This is an update for Bermudian nationals (and others, UK, Canadian) who are dual citizens with the United States; Bermudians who overstay their United States presence triggering US residency for US income tax purposes; local residents with US green card status, and US citizens living permanently abroad.Here we go again. It is the start of another United States income tax filing season and US Internal Revenue Service has issued its annual tax filing changes. The more familiar individual tax forms such as form 1040 will be accompanied by a new form 8938, so new that the instructions were just finalised leaving some residual ambiguity in interpretation, and requests for additional guidance.Form 8938 Statement of Specified Foreign Financial Assets, enacted under FATCA (Foreign Accounts Tax Compliance Act, a subset of the Hire Act) requires US persons with ownership (above certain thresholds) in foreign financial assets to report their interests in these entities. The reporting thresholds vary depending on whether an individual lives in the United States (or elsewhere) or files a joint income tax return with his or her spouse.According to the American Institute of Certified Public Accountants, foreign financial assets encompass broad categories that may have to be reported, such as:Foreign accounts maintained at foreign financial institutionsForeign retirement accountsDirect ownership of stock in a foreign corporation (outside of a financial institution)Foreign life insurance productsForeign partnership interests, such as foreign hedge funds and foreign private equity fundsForeign deferred compensation arrangementsBeneficial interests in foreign trusts and foreign estatesIRS instructions also list these specified foreign financial interests including: a note, bond, debenture, or other form of indebtedness issued by a foreign person; an interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement with a foreign counterparty; an option or other derivative instrument with respect to any of these examples or with respect to any currency or commodity that is entered into with a foreign counterparty or issuer.Unfortunately, offshore individual taxpayers who meet these thresholds to file this form must absorb the additional increase in tax preparation, a cost not incurred by domestic US resident taxpayers. The IRS estimates time to prepare this form at two to three hours.Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer's obligation to file an FBAR (Report of Foreign Bank and Financial Accounts).A softening of stance, or just a timing coincidence?The US IRS enforcement of FATCA (the Foreign Account Tax Compliance Act), and the extensive due diligence compliance for reporting foreign accounts owned by US citizens imposed upon foreign financial institutions has generated commentaries from thousands of banking associations and financial institutions across the world, most vocally from our neighbors to the North in Canada. These tax compliance issues impacting dual Canadian-US citizens were widely disseminated in Canadian media and blogs during the fall of 2011. The cause celebre on behalf of dual-citizens of Canada and the United States regarding this issue (and the financial burdens that could impact these Canadian citizens) was taken up by no less than the current Canadian Finance Minister.Mr Jim Flaherty protested vehemently in open letters to the Wall Street Journal, Washington Post, and the New York Times regarding the US IRS's efforts “targeting innocent and law-abiding people who are dual-citizens Canadian residents who have few links to the United States, have little knowledge of these requirements and have made innocent errors of omission.”In December 2011, the IRS released a statement that the “Service is aware that some taxpayers who are dual citizens of the United States and a foreign country may have failed to timely file United States federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), despite being required to do so. Some of those taxpayers are now aware of their filing obligations and seek to come into compliance with the law. “The Service further stated that penalties will not be imposed in all cases, i.e. taxpayers who are deemed to owe no US tax will not owe failure to file or failure to pay penalties while FBAR penalties may be waived for determined reasonable cause exceptions.A “Reopening (2012) of the Offshore Voluntary Disclosure Program Announced Last Week. Additionally, the IRS is offering another chance to US persons with undisclosed foreign accounts who are not compliant with their FBAR (Report of Foreign Bank and Financial Accounts) reporting and filing obligations to get with the program. The Offshore Voluntary Disclosure Program (OVDI) is not as generous as the last initiative, with the FBAR penalty now at 27.5 percent of the highest balance in the previously undisclosed accounts since 2003 unless the taxpayer can be classified in a very narrow group of US persons subject to 5 percent or 12.5 percent penalty. It is worth noting that foreign financial institutions are in serious implementation phase to report all foreign accounts owned by US citizens to US Internal Revenue Service.A reminder: If you are a US citizen, or individuals related to you, are residing rent free in a property owned by a foreign trust, you are deemed to be receiving a taxable distribution from said trust attributable to the fair market value of the rent that could be generated on the open market.You will need to rectify this situation, or report the deemed taxable distribution on your US income tax return.We will report on other tax law changes as tax season progresses.Commentary and information included in this article does not constitute an opinion and is not intended or written to be used, and cannot be used, by any US taxpayer for the purpose of avoiding penalties that may be imposed on the US taxpayer.Martha Myron, CPA CFP(US) TEP JP www.marthamyron.com is an international Certified Financial Planner™ providing Financial Counsel for Cross Border Living™ on international tax, estate, and retirement strategies for Bermuda residents with US connections, and US citizens living and working abroad. Contact mmyron[AT]patterson-partners.com or 296 3528 at Patterson Partners Ltd.