Reporting India 54EC bonds in form 8938

[Turbotaxuser1]

Hi,

I inherited REC 54 EC bonds in India that I need to report on form 8938. The bonds were transmitted to my name by Kfintech and they generated a folio number with approval from REC. Also,  REC still  holds the bonds after transfer to my name. I am trying to understand under what section of 8938 to report the folio number with bonds. 

TIA

[pk]

@Turbotaxuser1 , userji,  a few points on your situation:

(a) for form 8938 ( assuming you meet the threshold ),  Part-II -- report max value of the asset ( other );  Part III report any interest earnings   (thought this was in the range of 5.xx%  PY);  Part VI --- provide details

(b) because this is inherited --- you may want to get the  FMV of the bonds ( I am assuming that here is a diff between face value and  actual sale value , before maturity)

(c) even though India appears not to tax the earnings ( interest), US will still tax this income-- ditto for any cap-gain ( assuming  LTCG).

(d) depending on the exact nature of transfer ( as part of inheritance ) there may be need for form 3520.

Is there more I can do for you ?   If you have more on this you are welcome to add to this thread or PM me ( NO PII -- Personally Identifiable Information), if you want to keep info from public glare.

Namaste  ji

pk

[Turbotaxuser1]

Hi Pk Ji,

Thanks for the reply. I meet the thresholds for filing the 8938 and file it for all India accounts, However, this is bonds and the value does not change over time. I want to know which category to report on 8938 - Custodian, Deposit or other accounts? I am guessing it wont be deposit account but need to identify if it is considered Custodian (Part 5) or other account section (Part 6) of the form. If it is part 6, I wonder what is counterparty.

Taxes on interest is already taken care in form 1040

Thanks again

[pk · Accepted solution]

@Turbotaxuser1 , Namaste User1 ji.

As in my earlier note , for purposes of form 8938 / Specified Foreign  Financial Assets, a Bond  is treated as "other" asset --- ( being similar to a stock in that it is debt owed by the entity but there is no specific share of the value of the entity)-- see here from the  instruction for the  form --->  page 7  -->  Instructions for Form 8938 (Rev. November 2021)

"Other Specified Foreign Financial Assets 

Examples of other specified foreign financial assets include the following, if they are held for investment and not held in a financial account.
• Stock issued by a foreign
corporation.
• A capital or profits interest in a
foreign partnership.
• A note, bond, debenture, or other
form of indebtedness issued by a foreign person.
• An interest in a foreign trust or
foreign estate.
• 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"

Here, Foreign  "person", "entity", "counter-party" etc. all mean generally the same  things and as applicable.

Since your bond / note is an obligation  of a Foreign entity, you treat this as a Specified Foreign Asset under the "OTHER" category  PART-II,   you report the  interest earnings on line 14 (a) --PART-III  and details of the asset --PART-VI -- including line 36 --- you are dealing with an issuer   ( REC ?  )  and not counterparty

Does this more sense ?   Is there more I can do for you ?

Namaste ji

pk

[Turbotaxuser1]

Thanks for the detailed reply Pk Ji. Just the last part "you are dealing with an issuer   ( REC ?  )  and not counterparty" - 

I am dealing with Kfintech which is an RTA (a transfer agent) to transfer the bonds from my mother to me. After that, they provided me the statements for bonds held with REC. The Folio number was generated by Kfintech with approval of REC. So i wonder if either Kfintech or REC is a counterparty and if so which one in this case? I assume they both are corporations.

Thank you ! Namaste

[pk]

@Turbotaxuser1 , for purposes of 8938, your bonds are issued by a corporation -- REC  ( Rural Electric Corp?), the KFintech , I am assuming is only an agent handling the ownership change.  IMHO, it is akin to  buying  US Govt Bonds through a US bank -- Bank handles the purchase  but the bonds are still US Treasury Bonds.

Does this make sense ?

Namaste ji

pk

[Turbotaxuser1]

Yes Pk ji. Kfintech handled the transfer and they are also the technology company but the actual bonds are held with REC. 

Appreciate your help and patience !

Thank you