Form 8938: With the introduction of FATCA (Foreign Account Tax Compliance Act), the U.S. Government has more ammunition in its 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). It 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 double the number of foreign countries that have entered into bilateral double taxation treaties with the U.S.
The 8938 form 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 Form 8938 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 a Form 8938 with their tax return.
The Form 8938 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 the 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 on Form 8938.
While some exceptions, exclusions and limitations 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 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)
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 Form 8938
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 Form 8938 included in TurboTax?
Yes. Unlike other international forms, the 8938 is included with most TurboTax software.
Have there any major changes to Form 8938?
No major changes.
Are Closed Accounts Reported on Form 8938?
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 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.
What if I do not 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.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
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Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
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How to Hire Experienced Offshore Counsel
Generally, experienced attorneys in this field will have all the following credentials/experience:
- 20-years experience as a practicing attorney
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Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.