Today, Treasury and the IRS published final regulations (TD 9752) under section 6038D that provide guidance regarding the requirements for certain domestic entities to report specified foreign financial assets to the IRS. The final regulations adopt, with some changes, the provisions of proposed regulations (REG-130302-10) issued in December 2011. In particular, the final regulations eliminate the principal purpose test for determining whether a corporation or partnership is a specified domestic entity and adopt several modifications to the term “passive income.” With respect to the elimination of the principal purpose test, according to the preamble, Treasury and the IRS believe that a 50% passive assets or income threshold appropriately captures situations in which specified individuals may use a domestic corporation or partnership to circumvent the reporting requirements of section 6038D. Treasury and the IRS will, nevertheless, continue to monitor whether domestic corporations and partnerships not required to report under these final regulations are being used inappropriately by specified individuals to avoid reporting under section 6038D. The final regulations are effective February 23.