Indians living in the US, like other foreigners, will be monitored even more closely for their overseas assets, with the new provisions being introduced by the US Internal Revenue Service (IRS).
The IRS has introduced an additional form – Form 8938 – which is a Statement of Specified Foreign Financial Assets, that needs to be filed along with income tax returns from 2012. This is in addition to a similar form that taxpayers are required to file – Foreign Bank and Financial Accounts Report or FBAR.
Both the forms are intended to secure more information about financial assets and transactions of US citizens and residents with respect to their overseas bank accounts.
These forms are designed to help the IRS in identifying international tax non-compliance of American taxpayers. Form 8938 asks questions such as whether the bank account was opened during the last financial year. Answer to this question can provide a prompt to the IRS for further investigation of overseas accounts.
Tax experts feel that these forms are designed to specifically track the overseas accounts in Switzerland and India. Earlier in 2011, the United States Justice Department conducted a probe into bank accounts of US residents with HSBC India, which remained undisclosed to the Internal Revenue Service (IRS).
The new Form 8938 – will have to be included with the 2011 returns, if applicable. The form is not limited only to US citizens, but also applies to US residents as well.
Who needs to file Form 8938
Certain US taxpayers holding specified foreign financial assets with an aggregate value exceeding $50,000 will report information about those assets on new Form 8938, which must be attached to the taxpayer’s annual income tax return.
You must file Form 8938 if:
1. You are a specified individual AND
2. You have an interest in specified foreign financial assets required to be reported AND
3. The aggregate value of your specified foreign financial assets is more than the reporting thresholds that applies to you
Read Form 8938 instructions on IRS website (PDF file) for more information on assets that do not have to be reported.
Indians in the US will need to incude share holdings, mutual fund holdings, ULIP and insurance policy holdings, pension plans and bank balances in India.
Interestingly, for the purposes of Form 8938, financial assets do not include physical assets like property, silver and gold. Of course, investment in gold via ETFs (Exchange Traded Fund), will need to be declared.
Taxpayers will have to disclose the maximum value during the tax year of each financial asset included on Form 8938. For the purposes of conversion, the taxpayer can use the currency rate on the last day of the tax year.
Finally, Form 8938 must be filed by 17 April 2012 for US tax year 2011.
(This is not financial guidance. Please consult your accountant for professional advice.)