Do Puerto Rico Residents File Form 8938

Do Puerto Rico Residents File Form 8938 for Foreign Assets?

Form 8938 (FATCA) is a relative newcomer to the complex world of international information reporting. Form 8938 was developed in accordance with FATCA — which stands for the Foreign Account Tax Compliance Act. While there are many components to FATCA, one unnecessary complexity involves Puerto Rico. Since Puerto Rico is not a state — but rather a territory –– the IRS tax rules and reporting requirements can get a bit wonky. For example, bank and investments accounts located in Puerto Rico are typically not considered foreign accounts — but a Trust formed in Puerto Rico is considered a foreign trust. Moreover, the PFIC rules can vary based on whether or not it involves the reporting of Form 8621 for a Puerto Rico resident with outside investments versus whether a passive investment company founded in Puerto Rico may qualify to be exempt as a PFIC – if the owners are considered Puerto Rico Bona Fide Residents, and therefore non-US persons relative to the investment company (and thus not a PFIC). Today’s issue is whether or not Form 8938 is required for residents of Puerto Rico with foreign assets –– the answer is (usually) yes if they have to file a tax return — but no, when a tax return is not required to be filed.

Puerto Rico Residents are Specified Individuals

The key phraseology in determining whether or not a person is required to file a Form 8938, is whether or not they are considered a specified individual.

As set forth in the 2021 instructions to form 8938, the IRS provides the following:

Specified Individual

• • • You are a specified individual if you are one of the following.

      • A U.S. citizen.

      • A resident alien of the United States for any part of the tax year (but see Reporting Period, later).

      • A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return.

      • A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico. See Pub. 570, Tax Guide for Individuals With Income From U.S. Possessions, for a definition of bona fide resident.

Pub 570 Explains the Form 8938 May be Required

As provided in IRS Publication 570:

• • • If you have specified foreign financial assets in foreign jurisdictions valued above certain threshold dollar amounts, you may have to file Form 8938 when you file your U.S. income tax return with the IRS.

But Not if You do Not Have to File A a Tax Return

• • • Unlike the FBAR, Form 8938 is only filed if a person meets the Form 8938 filing requirements and has to file a tax return. If a Tax Return is not required, neither is the reporting on Form 8938,

      • Even if you are required to file Form 8938, you may not have to report certain specified foreign financial assets on Form 8938.

      • Because bona fide residents of the CNMI, Guam, and the USVI generally do not have a U.S. federal income tax return filing obligation, they generally are not required to file Form 8938 with the IRS.

      • These residents should contact their local territorial tax department for guidance on the possible mirrored application of this reporting requirement with these jurisdictions.

As further provided by the IRS:

Exception if no income tax return is required

• • • If you do not have to file an income tax return for the tax year, you do not have to file Form 8938, even if the value of your specified foreign financial assets is more than the appropriate reporting threshold

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