Unintentional Under report on form 8938

Mach7 · Post by **Mach7** » Tue Oct 09, 2012 9:28 am

I have a defined Benefit Plan with my employer with which i tabulated my information on Part 2 of form 8938 for year 2011.

I tabulated my DB plan using the following information as per the following IRS instructions;

[i]If you do not know or have reason to know based on readily accessible information the fair market value of your beneficial interest in the pension plan or deferred compensation plan on the last day of the year and you did not receive any distributions from the plan, the value of your interest in the plan is zero.[/i]

Since I did not receive any distributions from my plan, and I did not have readily accessible information regarding the market value of the account, I checked off the 0 - 50K box on the 8938 form.

Recently the company has introduced a pension calculator on the company intranet web site, this calculator is company specific and allows me to work out a bunch of scenario's regarding early retirement, taking a lump sum payment, etc.

By working with this program, I found that I could accuratley find the market value of my plan to be between 2 and 300k.

Here is my question.

When 2012 filing comes along, and I now tabulate the same plan (company DB plan on part 2 but this time place a 'fair market' value based on this new web based calculator...will I not flag something and be targeted for underreporting of the defined benefit plan?

There does not seem to be a amendment procedure for form 8938, and I feel confident that, at the time, this addition to the company intranet was not available therfore I had to rely on the information that was available to me at the time of filing.

Any suggestions...?

I have considered including a letter next year to explain the descrepency in 2011 to 2012 values....or should I just leave it and file with the new information come 2012.

thanks in advance

Mach7 · Post by **Mach7** » Tue Oct 09, 2012 9:30 am

I should include that the Defined Benefit Plan is with a Canadian corporation.

CdnAmerican · Post by **CdnAmerican** » Tue Oct 09, 2012 9:51 am

I had thought this form only included accounts for which you had signing authority - which wouldn't apply here unless you had access to the money in your plan? I don't know if I have that right or not.

Mach7 · Post by **Mach7** » Tue Oct 09, 2012 10:37 am

CdnAmerican,

The Defined Benefit plan does not have to be tabulated on FBAR, but it does have to be listed on form 8938.

Mach7 · Post by **Mach7** » Tue Oct 09, 2012 1:18 pm

@CdnAmerican

Here is an excerpt from the IRS FAQs just for your clarification:

12. I have an interest in a foreign pension or deferred compensation plan. Do I need to report it on Form 8938?

If you have an interest in a foreign pension or deferred compensation plan, you have to report this interest on Form 8938 if the value of your specified foreign financial assets is greater than the reporting threshold that applies to you.

13. How do I value my interest in a foreign pension or deferred compensation plan for purposes of reporting this on Form 8938?

In general, the value of your interest in the foreign pension plan or deferred compensation plan is the fair market value of your beneficial interest in the plan on the last day of the year.Â Â However, if you do not know or have reason to know based on readily accessible information the fair market value of your beneficial interest in the pension or deferred compensation plan on the last day of the year, the maximum value is the value of the cash and/or other property distributed to you during the year.Â This same value is used in determining whether you have met your reporting threshold.Â

If you do not know or have reason to know based on readily accessible information the fair market value of your beneficial interest in the pension plan or deferred compensation plan on the last day of the year and you did not receive any distributions from the plan, the value of your interest in the plan is zero.Â In this circumstance, you should also use a value of zero for the plan in determining whether you have met your reporting threshold.Â If you have met the reporting threshold and are required to file Form 8938, you should report the plan and indicate that its maximum is zero.Â

nelsona · Post by **nelsona** » Tue Oct 09, 2012 1:27 pm

Since you did not know this on Dec 31, 2011, why should you think that you need to change that year's Form?

make the change next year -- IF indeed this calculator is an accurate assessment of YOUR penssion, and not just some scenario generator put out by investment firms, that will take $10K and make you a millionaire.

Mach7 · Post by **Mach7** » Tue Oct 09, 2012 1:33 pm

Thanks for the reply Nelsona,

I agree with what you are saying,

my concern here was whether or not the IRS would look at this as an under reporting penalty as my 8938 filing showed my DB plan fair market value at "0" (due to the fact that I did not have readily available information for my tabulation at the time of filing), then all of a sudden my 2012's 8938 will show a value of 2 - 300k (based on the companies pension calculator).

I am not sure of the inner workings of the IRS or is something like this would cause a 'flag'

nelsona · Post by **nelsona** » Tue Oct 09, 2012 2:07 pm

So?

What if you had accounts that didn't add up to the thresshold and then you did, and reported them all the next year.

They make the rules, you followed them.

move on.

graubart · Post by **graubart** » Tue Oct 09, 2012 3:33 pm

In the normal course of events, you are not expected to cash out your defined benefit pension until you retire. Before then, you cannot sell it so I don't think it has a "market value". Future value and even present value calculations probably aren't relevant. So I think you can continue to use the 0 value since it has no market value.

Once you retire, the value for 8938 is the amount you receive from the plan in the current tax year.

That is my interpretation. I am in a similar position of having a defined benefit pension plan. But my plan calculator only gives my yearly pension as of a certain date. For me there is no possibility of a lump sum payment. I consider the value of my plan to be 0.

nelsona · Post by **nelsona** » Tue Oct 09, 2012 3:48 pm

That interpreation, graubert, unfortunately, is wrong.

All plans have a value, it is just that most plans aren't so forthright in coming out with that value, particularly in Canada, and especially for defined benefits. IRS knows that and allows for the exception, but no need to abuse this exception.

So, no need to misinterpret the IRS instructions, just follow them.

nelsona · Post by **nelsona** » Tue Oct 09, 2012 3:50 pm

Your second poijt however, on no cash out possibility is correct however, except that you could put dec 2012 as your retirment start date, and get a result,.

The IRS realizes that you don't get pension until you retire, otherwise it wouldn't be a pension.

let's follw the rules people.

graubart · Post by **graubart** » Tue Oct 09, 2012 5:55 pm

Are you saying that the value of a defined benefit pension plan is the estimated yearly pension you would receive if you retired on Dec 31?

nelsona · Post by **nelsona** » Tue Oct 09, 2012 9:07 pm

That would be the value the pension manager would assign to it, and that the IRS expects you to report, if you have it.