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Specified foreign financial asset

The Form 8938 instructions use specified foreign financial asset for certain foreign accounts and investment holdings. For a U.S. citizen, the term identifies assets that may be included in Form 8938 reporting when the filing rules apply.

Definition and scope

The IRS instructions for Form 8938 describe a specified foreign financial asset as a foreign financial account or certain foreign assets held for investment outside a financial account.[1]

The first category is a financial account maintained by a foreign financial institution. The instructions define financial accounts to include depository or custodial accounts, certain equity or debt interests in a foreign financial institution, and cash value life insurance or annuity contracts maintained by a foreign financial institution.[1]

The second category covers specified holdings outside financial accounts when held for investment. Examples include foreign corporation stock, a foreign partnership interest, debt issued by a foreign person, interests in a foreign trust or estate, and certain contracts or derivatives with a foreign counterparty or issuer.[1]

When the term matters

The term appears in the Form 8938 filing rule for a specified person with an interest in covered assets whose value is above the applicable threshold. The instructions say a specified person is a specified individual or a specified domestic entity, and that Form 8938 is attached to an annual return.[1]

For an individual, having an interest is tied to whether income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the asset would be reflected on an income tax return. An interest can exist even when none of those amounts appears on the return for the tax year.[1]

Reporting is separate from the FBAR regime. The Form 8938 instructions state that filing Form 8938 does not remove a FinCEN Form 114 filing requirement when that requirement otherwise applies. The FBAR rule in 31 CFR 1010.350 concerns a U.S. person's financial interest or signature authority over a foreign-country financial account, a narrower account-focused description than the Form 8938 categories.[1][3]

Conditions and exceptions

Investment treatment matters for holdings outside accounts. The instructions say an asset is held for investment when it is not used or held for use in conducting a trade or business. They also state that stock is not considered used or held for use in a trade or business.[1]

The instructions exclude some accounts and assets from Form 8938 reporting. Examples include accounts maintained by a U.S. payer and foreign government social security equivalents; the latter exclusion does not cover an interest in a foreign pension plan. Separate duplicative reporting rules apply when the same asset is reported on specified other forms filed for the same tax year.[1]

An asset's classification and an obligation to report it are distinct questions. The instructions retain threshold and filing conditions, and they also direct specified individuals to include certain assets reported on other forms when determining whether the applicable threshold is met.[1]

Questions and answers

What types of assets fall within the term?

The instructions include accounts maintained by foreign financial institutions and certain foreign investment assets outside accounts. Examples of the latter include foreign-company stock, foreign partnership interests, and interests in foreign trusts or estates.[1]

Does every foreign asset count?

No. The Form 8938 instructions describe specific categories and conditions, including investment treatment for certain assets outside accounts. They also identify accounts and other assets that are not specified foreign financial assets for this reporting purpose.[1]

What does having an interest mean?

The instructions connect an interest to amounts from holding or disposing of the asset that are or would be reflected on an income tax return. An interest can still exist when no such amount is reflected for the tax year.[1]

Is Form 8938 the same as an FBAR?

No. The Form 8938 instructions state that a Form 8938 filing does not replace an FBAR filing when required. The FBAR regulation addresses financial interests or signature authority over foreign-country financial accounts.[1][3]

Are foreign pension interests excluded?

The instructions exclude foreign government social security equivalents and similar program rights, but state that this exclusion does not include an interest in a foreign pension plan. They separately include certain foreign pension interests in Form 8938 valuation rules.[1]

  • Foreign financial account: Form 8938 treats a financial account maintained by a foreign financial institution as a specified foreign financial asset. FBAR rules identify reportable accounts by type and location.
  • Financial account (CRS): The Common Reporting Standard defines accounts at financial institutions, including deposit and custody accounts, plus equity and debt interests and insurance.
  • FATCA: FATCA requires certain U.S. taxpayers to report foreign assets and financial institutions to report accounts to the IRS. Form 8938 may apply at thresholds.
  • FBAR Rules for Trust Beneficiaries: A reference for U.S. citizens on the FBAR value threshold, financial interests, signature authority, and the reporting rule for certain trust beneficiaries.
  • Form 8938 and Foreign Trust Assets: A U.S. citizen's guide to Form 8938: what counts as a specified foreign financial asset, when the form accompanies a tax return, and how filing thresholds vary.
  • FBAR and Form 8938 for accounts linked to trusts: FBAR and Form 8938 are separate reports with different filing tests for a U.S. citizen. IRS instructions describe foreign accounts as well as trust interests.

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Sources and data notes
  1. Internal Revenue Service, Instructions for Form 8938. https://www.irs.gov/instructions/i8938. Retrieved .
  2. FinCEN, Report foreign bank and financial accounts. https://www.fincen.gov/report-foreign-bank-and-financial-accounts. Retrieved .
  3. U.S. Government, 31 CFR 1010.350. https://ecfr.io/Title-31/Section-1010.350. Retrieved .
  4. Internal Revenue Service, FATCA summary. https://www.irs.gov/businesses/corporations/summary-of-key-fatca-provisions. Retrieved .
  5. U.S. Department of the Treasury, FATCA: agreements by jurisdiction. https://home.treasury.gov/policy-issues/tax-policy/foreign-account-tax-compliance-act. Retrieved .
  6. Internal Revenue Service, 26 CFR 1.1471-4. https://www.irs.gov/instructions/iw9. Retrieved .

Dates in this block record when each source was read for this page.