For U.S. taxpayers with financial assets outside the United States, compliance with the Foreign Account Tax Compliance Act (FATCA) is critical. One of the primary compliance mechanisms of FATCA is IRS Form 8938, also known as the “Statement of Specified Foreign Financial Assets.” This form ensures that individuals, certain domestic entities, and specified taxpayers disclose foreign financial assets to the Internal Revenue Service (IRS). In this blog, we provide a comprehensive overview of Form 8938, who must file it, how it compares to the FBAR, and the consequences of failing to comply.
What Is Form 8938?
Form 8938 was introduced as part of the FATCA legislation enacted in 2010 to combat offshore tax evasion by U.S. taxpayers. The form must be filed by specified individuals and entities who hold financial assets outside the U.S. that exceed certain threshold amounts. The form is used to report information about foreign bank accounts, investment accounts, foreign pensions, stocks, and other financial assets.
Who Needs to File Form 8938?
You are required to file Form 8938 if you are a U.S. citizen, resident alien, or certain non-resident alien and you have an interest in specified foreign financial assets exceeding the reporting thresholds. These thresholds vary based on your filing status and whether you live in the U.S. or abroad:
- Single taxpayers living in the U.S.: Total value of specified foreign financial assets exceeds $50,000 on the last day of the year or $75,000 at any time during the year.
- Married taxpayers filing jointly: Threshold is $100,000 on the last day or $150,000 during the year.
- Taxpayers living abroad: Thresholds are higher (e.g., $200,000 on the last day or $300,000 at any time for joint filers).
Types of Assets Reported on Form 8938
Form 8938 requires the reporting of “specified foreign financial assets,” which include but are not limited to:
- Foreign bank accounts
- Foreign brokerage and investment accounts
- Foreign-issued stocks and securities not held in a U.S. financial account
- Foreign partnership interests and mutual funds
- Foreign retirement accounts and pensions
- Foreign trusts, annuities, and insurance policies with cash value
It’s important to understand that Form 8938 reporting is broader than the FBAR and includes more asset types.
Information Required on Form 8938
When completing Form 8938, you’ll need to provide detailed information for each reportable asset, such as:
- Name and address of the financial institution or issuer
- Account numbers or identifying details
- Maximum value during the year (in USD)
- Type of asset and whether it is jointly held
- Whether income was generated from the asset and reported on your tax return
You may also need to attach statements or provide documentation to support the valuations and ownership details.
Form 8938 vs. FBAR: What’s the Difference?
One common confusion among taxpayers is the difference between Form 8938 and the Report of Foreign Bank and Financial Accounts (FBAR), also known as FinCEN Form 114. While both forms require foreign financial asset reporting, there are key differences:
| Feature | Form 8938 | FBAR (FinCEN 114) |
|---|---|---|
| Filed with | IRS (with Form 1040) | FinCEN (electronically via BSA e-filing) |
| Reporting threshold | $50,000 and up | $10,000 aggregate across all accounts |
| Assets covered | Broad range (stocks, mutual funds, retirement, etc.) | Bank and financial accounts only |
| Who must file | Individuals and domestic entities | Individuals, trusts, estates, and entities |
Many taxpayers are required to file both Form 8938 and FBAR depending on the types and values of their foreign holdings.
How and When to File Form 8938
Form 8938 is submitted along with your annual income tax return (Form 1040) and is due by the standard tax filing deadline—typically April 15 (or October 15 with extension).
You must ensure that all relevant foreign asset information is accurate, complete, and documented. Failure to do so may lead to civil penalties or criminal charges.
Penalties for Failing to File Form 8938
The IRS takes foreign asset reporting seriously. If you are required to file Form 8938 and fail to do so, the following penalties may apply:
- $10,000 initial failure-to-file penalty
- $50,000 additional penalty for continued noncompliance after IRS notification
- 40% penalty on underreported income from undisclosed foreign assets
- Potential criminal penalties for willful failures or fraud
These penalties are in addition to any penalties for failure to file the FBAR or pay applicable taxes.
Tips for Complying with Form 8938 Requirements
- Maintain complete and accurate records of all foreign assets, including bank statements, investment reports, and valuations.
- Use IRS currency exchange rates when reporting foreign values in U.S. dollars.
- Consult with a tax advisor familiar with international tax compliance and FATCA regulations.
- Ensure you file the form each year your asset values meet or exceed the reporting threshold—even if the same assets are reported every year.
Amending Past Returns and Using the Streamlined Filing Compliance Procedures
If you have not filed Form 8938 in prior years and were required to, consider using the IRS’s Streamlined Foreign Offshore Procedures to correct past noncompliance. This program offers reduced penalties for taxpayers who can certify their non-willful conduct and bring their reporting into compliance without facing criminal liability.
Conclusion
Form 8938 is a vital part of the IRS’s global tax enforcement regime. If you have foreign financial assets, it is your responsibility to assess whether you are required to file this form and report your holdings accurately. Noncompliance can lead to steep financial penalties and legal consequences. By staying informed and proactive, you can fulfill your FATCA reporting duties and maintain a clean tax record.
When in doubt, consult a qualified tax professional to help you determine your filing obligations and avoid costly mistakes with Form 8938 and other international tax compliance requirements.
