Do I Include Closed Foreign Accounts on FATCA Form 8938?
- 1 FBAR Reporting FAQ
- 2 What is IRS FATCA Form 8938?
- 3 Why Report Overseas Foreign Income and Assets?
- 4 Threshold Requirements for Filing an IRS form 8938?
- 5 What Information is Included on an IRS form 8938?
- 6 What if I do not Not Actually Own the Money or Asset?
- 7 Do I File a Form 8938 If I Receive a Foreign Gift?
- 8 Do I File a Form 8938 If I own a Foreign Business?
- 9 Do I File a Form 8938 If I own a PFIC?
- 10 What are the Penalties for an Un-Filed 8938?
- 11 Are Married Taxpayers Both Liable for 8938 Penalties?
With the FATCA Form 8938 (Report of Foreign Bank and Financial Accounts) due date rapidly approaching (April 18, 2017 — unless you applied for an extension), we often receive the question of whether closed accounts need to be reported on a FATCA Form 8938?
The answer is — yes: If the account was opened at all during 2016, then it must be reported on the 2016 FATCA Form 8938 (due on 4/18/2017), which is filed with your tax return.
For the subsequent years (example, 2017 Tax Return due in 2018), the account closed in 2016 would not need to be reported.
FBAR Reporting FAQ
What is IRS FATCA Form 8938?
The IRS FATCA Form 8938 is a form that is required to be filed when a taxpayer or taxpayers submit their tax return to the Internal Revenue Service.
Not all taxpayers are required to file IRS form 8938. Rather, FATCA Form 8938 is reserved for individuals who maintain accounts or “Specified Foreign Assets” overseas and meet the threshold requirements for filing the form.
*Even if you reside overseas, if you are a U.S. Citizen, Legal Permanent Resident, or even sometimes a former Legal Permanent Resident you are still required to file an 8938, although the threshold requirements for filing are higher.
Why Report Overseas Foreign Income and Assets?
Although it may seem unfair, the United States taxes US taxpayers on their worldwide income. That means is that if you reside in a foreign country and earned income (employment, self-employment, interest, capital gains) you are required to file a US tax return and disclose all your domestic and foreign income on your US tax return (Even if the income is tax-free in the foreign country).
Chances are that if you have already paid tax on the earnings in a foreign country, you will receive a foreign tax credit so that you do not pay the same tax twice. If on the other hand, you are earning money in a country that does not require taxation of that specific type of income such as capital gains, dividends, or interest income – you are still required to pay US taxes on that money.
Threshold Requirements for Filing an IRS form 8938?
Whether or not the taxpayer has to file a FATCA Form 8938 will depend on the amount of money they have overseas, country of residence and marital status.
For Taxpayers residing in the United States:
Single Taxpayers or Married Filing Separate (MFS)
If a taxpayer is single, or files married filing separate then they will have to file IRS form 8938 if they have more than $50,000 in aggregate total in Specified Foreign Assets on the last day of the year. Alternatively, if they have less than $50,000 on the last day of the year but at any time during the year they had $75,000 or more in Specified Foreign Assets, then they are also required to file IRS form 8938.
Married Filing Jointly Taxpayers (MFJ)
When taxpayers file married filing jointly, the threshold requirements are doubled. In other words, when a couple files the US tax return as married filing jointly, they will only have to file IRS form 8938 when you have a combined annual aggregate total of $100,000 on the last day of the year or if it anytime during the year they had $150,000 or more in overseas accounts.
If a person does not meet these threshold requirements then generally they will not have to file IRS form 8938.
*Taxpayers should be sure they understand that even if they are not required to file IRS form 8938, they may still be required to file an FBAR with the Department of the Treasury, since the threshold requirements for overseas accounts and FBARs are significantly less ($10,000).
**Unlike the FBAR, a person only has to file an IRS form 8938 when the money is theirs; with an FBAR, a person has to file the FBAR even if the money is not theirs, but they have signatory authority over the accounts.
***The Threshold Requirements for Taxpayers residing overseas to have to file a FATCA Form 8938 are significantly higher.
Single Taxpayers or Married Filing Separate (MFS) – Foreign Residents
If a taxpayer is single, or files married filing separate then they will have to file IRS form 8938 if they have more than $200,000 in aggregate total in Specified Foreign Assets on the last day of the year. Alternatively, if they have less than $200,000 on the last day of the year but at any time during the year they had $300,000 or more in Specified Foreign Assets, then they are also required to file IRS form 8938.
Married Filing Jointly Taxpayers (MFJ) – Foreign Residents
When taxpayers file married filing jointly, the threshold requirements are doubled. In other words, when a couple files the US tax return as married filing jointly, they will only have to file IRS form 8938 when you have a combined annual aggregate total of $400,000 on the last day of the year or if it anytime during the year they had $600,000 or more in overseas accounts.
If a person does not meet these threshold requirements then generally they will not have to file IRS form 8938.
What Information is Included on an IRS form 8938?
An IRS form 8938 basically details the overseas accounts of the taxpayers. Let’s assume that taxpayer has $175,000 overseas in four (4) foreign accounts. When completing the tax return, the taxpayer will have to detail the information for each account. Generally, IRS form 8938 will require the following information:
- The maximum value of the account for the tax year
- The account number
- The bank name
- The bank address
- Acknowledgment by the Taxpayer as to whether the account earned any interest.
There is some additional information that may be required but for the most part these are the five most important pieces of information that will be included on the IRS form 8938.
What if I do not Not Actually Own the Money or Asset?
Form 8938 differs from the FBAR. That is because when you file an FBAR, it is one you either have ownership of the foreign account, joint ownership of the, or signature authority over the foreign account. IRS Form 8938 is different. Technically, you only have the file the form if you have an interest in the. Therefore, whether or not you have any interest in the money is a higher threshold than simply having your name or signature authority on the account.
As provided by the IRS: “Unless an exception applies, you must file Form 8938 if you are a specified person (either a specified individual or a specified domestic entity) that has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold.
Do I File a Form 8938 If I Receive a Foreign Gift?
Generally, the answer is no. Rather, you would file a form 3520. It is important to note that on the form 8938 it asks you whether you have to file any other forms, and one of the forms it identifies is form 3520. Therefore, while you do not need to file a form 3520 and form 8938 for the same asset or account, you do need to identify on form 8938 that you have filed a form 3520. Click Here to learn more about Form 3520 and the penalties involved.
Do I File a Form 8938 If I own a Foreign Business?
This is a bit of a trickier answer. Technically, if you have interest in a foreign business and that interest is at least 10%, then you will file a form 5471 (presuming it is not a PFIC). And, if you file a form 5471 then you are not required to file a form 8938 for that same interest.
Conversely, if you have an interest in a foreign business or own foreign business stock and it does not meet the 10% threshold, then you would have to file a form 8938 presuming that you met the threshold requirements for having to file a form 8938.
In other words, while you may not have to file a form 5471 because your ownership is less than 10%, if the value is higher than the threshold required for a form 8938, you would still have to file a form 8938. Click Here to learn more about Form 5471 and the penalties involved.
Do I File a Form 8938 If I own a PFIC?
No. Just like form 3520 and form 5471, the IRS is not required that you file a form 8938 along with a form 8621 for the same asset. It is important to note, that you do have to identify whether you filed any form 8621’s directly on a form 8938.
In addition, it is important to keep in mind that the threshold requirements for filing a form 8621 (to report even fractional ownership interest of a PFIC) is very low. Even if you do not meet the requirements for having to file a Form 8938 or 5471, you may still need to file a form 8621 if it meets the definition of a PFIC. Click Here to learn more about Form 5471 and the penalties involved.
What are the Penalties for an Un-Filed 8938?
If you are required to file Form 8938 but do not file a complete and correct Form 8938 by the due date (including extensions), you may be subject to a penalty of $10,000 per year.
– Continuing failure to file: If you do not file a correct and complete Form 8938 within 90 days after the IRS mails you a notice of the failure to file, you may be subject to an additional penalty of $10,000 for each 30-day period (or part of a period) during which you continue to fail to file Form 8938 after the 90-day period has expired. The maximum additional penalty for a continuing failure to file Form 8938 is $50,000, for a total of $60,000 in maximum penalties.
Are Married Taxpayers Both Liable for 8938 Penalties?
Married Taxpayers filing a JOINT income tax return
If you are married and you and your spouse file a joint income tax return, the failure to file penalties apply as if you and your spouse were a single person. In other words, the spouses are “joint and severally” liable for the penalties.
Married Taxpayers filing a SEPARATE income tax return
If you are married and you and your spouse file a separate income tax return, than only the person who is one the account or asset (presuming only one of the spouses would have been required to file a Form 8938) is required to pay the penalty.
Presumption of Maximum Value
If the IRS determines that you have an interest in one or more specified foreign financial assets and asks you for information about the value of any asset, but you do not provide enough information for the IRS to determine the value of the asset, you are presumed to own specified foreign financial assets with a value to be determined by the IRS. Moreover, you are subject to the failure-to-file penalties if you do not file Form 8938.
Reasonable Cause Exception
No penalty will be imposed if you fail to file Form 8938 or to disclose one or more specified foreign financial assets on Form 8938 and the failure is due to reasonable cause and not to willful neglect. You must affirmatively show the facts that support a reasonable cause claim.
Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
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