Tax News
June 29, 2011
Administrative Actions
On June 17, 2011, the IRS issued Notice 2011-55.  In the notice, the IRS suspended (but not excused) the annual information reporting requirements (1) under IRC Section 6038D for individuals who hold interests in specified foreign financial assets during the applicable taxable year having an aggregate value in excess of $50,000 and (2) under IRC 1298(f) for US Persons who are shareholders of Passive Foreign Investment Company (PFIC).

Because the filing requirements under IRC Sections 1298(f) and 6039(D) are only suspended and not excused, fund tax administrators should implement procedures to collect the information that must otherwise be reported by those sections.  Once the final forms for those sections have been released by the IRS, taxpayers are required to retroactively report for all tax years beginning after March 18, 2011.

On March 18, 2010, as part of the Hiring Incentives to Restore Employment Act, Congress enacted the Foreign Tax Compliance Act (“FATCA”).  FACTA included the additional reporting requirements under IRC Sections 1298(f) and 6039(D). 

The newly enacted IRC Section 1298(f) requires shareholders of PFICs to file an annual report with the IRS.  Prior to the enactment of IRC Section 1298(f), shareholders of PFICs were only required to file Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, periodically upon certain events.   The IRS, in Notice 2010-34 reaffirmed that shareholders were to continue to file Form 8621 periodically based upon its instructions until such time as the IRS released a new form to comply with the requirements of Section 1298(f).  The IRS reaffirms the Notice 2010-34 guidance in Notice 2011-55 but further provides that the IRS will be issuing a revised Form 8621 to comply with IRC Section 1298(f) and once the revised Form 8621 is published taxpayers must retroactively file the revised Form 8621 for tax years beginning after March 18, 2010.

Under new Section 6039D, individuals who hold an interest in certain foreign financial assets are required to attach an information statement to their annual return regarding such assets to the extent the aggregate value of the assets exceed $50,000 for tax years beginning after March 18, 2010.   The IRS is designing a new Form 8938, “Statement of Foreign Financial Assets” to address this new reporting requirement.  In Notice 2011-55, the IRS suspended the requirement to file Form 8938 until the final form was issued and provides that once the new Form 8938 is published taxpayers must retroactively file the new Form 8938for tax years beginning after March 18, 2010.

The IRS also warns in Notice 2011-55 that the filing suspensions provided therein do not extend to the Report of Foreign Bank and Financial Accounts (FBAR) (Form TD F 90-22.1), if an FBAR is otherwise required.

A copy of IRS Notice 2011-55 can be found at http://www.irs.gov/pub/irs-drop/n-11-55.pdf.
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Tags: 1298(f), 6039(D), Form 8621, Form 8938, Notice 2011-55