How to report interest received on a loan to a foreign corporation

silviu22
silviu22 Member Posts: 3 Newcomer
edited November 9 in Income

I usee FreeTaxUsa online software to file my taxes. I am considering making a loan to a UK corporation. Will the FreeTaxUsa web site allow me to enter interest received from foreign corporations?

If yes, how will I enter it? This company will not give me a 1099-INT form, since it has no US presence.

I believe I might have to file form 8938. I think a loan to a foreign corporation can be interpreted as foreign asset. Does the FreeTaxUsa online software include form 8938?

I believe a loan made to a foreign corporation falls into this category mentioned in the

"Other Specified Foreign Financial Assets" section of instructions for form 8938:

  • A note, bond, debenture, or other form of indebtedness issued by a foreign person.

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Best Answers

  • CoryF
    CoryF FreeTaxUSA Agent Posts: 115
    Answer ✓

    Thank you for joining our community

    You can use FreeTaxUSA to report any interest received from any source. The Investment screen for interest reporting doesn't require that a 1099-INT be filed with the IRS and sent to you. The Investment screen for interest doesn't require an Employer Identification Number (EIN), though most U.S. based companies issue one with an EIN. So, you can clearly report the loan interest received on your future tax returns using FreeTaxUSA.

    As to the matter of reporting the Foreign asset. This reporting is supported by FreeTaxUSA. In the Miscellaneous section of the input screens is the page to report Foreign assets that meet the definition of certain investment balance levels that will be clearly indicated. The entries for the questions on these screens will generate a Form 8938 to be included with your filing of your 2024 tax return.

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  • CoryF
    CoryF FreeTaxUSA Agent Posts: 115
    Answer ✓

    Thank you for this reply.

    I will answer the questions as you ordered them.

    1. The FreeTaxUSA screen for reporting Interest only has you reporting the source "Company UK". There is no input for the address or the EIN. The next screen then has boxes corresponding to the same lines/boxes of a normal 1099-INT. However, since you only have the Interest income that you received, that value (i.e. 1,000) would go in box 1 of the screen in FreeTaxUSA.
    2. The Form 8938 is a Statement only. It is for reporting Foreign asset and income from that asset. The value of your Interest income is not, then, linked to your taxes. Meaning, you are not going to be taxed twice for your Interest Income from Company UK. The entry in the investment screens in the Income section is the only place that raises total income and is taxed.
      1. Here is the reporting threshold as contained in the instructions to Form 8938:
        1. Unmarried taxpayers. If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
        2. Married taxpayers filing a joint income tax return. If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
      2. If you meet these thresholds for the value of your asset in the UK, then form 8938 is generated and your asset value and interest income are then included as a report to the IRS and not as taxable income (twice)

    I hope this answers your questions. Please reply back in this thread for more help.

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Answers

  • silviu22
    silviu22 Member Posts: 3 Newcomer

    That is very good to hear, thank you Cory. The other question that I have is this. Let's say I receive $1000 in interest in 2024 from this UK company. I believe you are saying I need to do the following:

    1. File a 1099-INT saying that I received $1000 interest from "CompanyUK", address "somewhere in UK" and leave the EIN in this 1099-INT empty
    2. Then find the section in the Miscellaneous section, where I would enter data that would cause form 8938 to be filed. In there I will say
      1. "I have one foreign asset"
      2. The maximum value of the asset is "original loan balance"
      3. mention that I received $1000 in interest from this foreign asset. This should go into form 8938, part III.14.a

    Once I do this, I will have a $1000 in 1099-INT and another $1000 in form 8938. I should not get taxed twice for the same interest, correct? So the $1000 interest amount from form 8938 should not be used in the calculation of my tax bill.

    All form 8938 is indicating is reminding the IRS that some of the dividends I entered on 1099-INT came from a foreign company.

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  • silviu22
    silviu22 Member Posts: 3 Newcomer

    Excellent. Thank you, Cory. You answered all my questions. You can consider this matter closed as far as I am concerned.

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