Contents
- 1 The Form 8938 Filing Requirements (2024) with Examples
- 2 Who Has to File Form 8938?
- 3 What are the Form 8938 Threshold Requirements?
- 4 What is the Form 8938 Due Date?
- 5 What Types of Foreign Assets are Reportable?
- 6 What if Form 8938 is Filed Late (Penalties)
- 7 The Tip of the Iceberg
- 8 Late Filing Penalties May be Reduced or Avoided
- 9 Current Year vs. Prior Year Non-Compliance
- 10 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 11 Need Help Finding an Experienced Offshore Tax Attorney?
- 12 Golding & Golding: About Our International Tax Law Firm
Form 8938
The Form 8938 Filing Requirements (2024) with Examples
While there are many different types of international information reporting forms that a U.S. Taxpayer may have to file each year, IRS Form 8938 is one of the most common. Form 8938 was developed in accordance with FATCA (Foreign Account Tax Compliance Act) and is a relative newcomer to the world of international tax law. Unlike many other types of international information reporting forms (such as Form 3520 or Form 5471), Form 8938 is available with most types of commercial software programs. And while the form is very similar to the FBAR (FinCEN Form 114) it is not identical — and comes with its own set of threshold requirements and filing headaches. One other very important aspect of Form 8938 is that unlike other types of IRS foreign tax forms, Form 8938 is only required in a year that the Taxpayer is required to file a tax return – whereas, for example, Form 3520 is required in a year that the Taxpayer meets the threshold requirements for filing a Form 3520 whether or not they have to file a U.S. tax return as well in that year. Let’s go through some basic examples of form 8938. *For all examples, please note that the Taxpayers are U.S. persons for tax purposes who have not made any treaty elections to be treated as a Non-Resident Alien (NRA). Also, these examples are for illustrative purposes only and Taxpayers should consult with a Board-Certified Tax Law Specialist if they have specific questions about their reporting requirements and not rely on this article for legal advice.Who Has to File Form 8938?
Form 8938 is filed by U.S. persons who are required to file a tax return in the year that the Form 8938 threshold requirement is met. For purposes of these examples, we are focused on individuals — but entities may have to file Form 8938 as well.-
-
-
Example: Scott is a U.S. citizen who lives in the United States and has $175,000 in foreign bank accounts. He is required to file a tax return in the current year and therefore may have to file Form 8938 as well.
-
Example: Michelle is a lawful permanent resident who lives overseas and has not made any treaty elections. She has $700,000 in foreign investment accounts. Even though she lives and works overseas — and the accounts are tax compliant overseas — since she is still required to file a U.S. tax return, she may have to file Form 8938.
-
Example: Dean is a lawful permanent resident who lives in a foreign country but made a treaty election to be treated as a non-resident alien (NRA) for tax purposes. Since he is not considered a U.S. person for tax purposes, he is not required to file a Form 1040 and therefore he is not required to file a Form 8938. (He may or may not be required to file the FBAR based on the recent court case of Aroeste).
-
-
What are the Form 8938 Threshold Requirements?
Unlike the FBAR, the Form 8938 threshold requirements vary based on whether the Taxpayer is a U.S. resident or a foreign resident and whether he is filing a tax return as a single/MFS filer or MFJ.-
-
-
Example: Frank lives in the United States and has $125,000 in reportable foreign assets on the last day of the tax year. Frank files as ‘single,’ and may be required to file Form 8938.
-
Example: Peter lives overseas and has $380,000 in reportable foreign assets on the last day of the year. The accounts never exceeded $550,000 and he files his tax returns married filing jointly. Peter may not be required to file Form 8938.
-
Example: Denise lives in the United States and only had $20,000 in her bank account on the last day of the year, but she had sold a foreign property earlier in the tax year and had $800,000 in her foreign account for a few days during the year. Denise may be required to file Form 8938.
-
Example: Miranda lives in the United States and does not have any foreign accounts but she has signature authority over accounts for her elderly friend. Miranda does not have a financial interest in any of these accounts and therefore may not required to file a Form 8938 to report these accounts.
-
-
What is the Form 8938 Due Date?
Form 8938 is required to be filed at the time that a Taxpayer is required to file their tax return. If the Taxpayer is on extension, Form 8938 goes on extension as well –and no additional form such as an IRS Form 7004 is required.-
-
-
Example: Dean lives in the United States and filed an extension to file his U.S. tax return. Since Dean is on extension until October to file his U.S. tax return, his Form 8938 goes on extension as well.
-
Example: Sam is a U.S. Expat that lives overseas and is not required to file his U.S. tax return until June because he gets the automatic 2-month extension. Sam’s Form 8938 will be due in June when he files his U.S. tax return unless he files for an extension in which it will be extended to October (or possibly December).
-
-
What Types of Foreign Assets are Reportable?
There are many different types of foreign assets that are required to be disclosed on Form 8938. Unlike the FBAR though, Taxpayers must have a financial interest in the asset for it to be reportable on Form 8938.-
-
-
Example: Andrea has foreign bank accounts as well as a foreign life insurance policy with a cash/surrender value. Both assets are reportable on Form 8938.
-
Example: Amanda has foreign investment accounts that do not generate any income. These types of accounts are reportable on Form 8938.
-
Example: Desmond has a foreign pension plan that she has not made any contributions to or received any distributions from since becoming a U.S. person. This type of asset is reportable on Form 8938.
-
Example: Ted is a U.S. citizen that owns foreign stock directly (not in an account and below the Form 5471 requirements). Since the stock is not in an investment account, it was not reportable for FBAR purposes – but it is reportable for Form 8938 purposes.
-
-
What if Form 8938 is Filed Late (Penalties)
When a Taxpayer files a late Form 8938, they may be subject to fines and penalties, including an initial penalty for not filing the form and a continuing failure to file penalty. Frequently, penalties can be minimized or avoided through one of the offshore disclosure programs (see below)-
-
-
Example: Sandra filed her Form 8938 late by submitting a reasonable cause package to the IRS, which included three years of Form 8938. The IRS did not accept her reasonable cause submission and she was penalized $10,000 per year. Sandra may pursue a protest and/or appeal to try to abate the penalty.
-
Example: Melissa filed her Form 8938 late using the Streamlined Domestic Offshore Procedures. Instead of paying a $10,000 penalty per year, she pays a 5% penalty in lieu of Form 8938 and FBAR penalties.
-
Example: Maria received a notice from the IRS for failing to file Form 8938. She does not file the form even after receiving notice and gets hit with additional $10,000 penalties every 30 days up to a total of $50,000.
-
-
The Tip of the Iceberg
The goal of this article is to help clarify some of the basics of Form 8938 reporting. Reporting foreign assets to the U.S. tax authorities can be very complicated, especially when it involves additional items such as foreign life insurance policies, foreign corporations, foreign partnerships, and transactions between U.S. persons and foreign companies. Taxpayers should try to stay in compliance if they are already in compliance or should consider getting into compliance if they have not properly filed the necessary reporting forms if for no other reason than the fact that the IRS has made offshore compliance a key enforcement priority and has been issuing fines and penalties for non-compliance.