Form 8938 (Almost Everything You Need to Know)
Form 8938: The IRS rules for Form 8938 are complex. The form was developed in 2011, and is used to report specified foreign financial assets to the U.S. The form is part of FATCA Reporting (Foreign Account Tax Compliance Act). The form was developed in support of the IRS aggressive stance toward Foreign Accounts Compliance. It requires U.S. taxpayers to report their offshore accounts, assets, investments, and income. The form is due to be filed at the same time a person files their tax returns (including extensions). The failure to file the form timely or completely may result in Form 8938 penalties. To reduce or avoid these penalties the IRS has developed several amnesty programs, collectively referred to as offshore voluntary disclosure.
Form 8938 was developed in response to a global call to reduce offshore tax evasion.
Form 8938 is one of many international reporting forms required by the Internal Revenue Service. The form 8938 Statement of Foreign Financial Assets is complex. Key components of the Form, include:
- Threshold Reporting
- Filing Requirements
- Late Filing
- Penalties for non-compliance
- Reasonable Cause
We have summarized the Form 8938 for you, along with providing you with examples to assist with understanding this relatively new IRS form.
This U.S. Treasury Department form 8938 was updated in 2019. The form is part of your 1040 tax return, and requires taxpayers with an interest in certain specified foreign assets under FATCA Form to report the Specified Foreign Financial Assets to the IRS.
The Form 8938 applies to U.S. taxpayers who reside either inside or outside the U.S. The 8938 form is similar to the FBAR (aka FinCEN Form 114) but different — and the forms are not mutually exclusive. We will explore foreign asset reporting and tax form 8938 requirements for disclosing foreign financial assets to the IRS.
This includes tax form 8938:
- Threshold for filing
- Requirements for submitting the tax form
- Examples of common foreign financial assets
- Exclusions and exceptions to reporting
Threshold Filing & Reporting Requirements
The Form 8938 threshold requirements will vary, based on U.S. residency vs. non-U.S. residency — along with the Taxpayer’s filing status.
The IRS has provided guidelines for IRS Form 8938. At Golding & Golding, we have authored a shortened, more condensed article on reporting specified foreign financial assets and penalties for not reporting foreign assets.
It is important to note that the Form 8938 is not the same as the FBAR (FinCEN Form). Some people may have to file, both or neither — depending on their specific facts and circumstances. There are many assets that you would probably not consider “assets,” but need to be reported anyway.
Not everyone with specified foreign financial assets has to file Form 8938. The threshold for filing the forms is determined based on:
- U.S. Resident vs. Non-Residents
- Filing Jointly vs. Separate or Unmarried
Married Taxpayers Filing a 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 Married Taxpayers Filing a Separate Income Tax Return or Filing Single (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 Married Taxpayers Filing a Separate Income Tax Return or Filing Single (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. Married taxpayers filing a joint income tax return. 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 Example.
Married Taxpayers Filing a 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.
Preparing the Form Yourself?
We will summarize who has to prepare the form, what assets belong on the form, and what happens if the form is not filed timely,
So, You Want to Take First Crack at it?
We know, you want to prepare the form yourself?
We get it.
Head over to our other 8938 page for more information.
The form is not complicated from a “tax perspective.” In other words, you are not required to prepare any complex analyses or bookkeeping/accounting as you would for Form 5471 or 3520-A. But, the form can still be a bit difficult to digest, since it includes both tax and asset value reporting.
Take a look at Form 8938 for yourself to get a better idea.
What do I Report?
Form 8938 is used to report foreign assets, but what is a foreign asset?
For example, do you consider your Foreign Life Insurance Policy an Asset…or just an insurance policy? Either way, it is a “reportable” asset.
Meanwhile, the foreign rental property you own as an individual, which generates significant income — is not considered a reportable 8938 asset (go figure).
When it comes to cryptocurrency, you have to determine how it is held (personal wallet or foreign institution) and what your risk tolerance is when dealing with the IRS and tax laws which are uncertain at best.
(The jury is still out on the specifics of cryptocurrency reporting).
What is a Foreign Financial Asset?
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
• Foreign Accounts held in a CFC (Controlled Foreign Corporation); or
• Foreign Accounts held in a PFIC (Passive Foreign Investment Company)
The Form 8938 Due Date 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)
Deadline For Filing
The Form 8938 is filed with your tax returns. Therefor, the deadline coincides with your tax return filing, including extensions.
Does Form 8938 include Real Estate?
If you hold real estate as an individual or (individually or naked) it is not reported on Form 8938. If you own it as part of a company, REIT, or even in a Sociedad Anonima – it is generally reportable.
Form 8938 & Statute of Limitations – 6501(e)(1) exception
The IRS may have additional time to asses taxes and penalties against you, since the asset is a “foreign asset.” We have authored a separate article explaining the 6-Year exception to the General 3-Year Statute of Limitations.
Form 8938 Penalty
The penalties for Form 8938 can be severe.
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 for Late Filing
The IRS limits the ability to claim reasonable cause, which is why if you are filing late or untimely, you should speak with a specialist, to evaluate your options.
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 countries 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.
Common Questions & Answers
Here are some other common questions we receive:
Why is Form 8938 Important?
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 Form 8938 included in TurboTax
Yes. Unlike other international forms, the 8938 is included — so you can’t blame TurboTax for that one.
Were there any major changes to Form 8938 in 2018?
No major changes.
What types of filers have to submit Form 8938?
Any U.S. Person who meets the threshold filing requirements AND has to file a tax return. (Unlike the FBAR), the Form 8938 is only required in any year that the person has to actually file a U.S. Tax Return.
Does FATCA Report Closed Accounts?
Yes, at least for a limited-time. For example, if you closed an account in 2018, you report it in 2019 (for your 2018 FBAR), but it is not reported in the subsequent years(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.
Double-Reporting: It Looks like I have more Money than I Do?
This is a much more common situation than you may think:
Example – Andrea has $1 million in foreign accounts. During this particular tax year, Andrea moved more than $800,000 of her retirement fund into a new retirement fund. Moreover, Andrea had a few fixed deposits that matured, and therefore she closed those accounts, withdrew the money, and opened new fixed deposits.
Since all of the accounts at some point were ‘open’ during the current tax year that Andrea is filing a Form 8938, she will have to report each account. Andrea may appear than twice the money she has — when in reality it is the same money being transferred to different accounts.
Not to worry, the IRS already thought of this. Each account entry on the form has certain boxes you can mark-off depending on the facts and circumstances of your case, including:
- Was the account opened this year?
- Was the account closed this year?
This should help alleviate some of that stress we know you’re feeling when you have to submit paperwork to the IRS making it appear that you are more wealthy than you are.
What if I do not Not Actually Own the Money or Asset?
Technically, you only file the 8938 when f 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.
Do I File a FATCA 8938 Form If I Receive a Foreign Gift?
Generally, the answer is no. Rather, you would file a form 3520. It is important to note that the form 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 the form for the same asset or account, you do need to identify on the 8938 form that you have filed a form 3520.
Do I File a FATCA 8938 Form 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%, control or ownership, etc. 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 an 8938 for that same interest in the asset.
Golding & Golding: About our Firm
We specialize exclusively in international tax, and specifically IRS offshore disclosure.
We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
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Recent Golding & Golding Case Highlights
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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.