Form 8938

Form 8938

Form 8938 

Each year, the U.S. Government requires United States Taxpayers who own foreign assets, investments, accounts, and income to disclose this information to the IRS on Form 8938 — to comply with FATCA. Form 8938 is the Statement of Specified Foreign Financial Assets, and it is filed by U.S. Persons with FATCA assets that meet the reporting thresholding under 26 U.S.C. 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 as part of their tax return — unlike the FBAR, which is reported to FinCEN and not filed with the IRS per se. Failure to file the form timely or complete may result in significant penalties, although many taxpayers may reduce or avoid these penalties by submitting to one of the IRS amnesty programs, collectively referred to as offshore voluntary disclosure.

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 

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

Some common examples of Form 8938 assets include:

      • 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)

Form 8938 is Not Always Required

Unlike several of the other international information reporting forms such as the FBAR and Form 3520, Form 8938 is only required by taxpayers if they are required to file a tax return. In other words, even if a taxpayer exceeds the threshold for having to file a Form 8938, if they are not required to file a tax return in a given year, then they are not required to file Form 8938 in that year as well.

Taxpayers May Qualify for an Extension

If a taxpayer files an extension to file their tax return in October instead of April — or October instead of June for taxpayers abroad — then Form 8938 goes on extension as well so that the taxpayer is not required to file a separate extension for Form 8938 as they would have to do for Form 3520 (IRS extension Form 7004).

Filing the IRS Form 8938 is a Common Form 

Unfortunately, many taxpayers fail to file certain international information reporting forms such as Form 3520 or Form 8621 because those forms are not part of most commercial tax software packages such as H&R Block and TurboTax. Luckily, Form 8938 is typically part of the most common tax software packages.

Do You File FBAR and Form 8938?

Depending on the type of foreign assets that taxpayer has, they may be required to file multiple forms for the same asset. Thus, Taxpayers with certain foreign bank accounts, for example, will have to file both the FBAR and Form 8938 if both thresholds are met. Noting, there are different thresholds to consider.

Penalties are Per Form, Not Per Asset

Taxpayers who get penalized for Form 8938 non-compliance should note that it is not based on each account or asset identified in Form 8938, but rather on the non-filing or the late filing of the form itself. Typically, penalties start at $10,000 per year.

Penalties May be Avoided, Waived, or Abated

For Taxpayers who have been (or might be) penalized for late or incomplete filing of Form 8938, the IRS offers several different options to minimize, avoid, or abate penalties. Many Taxpayers will qualify for either the Streamlined Procedures or Delinquency Procedures, which are taxpayer-friendly offshore amnesty tax programs (see below).

You Must Have a Financial Interest in the Asset/Account

Unlike other tax forms such as the FBAR (in which Taxpayers must file whether or not they have interest in an account or mere signature authority), Form 8938 is only required when a Taxpayer has a ‘financial interest’ in the underlying account or asset. Thus, if the filer does not have a financial interest in the account or asset,  Form 8938 may not be required.

Joint and Several Liability

For taxpayers who file joint tax returns, unfortunately, if penalties are assessed for failure to file form 8938, those penalties are assessed against the joint tax return. In other words, even if assets belong to only one person, both parties to the tax return may be penalized.

As provided by the IRS:

      • “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. Your and your spouse’s liability for all penalties is joint and several.”

Additional Information Reporting Forms May Be Necessary

There are many different international information reporting forms that a U.S. taxpayer may have to file each year depending on the specific type of foreign accounts, assets, and investments that they maintain overseas. In addition to Form 8938, some of the more common forms include:

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

Contact our firm today for assistance.