201809.13
1

8938 Filing Requirements (IRS Foreign Financial Asset Reporting)

8938 Filing Requirements (IRS Foreign Financial Asset Reporting) (Golding & Golding)

8938 Filing Requirements (IRS Foreign Financial Asset Reporting) (Golding & Golding)

8938 Filing Requirements (IRS Foreign Financial Asset Reporting)

Form 8938 is a relatively new IRS reporting form that was developed in accordance with FATCA (Foreign Account Tax Compliance Act).

The IRS Form 8938 Filing Requirements (and determining which foreign financial assets must be reported) can be tough to decipher, and it is also very important to meet the 8938 Filing Requirement Deadlines.

Common questions we receive about Form 8938 Filing Requirements:

  • When is the form 8938 due to be filed?
  • Is form 8938 hard to complete?
  • How much do I have to have in foreign assets?
  • Do I file it if I live overseas?
  • What if I never filed the form?
  • What are Form 8938 penalties?
  • How can I avoid Form 8938 penalties?

8938 Filing Requirements

The filing requirements for form 8938 will vary based on whether a person files their U.S tax returns as single/married filing separate (MFS) or Married Filing Jointly (MFJ) and whether or not the person resides in the United States, or is considered a foreign resident.

What is the Purpose of Form 8938?

The purpose of Form 8938 just to ensure that U.S. persons (both those that reside in the United States as well as those that reside abroad) timely and properly report their specified foreign financial assets to the IRS.

Is Form 8938 Filed Separately from the 1040?

No. Unlike other international reporting forms such as four 5471 or form 8865, form 8938 is it part of your actual tax return and is included in software you may have from TurboTax or other vendors. The other forms indicated here are filed with your tax return but oftentimes they have to be filed even if you do not have to file a U.S. Tax Return. The form 8938 is not filed unless you also file a tax return.

Is Form 8938 Difficult?

Form 8938 is not terribly difficult, as much as it is a nuisance.  It requires the disclosure of various information regarding your foreign Financial assets, including the income that is generated from the account, as well as other identifying information, such as:

  • Was the account/asset opened/acquired this year?
  • Was the account/asset closed/sold this year?
  • Is the account/asset owned with a spouse?
  • Did the account/asset generate any income?

What is a Specified Foreign Financial Asset?

The IRS does not really provide a great in-depth summary about how to define what a specified foreign financial asset is (and it is not updated to reflect current assets types such as virtual currency).

Here are some common specified foreign financial assets that we come across in our practice (our practice is devoted exclusively to foreign assets, income, account, and an investment disclosure):

  • Foreign Bank Accounts
  • Foreign Investment Accounts
  • Foreign Mutual funds
  • Foreign Life Insurance
  • Foreign Pensions
  • Foreign Stock ownership
  • Foreign Business ownership
  • *Foreign Lockboxes
  • *Virtual Currency

*This is a case-by-case analysis and strategy.

What are the Threshold Filing Requirements?

Not everybody with specified foreign financial assets will have to file the form. There are four different threshold requirements:

Single or Married Filing Separately in the United States

Aggregate total of all specified foreign assets of $50,000 on the last day of the year. Or, if you have less than $50,000 on the last day of the year but more than $75,000 on any other day of the year, you still have to file.

Single or Married Filing Separately Foreign Resident

Aggregate total of all specified foreign assets of $200,000 on the last day of the year. Or, if you have less than $200,000 on the last day of the year but more than $300,000 on any other day of the year, you still have to file.

Married Filing Jointly in the United States

Aggregate total of all specified foreign assets of $100,000 on the last day of the year. Or, if you have less than $100,000 on the last day of the year but more than $150,000 on any other day of the year, you still have to file.

Married Filing jointly Foreign Resident

Aggregate total of all specified foreign assets of $400,000 on the last day of the year. Or, if you have less than $100,000 on the last day of the year but more than $600,000 on any other day of the year, you still have to file.

Form 8938 Penalties

Form 8938 penalties will vary, depending on your particular facts and circumstances. You may even be able to obtain a penalty waiver using Streamlined Foreign Offshore Procedures or Reasonable Cause (if the IRS agent is feeling friendly) and avoid being penalized upwards of $60,000 (for multiple years of non-compliance) 

Reasonable Cause Limitation

While the IRS refuses to clearly identify what specific facts and circumstances will qualify for reasonable cost, 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 countries law is not sufficient to meet the reasonable cause standard. As provided in Form 8938 Instructions, Page 9, “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.”

What Can You Do?

Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.

We Specialize in Safely Disclosing Foreign Money

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Examples of areas of tax we handle

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist

Our Managing Partner, Sean M. Golding, JD, LLM, EA  holds an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

*Click Here to Learn about how Attorneys falsely market their services as “specialists.”

Less than 1% of Tax Attorneys Nationwide

Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.

The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

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.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

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.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, 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.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, 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, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

What Should You Do?

Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.

Be Careful of the IRS

With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.

4 Types of IRS Voluntary Disclosure Programs

There are typically four types of IRS Voluntary Disclosure programs, and they include:

Contact Us Today; Let us Help You.