Section 6038D(a) of the Internal Revenue Code requires any individual who, during a taxable year, holds any interest in a Specified Foreign Financial Asset (SFFA) to attach Form 8938 to his or her tax return, if the aggregate value of such assets exceeds $50,000 at the end of the year, or exceeded $75,000 at any point during the year.
SFFAs are defined as a financial account maintained by a foreign financial institution above the monetary threshold. Additionally, SFFAs include any stock or security issued by a non-US person; any financial instrument or contract held for investment that has an issuer or counterparty other than a US person; and an interest in a foreign entity.
Understanding the Two-Step Threshold
- The trustee has supervisory authority over SFFA obligations;
- The trustee files all required returns timely; and
- The trustee is a bank overseen by a national regulatory agency, a financial institution registered with the SEC, or a domestic corporation whose stock is regularly traded on an established market.
- It is closely held by a US Taxpayer (at least 80% of voting stake), and at least 50% of the entity’s gross income for the taxable year is passive income; or
- At least 50% of the assets held for the taxable year are assets that produce passive income.