July 27, 2011

The Foreign Account Tax Compliance Act ("FATCA") requires any U.S. person holding foreign financial assets with an aggregate value exceeding $50,000 (determined by combining the fair market value of each asset) to report certain information about those assets on a new form that is currently being developed by the IRS (Form 8938).

Reporting applies for assets held in taxable years beginning on or after January 1, 2011) and Form 8938 must be attached to the taxpayer's annual tax return.

Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification).

Form 8938 will be in addition to other information returns such as Form TDF 90-22.1 (Report of Foreign Bank and Financial Accounts, the "FBAR"), Form 5471 (Information return regarding foreign corporations), Form 3520 (Information return regarding foreign trusts and gifts) and Form 8865 (information return regarding foreign partnerships).

The information requested will significantly increase the amount of data required to file a tax return for those U.S. taxpayers holding foreign assets.

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