset.
    (1) In general.
    (2) Special rule for parent making an election under section 
1(g)(7).
    (3) Entities.
    (c) Special rules for joint interests.
    (1) Aggregate value of assets.
    (i) Specified persons.
    (ii) Married specified individuals.
    (2) Annual return filed by married specified individual.
    (i) Joint annual return.
    (ii) Separate annual return.
    (d) Example.
    (1) Facts.
    (2) Filing requirement.
    (i) Married specified individuals filing separate annual returns.
    (ii) Married specified individuals filing a joint annual return.
    (e) Effective/applicability dates.
    (f) Expiration date.


Sec.  1.6038D-3T  Specified foreign financial assets (temporary).

    (a) Financial accounts.
    (1) In general.
    (2) Financial account in a U.S. possession.
    (3) Excepted financial accounts.
    (i) Accounts maintained by U.S. payors.
    (ii) Mark-to-market election under section 475.
    (b) Other specified foreign financial assets.
    (1) In general.
    (2) Mark-to-market election under section 475.
    (3) Held for investment.
    (4)Trade-or-business test.
    (5) Direct relationship between holding an asset and a trade or 
business.
    (i) In general.
    (ii) Presumption of direct relationship.
    (c) Special rule for interests in foreign trusts and foreign 
estates.
    (d) Examples.
    (e) Effective/applicability dates.
    (f) Expiration date.


Sec.  1.6038D-4T  Information required to be reported (temporary).

    (a) Required information.
    (b) Effective/applicability dates.
    (c) Expiration date.


Sec.  1.6038D-5T  Valuation guidelines (temporary).

    (a) Fair market value.
    (b) Valuation of assets.
    (1) Maximum value.
    (2) U.S. dollars.
    (3) Asset with no positive value.
    (c) Foreign currency conversion.
    (1) In general.
    (2) Other publicly available exchange rate.
    (3) Currency exchange rate.
    (4) Determination date.
    (d) Financial accounts.
    (e) Asset held in a financial account.
    (f) Other specified foreign financial assets.
    (1) General rule.
    (2) Interests in trusts that are specified foreign financial 
assets.
    (i) Maximum value.
    (ii) Reporting threshold.
    (3) Interests in estates, pension plans, and deferred compensation 
plans.
    (i) Maximum value.
    (ii) Reporting threshold.
    (g) Effective/applicability dates.
    (h) Expiration date.


Sec.  1.6038D-6T  Specified domestic entities (temporary). [Reserved]


Sec.  1.6038D-7T  Exceptions from the reporting of certain assets under 
Section 6038D (temporary).

    (a) Elimination of duplicative reporting of assets.
    (1) In general.
    (2) Foreign grantor trusts.
    (b) Owner of certain trusts.
    (c) Bona fide resident of a U.S. possession.
    (d) Effective/applicability dates.
    (e) Expiration date.


Sec.  1.6038D-8T  Penalties for failure to disclose (temporary).

    (a) In general.
    (b) Married specified individuals filing a joint annual return.
    (c) Increase in penalty.
    (d) Presumption of aggregate value.
    (e) Reasonable cause exception.
    (1) In general.
    (2) Affirmative showing required.
    (3) Facts and circumstances taken into account.
    (f) Penalties for underpayments attributable to undisclosed foreign 
financial assets.
    (1) Accuracy related penalty.
    (2) Criminal penalties.
    (g) Effective/applicability dates.
    (h) Expiration date.

0
Par. 3. Section 1.6038D-1T is added to read as follows:


Sec.  1.6038D-1T  Reporting with respect to specified foreign financial 
assets, definition of terms (temporary).

    (a) In general. The following definitions apply for purposes of 
section 6038D and the regulations--
    (1) Specified person. The term specified person means a specified 
individual or a specified domestic entity.
    (2) Specified individual. The term specified individual means an 
individual who is a--
    (i) U.S. citizen;
    (ii) Resident alien of the United States for any portion of the 
taxable year;
    (iii) Nonresident alien for whom an election under section 6013(g) 
or (h) is in effect; or
    (iv) Nonresident alien who is a bona fide resident of Puerto Rico 
or a section 931 possession (as defined in Sec.  1.931-1(c)(1)).
    (3) Resident alien. The term resident alien has the meaning set 
forth in section 7701(b) and Sec. Sec.  301.7701(b)-1 through 
301.7701(b)-9 of this chapter.

[[Page 78561]]

    (4) Bona fide resident of a U.S. possession. The term bona fide 
resident of a U.S. possession means an individual who is a ``bona fide 
resident'' under section 937(a) and Sec.  1.937-1.
    (5) U.S. possession. The term U.S. possession means American Samoa, 
Guam, the Northern Mariana Islands, Puerto Rico, or the U.S. Virgin 
Islands.
    (6) Specified foreign financial asset. The term specified foreign 
financial asset has the meaning set forth in Sec.  1.6038D-3T.
    (7) Financial account. The term financial account has the meaning 
set forth in section 1471(d)(2) and the regulations.
    (8) Financial institution. The term financial institution has the 
meaning set forth in section 1471(d)(5) and the regulations.
    (9) Foreign financial institution. The term foreign financial 
institution has the meaning set forth in section 1471(d)(4) and the 
regulations.
    (10) Foreign entity. The term foreign entity has the meaning set 
forth in section 1473(5) and the regulations.
    (11) Annual return. The term annual return means an annual federal 
income tax return of a specified individual or an annual federal income 
tax return or information return of a specified domestic entity filed 
with the Internal Revenue Service under section 876, 6011, 6012, 6013, 
6031, or 6037, and the regulations.
    (12) Specified domestic entity.--[Reserved].
    (b) Effective/applicability dates. This section applies to taxable 
years ending after December 19, 2011. Taxpayers may elect to apply the 
rules of this section to taxable years ending prior to December 19, 
2011.
    (c) Expiration date. The applicability of this section expires 
December 12, 2014.

0
Par. 4. Section 1.6038D-2T is added to read as follows:


Sec.  1.6038D-2T  Requirement to report specified foreign financial 
assets (temporary).

    (a) Reporting requirement--(1) In general. Except as otherwise 
provided, a specified person that has any interest in a specified 
foreign financial asset during the taxable year must attach Form 8938, 
``Statement of Specified Foreign Financial Assets,'' to that specified 
person's annual return for the taxable year to report the information 
required by section 6038D and Sec.  1.6038D-4T if the aggregate value 
of all such assets exceeds--
    (i) $50,000 on the last day of the taxable year; or
    (ii) $75,000 at any time during the taxable year.
    (2) Special rule for married specified individuals filing a joint 
annual return. Except as provided in paragraph (a)(1)(4) of this 
section, married specified individuals that file a joint annual return 
for the taxable year must attach a single Form 8938 to their joint 
annual return to report the information required by section 6038D and 
Sec.  1.6038D-4T if the aggregate value of all of the specified foreign 
financial assets in which either married specified individual has an 
interest exceeds--
    (i) $100,000 on the last day of the taxable year; or
    (ii) $150,000 at any time during the taxable year.
    (3) Special rule for certain specified individuals living abroad. 
Except as provided in paragraph (a)(1)(4) of this section, a specified 
individual who is a qualified individual under section 911(d)(1) for 
the taxable year is required to attach a Form 8938 to the specified 
individual's annual return and report the information required by 
section 6038D and Sec.  1.6038D-4T if the aggregate value of the 
specified foreign financial assets in which the specified individual 
has an interest exceeds--
    (i) $200,000 on the last day of the taxable year; or
    (ii) $300,000 at any time during the taxable year.
    (4) Special rule for qualified individuals filing a joint annual 
return. A qualified individual under section 911(d)(1) and the 
qualified individual's spouse who file a joint annual return must 
attach Form 8938 to their joint annual return to report the information 
required by section 6038D and Sec.  1.6038D-4T if the aggregate value 
of all of the specified foreign financial assets in which either 
married individual has an interest exceeds--
    (i) $400,000 on the last day of the taxable year; or
    (ii) $600,000 at any time during the taxable year.
    (5) Assets with no positive value. A specified foreign financial 
asset is subject to reporting even if the specified foreign financial 
asset does not have a positive value. See Sec.  1.6038D-5T(b) for 
reporting the maximum value of a specified foreign financial asset, 
including a specified foreign financial asset that does not have a 
positive value during the taxable year.
    (6) Excepted assets. The value of any specified foreign financial 
asset in which a specified individual has an interest and that is 
excluded from reporting on Form 8938 pursuant to Sec.  1.6038D-7T(a) is 
included for purposes of determining the aggregate value of specified 
foreign financial assets. The value of any specified foreign financial 
asset in which a specified individual has an interest and that is 
excluded from reporting under Sec.  1.6038D-7T(b) or (c) is excluded 
for purposes of determining the aggregate value of specified foreign 
financial assets.
    (7) Form 8938 filed with annual return--(i) General rule. A 
specified person, including a specified individual who is a bona fide 
resident of a U.S. possession, is not required to file Form 8938 with 
respect to a taxable year if the specified person is not required to 
file an annual return with the Internal Revenue Service with respect to 
such taxable year.
    (ii) Consolidated returns. If a specified domestic entity is a 
member of an affiliated group of corporations that files a consolidated 
income tax return, the Form 8938 of the specified domestic entity must 
be filed with the affiliated group's annual return.
    (8) Reporting required regardless of tax result. The Form 8938 
required by section 6038D and this section must be furnished by a 
specified person even if none of the specified foreign financial assets 
that must be reported affect the specified person's tax liability under 
the Internal Revenue Code for the taxable year.
    (9) Reporting period. The reporting period covered by Form 8938 is 
the specified person's taxable year, except the reporting period for a 
specified person who is a specified individual for less than an entire 
taxable year is the portion of the taxable year that the specified 
person is a specified individual.
    (10) Successor forms. References to Form 8938 include any successor 
form.
    (b) Interest in a specified foreign financial asset--(1) In 
general. A specified person has an interest in a specified foreign 
financial asset if any income, gains, losses, deductions, credits, 
gross proceeds, or distributions attributable to the holding or 
disposition of the specified foreign financial asset are or would be 
required to be reported, included, or otherwise reflected by the 
specified person on an annual return. A specified person has an 
interest in a specified foreign financial asset even if no income, 
gains, losses, deductions, credits, gross proceeds, or distributions 
are attributable to the holding or disposition of the specified foreign 
financial asset for the taxable year.
    (2) Special rule for parent making election under section 1(g)(7). 
A parent that makes an election under section 1(g)(7) to include 
certain unearned income of a child in the parent's gross income has an 
interest in any specified foreign financial asset held by the child

[[Page 78562]]

for the purposes of section 6038D and the regulations.
    (3) Entities. Except as provided in this paragraph, a specified 
person is not treated as having an interest in any specified foreign 
financial assets held by a corporation, partnership, trust, or estate 
solely as a result of the specified person's status as a shareholder, 
partner, or beneficiary of such entity. A specified person that is 
treated as the owner of a trust or any portion of a trust under 
sections 671 through 679, other than a domestic liquidating trust under 
Sec.  301.7701-4(d) of this chapter created pursuant to a court order 
issued in a bankruptcy under Chapter 7 (11 U.S.C. 701 et seq.) or a 
confirmed plan under Chapter 11 (11 U.S.C. 1101 et seq.) of the 
Bankruptcy Code, or a domestic widely held fixed investment trust under 
Sec.  1.67