Form 8938 Penalty
Form 8938 Penalty: The Form 8938 is referred to as FATCA Form 8938. FATCA is the Foreign Account Tax Compliance Act. Taxpayers with certain specified foreign financial assets file a FATCA Form 8938 each year, along with their 1040 tax return. The Form 8938 is one of the most common reporting forms, since it is filed as part of a tax return — and unlike other international reporting forms, it is included with most commercial tax software. If a U.S. Taxpayer fails to file the 8938 Form or files it late – they may become subject to IRS Form 8938 penalties. The 8983 penalties are in addition to other international information reporting form penalties a taxpayer my face for failing to disclose offshore accounts, such as the FBAR and PFIC Form 8621.
These penalties can be oftentimes be avoided or abated with FATCA amnesty programs.
IRS Penalizes Undisclosed Foreign Assets
The Form 8938 penalty involves the late or unfiled FATCA reporting of Form 8938. The penalties will vary, depending on each filer’s particular facts and circumstances.
A person may even be able to obtain a penalty waiver using Streamlined Foreign Offshore Procedures, Delinquency Procedures, or Reasonable Cause — and avoid being penalized upwards of $60,000 (for multiple years of non-compliance)
As provided by the IRS:
- “You may be subject to penalties if you fail to timely file a correct Form 8938 or if you have an understatement of tax relating to an undisclosed specified foreign financial asset.”
Failure-To-File Form 8938 Penalty
- “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.”
Continuing Failure-to-File Form 8938
- “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.
Sometimes, Reasonable Cause is an effective tool to reduce, avoid or abate Form 8938 Penalties. As provided by the IRS:
- “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.
- The determination of whether a failure to disclose a specified foreign financial asset on Form 8938 was due to reasonable cause and not due to willful neglect will be determined on a case-by-case basis, taking into account all pertinent facts and circumstances.”
Limitation on 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.
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.”
Other Offshore IRS Penalties
Beyond form 8938, oftentimes if a person has foreign financial assets, they will have several other forms they may need to file, and the failure to file these forms may result in additional offshore fines and penalties.
Offshore Voluntary Disclosure is an effective method for mitigating penalties.
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.