Form 8938

Form 8938

Form 8938 

Each year, the US Government requires US Taxpayers who own foreign assets, investments and accounts to disclose this information on Internal Revenue Service Form 8938 — in addition to filing a US Tax Return — to comply with FATCA. Technically speaking, Form 8938 refers to the IRS’ Statement of Specified Foreign Financial Assets filed by US Persons with FATCA Assets that are reportable to the Internal Revenue Service in accordance with Internal Revenue Code section 6038D. With the introduction of the Foreign Account Tax Compliance Act, the U.S. Government stockpiled even more ammunition in the Government’s fight against foreign account and asset noncompliance. FATCA requires U.S. Taxpayers to disclose their “specified foreign financial assets” directly to the IRS on Form 8938 — unlike the FBAR, which is reported to FinCEN. The 8938 Form also requires FFIs (Foreign Financial Institutions) to report U.S. account holders to the IRS. More than 110 countries have entered into FATCA Agreements (IGAs) with the U.S., which is nearly double the number of foreign countries that have entered into bilateral double income taxation treaties with the U.S. Form 8938 is due to be filed at the same time a person files their U.S. tax return (including extensions). The failure to file the form timely or completely may result in penalties. To reduce or avoid these penalties the IRS has developed several amnesty programs, collectively referred to as offshore voluntary disclosure.

We have prepared a summary explaining the basics of Form 8938, who has to file, and when.

Form 8938 Threshold & Requirements

U.S. Taxpayers who meet the Form 8938 threshold and are required to file a tax return will also be required to include specified foreign asset reporting with their tax return. The threshold requirements will vary based on U.S. residency vs. non-U.S. residency — along with the Taxpayer’s filing status.  It is important to note that Form 8938 is not the same as the FBAR (FinCEN Form). Some people may have to file both the Form 8938 and FBAR; some are only required to file one of the forms, and some taxpayers have no FBAR or Form 8938 requirements.

*There are many assets that you would probably not consider “foreign assets,” but may need to be reported anyway.

Form 8938 Threshold Filing Requirements

The threshold for filing the forms is determined based on:

      • U.S. Resident vs. Non-Residents status; and

      • Filing Jointly vs. Separate or Unmarried

Joint Income Tax Return (U.S. Residents)

      • 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.

Unmarried or Separate Tax Return (U.S. Residents)

      • If you are married and file a separate income tax return from your spouse, 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.

Unmarried or Separate Tax Return (Non-U.S. Residents)

      • If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.

 Joint Income Tax Return (Non-U.S. Residents)

      • 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 $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.

Foreign Financial Asset Definition 

There are many different types of specified foreign financial assets that may need to be reported to the IRS Form. While there are some exceptions, exclusions and limitations that apply — it is a pretty comprehensive list.

Here are some common examples of Form 8938 assets:

      • Foreign Bank Accounts

      • Foreign Savings Accounts

      • Foreign Investment Accounts

      • Foreign Securities Accounts

      • Foreign Mutual Funds

      • Foreign Trusts

      • Foreign Retirement Plans

      • Foreign Business and/or Corporate Accounts

      • Foreign Life Insurance Policies

8938 Form Filing Deadline

The Due Date for FATCA Reporting is the date your tax return is due to be filed.

For individuals, the Form 8938 due dates, include:

      • April (U.S. Residents)

      • June (Foreign Residents)

      • October (Extension)

      • December (Special Circumstance extension)

Late Filing Form 8938 Penalties

The penalties for Form 8938 can be severe.

 As provided by the IRS:

      • “Beginning with the 2011 tax year, a penalty for failing to file Form 8938 reporting the taxpayer’s interest in certain foreign financial assets, including financial accounts, certain foreign securities, and interests in foreign entities, as required by IRC § 6038D.

      • The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.”

Reasonable Cause Exception to Late Filing

While Reasonable Cause may limit penalties, the IRS limits the ability to claim reasonable cause: While the IRS refuses to clearly identify what specific facts and circumstances will qualify for reasonable cause, they are quick to include a major hurdle for you in trying to qualify reasonable cause… and the limitation does not seem very reasonable.

For example, if you come from a country in which exposing your own financial information to another government (such as the United States) would be illegal in that foreign country – that will not justify failing to comply with form 8938 requirements.

In fact, the IRS has specifically stated that the above-referenced example of violating your own country’s law is not sufficient to meet the reasonable cause standard. 

      • Effect of foreign jurisdiction laws:

      • The fact that a foreign jurisdiction would impose a civil or criminal penalty on you if you disclose the required information is not reasonable cause.”

Form 8938 FAQ (Questions & Answers)

Here are some other common questions we receive:

Why is Form 8938 Important to the IRS?

The purpose of Form 8938 is to keep the IRS updated and current on a U.S. person’s offshore and foreign income, assets, investments, and accounts – this is very important to the IRS

Is the Form included in TurboTax?

Yes. Unlike other international forms, the 8938 is included with most TurboTax software.

Have there been any major changes to the Form?

No major changes. 

Are Closed Accounts Reported as Well?

Yes, at least for a limited time.

For example, if you closed an account in 2019, you report it in 2020, but it is not reported in the subsequent year(s).

What if I already included Foreign Income on Schedule B?

It does not matter.

You still have to complete an 8938 form as well, even if you have filed Schedule B.

What if I do Not Actually Own the Money or Asset?

Technically, you only file the 8938 when you have an interest in the asset.

Therefore, whether or not you have any interest in the money is important (vs. 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.

Report Foreign Gift on Form 8938?

Generally, the answer is “No.”

Rather, you would file a form 3520, BUT, if the gift is a foreign asset, you may have to report it on both forms.

Report Foreign Business on Form 8938?

This is a bit of a trickier answer.

Whether or not you file Form 8938 for a particular business is impacted by whether you meet the threshold for filing a Form 5471 or 8865 for the same asset.

Comparison of FBAR vs 8938 (IRS Chart)

The IRS developed the FBAR vs 8938 graph to assist taxpayers. The Internal Revenue Service prepares its own graph to compare the two forms, which may be of assistance to you. It has been reproduced below for you:

Form 8938, Statement of Specified Foreign Financial AssetsFinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)
Who Must File?Specified individuals and specified domestic entities that have an interest in specified foreign financial assets and meet the reporting threshold

-Specified individuals include U.S citizens, resident aliens, and certain non-resident aliens

-Specified domestic entities include certain domestic corporations, partnerships, and trusts

U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Does the United States include U.S. territories?NoYes, resident aliens of U.S territories and U.S. territory entities are subject to FBAR reporting
Reporting Threshold (Total Value of Assets)Specified individuals living in the US:

-Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.

-Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

Specified individuals living outside the US:

-Unmarried individual (or married filing separately): Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.

-Married individual filing jointly: Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year.

Specified domestic entities:

Total value of assets was more than $50,000 on the last day of the tax year, or more than $50,000 at any time during the tax year.

Aggregate value of financial accounts exceeds $10,000 at any time during the calendar year. This is a cumulative balance, meaning if you have 2 accounts with a combined account balance greater than $10,000 at any one time, both accounts would have to be reported.
When do you have an interest in an account or asset?If any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax returnFinancial interest: you are the owner of record or holder of legal title; the owner of record or holder of legal title is your agent or representative; you have a sufficient interest in the entity that is the owner of record or holder of legal title.

Signature authority: you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account.

See instructions for further details.

What is Reported?Maximum value of specified foreign financial assets, which include financial accounts with foreign financial institutions and certain other foreign non-account investment assetsMaximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported?Fair market value in U.S. dollars in accord with the Form 8938 instructions for each account and asset reported

Convert to U.S. dollars using the end of the taxable year exchange rate and report in U.S. dollars.

Use periodic account statements to determine the maximum value in the currency of the account.

Convert to U.S. dollars using the end of the calendar year exchange rate and report in U.S. dollars.

When Due?Form is attached to your annual return and due on the date of that return, including any applicable extensionsReceived by April 15 (6-month automatic extension to Oct 15)
Where to File?File with income tax return pursuant to instructions for filing the return.File electronically through FinCENs BSA E-Filing System. The FBAR is not filed with a federal tax return.
PenaltiesUp to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also applyCivil monetary penalties are adjusted annually for inflation. For civil penalty assessment prior to Aug 1, 2016, if non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply

Types of Foreign Assets and Whether They are Reportable

Financial (deposit and custodial) accounts held at foreign financial institutionsYesYes
Financial account held at a foreign branch of a U.S. financial institutionNoYes
Financial account held at a U.S. branch of a foreign financial institutionNoNo
Foreign financial account for which you have signature authorityNo, unless you otherwise have an interest in the account as described aboveYes, subject to exceptions
Foreign stock or securities held in a financial account at a foreign financial institutionThe account is subject to reporting, but the contents of the account do not have to be separately reportedThe account itself is subject to reporting, but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial accountYesNo
Foreign partnership interestsYesNo
Indirect interests in foreign financial assets through an entityNoYes, if sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in the entity. See instructions for further detail.
Foreign mutual fundsYesYes
Domestic mutual fund investing in foreign stocks and securitiesNoNo
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantorYes, as to both foreign accounts and foreign non-account investment assetsYes, as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-valueYesYes
Foreign hedge funds and foreign private equity fundsYesNo
Foreign real estate held directlyNoNo
Foreign real estate held through a foreign entityNo, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estateNo
Foreign currency held directlyNoNo
Precious Metals held directlyNoNo
Personal property, held directly, such as art, antiques, jewelry, cars and other collectiblesNoNo
‘Social Security’- type program benefits provided by a foreign governmentNoNo

*Note – This table is current through the publication date. Please check the instructions for each form for information regarding any future developments.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and Form 8938.

Contact our firm today for assistance with getting compliant.