IRS Form 8938 – Practical Info Expats Need To Know

IRS Form 8938 – Purpose Of The Form

The IRS Form 8938, Statement of Specified Foreign Financial Assets is used to report your specified foreign financial assets if the total value of all the specified foreign financial assets in which you have an interest is more than the appropriate reporting threshold. While there is overlap of foreign financial accounts that are also reported on the FBAR (FinCen Form 114), it is more extensive and non-compliance can lead to additional penalties. The Form 8938 provides additional details not disclosed on the FBAR such as:

• The currency exchange rate used
• The type and amount of income
• Whether the asset/account was opened during the tax year
• Whether the asset/account was closed during the tax year
• Whether the asset/account is jointly owned with a spouse

As a taxpayer potentially subject to IRS Form 8938 reporting requirements, this brief article will explain who must file the form and other important details to be aware of.

Who Must File IRS Form 8938

Unless an exception applies, you must file Form 8938 if you are a specified individual that has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold.

If you are required to file IRS Form 8938, you must report the specified foreign financial assets in which you have an ownership interest in even if none of the assets affects your tax liability for the year.

Exception If No Income Tax Return Required

If you do not have to file an income tax return for the tax year, you do not have to file IRS Form 8938, even if the value of your specified foreign financial assets is more than the appropriate reporting threshold.

Who Is A Specified Individual For IRS Form 8938

You are a specified individual if you are one of the following.

• A U.S. citizen.
• A resident alien of the United States for any part of the tax year. You are a resident alien if you are treated as a resident alien for U.S. tax purposes under the green card test or the substantial presence test.
  
  For more information, see Pub. 519, U.S. Tax Guide for Aliens. If you qualify as a resident alien under either rule, you are a specified individual.
  
  
• A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return.
• A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico.

Do I Need To File Form 8938 – Reporting Thresholds For IRS Form 8938

Taxpayers living in the United States

If you do not live outside the United States, you satisfy the reporting threshold discussed next that applies to you and no exception applies, file IRS Form 8938 with your income tax return.

• Unmarried taxpayers. If you are not married, 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.
• 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 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.
• Married taxpayers filing separate income tax returns. 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.

Taxpayers Living Outside The United States

If your tax home is in a foreign country, you meet one of the presence abroad tests described next, and no exception applies, file IRS Form 8938 with your income tax return if you satisfy the reporting threshold discussed next that applies to you.

• Unmarried taxpayers. 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 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.
• Married taxpayers filing separate income tax returns. 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 $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.

Presence abroad. You satisfy the presence abroad test if you are one of the following:

• A U.S. citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
• A U.S. citizen or resident who is present in a foreign country or countries at least 330 full days during any period of 12 consecutive months that ends in the tax year being reported.

What Are The Specified Foreign Financial Assets That I Need To Report On IRS Form 8938?

Examples of financial accounts include savings, deposit, checking, and brokerage accounts held with a bank or broker-dealer.

And, to the extent held for investment and not held in a financial account, you must report stock or securities issued by someone who is not a U.S. person, any other interest in a foreign entity, and any financial instrument or contract held for investment with an issuer or counterpart that is not a U.S. person.

Examples of these assets that must be reported if not held in an account include:

• Stock or securities issued by a foreign corporation;
• A note, bond or debenture issued by a foreign person;
• An interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap or similar agreement with a foreign counterpart;
• An option or other derivative instrument with respect to any of these examples or with respect to any currency or commodity that is entered into with a foreign counterpart or issuer;
• A partnership interest in a foreign partnership;
• An interest in a foreign retirement plan or deferred compensation plan;
• An interest in a foreign estate;
• Any interest in a foreign-issued insurance contract or annuity with a cash-surrender value.

When And How To File Form 8938

Attach Form 8938 to your individual tax return and file by the due date (including extensions) for that return.

IRS Form 8938 Penalties

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.

Form 8938 Failure-To-File 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. 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.

Form 8938 Statute of Limitations

If you fail to file Form 8938 or fail to report a specified foreign financial asset that you are required to report, the statute of limitations for the tax year may remain open for all or a part of your income tax return until 3 years after the date on which you file Form 8938.

Extended statute of limitations for failure to include income. If you do not include in your gross income an amount relating to one or more specified foreign financial assets, and the amount you omit is more than $5,000, any tax you owe for the tax year can be assessed at any time within 6 years after you filed your return.

Frequently Asked Questions About IRS Form 8938

Does foreign real estate need to be reported on Form 8938?

Foreign real estate is not a specified foreign financial asset required to be reported on IRS Form 8938. For example, a personal residence or a rental property does not have to be reported.

If the real estate is held through a foreign entity, such as a corporation, partnership, trust or estate, then the interest in the entity is a specified foreign financial asset that is reported on Form 8938, if the total value of all your specified foreign financial assets is greater than the reporting threshold that applies to you.

The value of the real estate held by the entity is taken into account in determining the value of the interest in the entity to be reported on Form 8938, but the real estate itself is not separately reported on IRS Form 8938.

I have an interest in a foreign pension or deferred compensation plan. Do I need to report it on Form 8938?

If you have an interest in a foreign pension or deferred compensation plan, you have to report this interest on IRS Form 8938 if the value of your specified foreign financial assets is greater than the reporting threshold that applies to you.

This is true even though your financial institution or foreign country where the pension is held has a current FATCA reporting exception.

I am a U.S. taxpayer and have earned a right to foreign social security. Do I need to report this on Form 8938?

Payments or the rights to receive the foreign equivalent of social security, social insurance benefits or another similar program of a foreign government are not specified foreign financial assets and are not reportable.

I am a beneficiary of a foreign estate. Do I need to report my interest in a foreign estate on Form 8938?

Generally, an interest in a foreign estate is a specified foreign financial asset that is reportable on Form 8938 if the total value of all of your specified foreign financial assets is greater than the reporting threshold that applies to you.

I am a U.S. taxpayer but am not required to file an income tax return. Do I need to file IRS Form 8938?

Taxpayers who are not required to file an income tax return are not required to file IRS Form 8938.

Do I have to file both IRS Form 8938 and FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)?

The Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file FinCEN Form 114 (Report of Foreign Bank and Financial Accounts). Unlike Form 8938, the FBAR (FinCEN Form 114) is not filed with the IRS. It must be filed directly with the office of Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury, separate from the IRS.

The filing of IRS Form 8938 does not relieve you of the separate requirement to file the FBAR if you are otherwise required to do so, and vice-versa.

Depending on your situation, you may be required to file Form 8938 or the FBAR or both forms, and certain foreign accounts may be required to be reported on both forms.

To learn more, please see the 2024 Form 8938 Instructions.

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