For U.S. taxpayers with overseas financial interests, compliance doesn’t stop at disclosing foreign bank accounts. IRS Form 8938—required under the Foreign Account Tax Compliance Act (FATCA)—is a critical reporting obligation for those with significant foreign financial assets. Unlike FinCEN Form 114 (FBAR), which is filed with the U.S. Treasury, Form 8938 is filed with your federal income tax return and has its own unique thresholds and reporting rules.
Failure to file Form 8938 when required can trigger stiff penalties, even if the foreign assets didn’t generate taxable income. This blog offers a comprehensive look at who must file Form 8938, what must be reported, how to fill it out, and the key differences from other disclosure forms.
What Is IRS Form 8938?
IRS Form 8938, titled “Statement of Specified Foreign Financial Assets,” is used to report certain foreign financial assets when the total value exceeds specific thresholds. This form was introduced as part of FATCA in 2011 to combat offshore tax evasion by increasing transparency of foreign assets held by U.S. taxpayers.
Unlike the FBAR, Form 8938 is filed with your federal income tax return (Form 1040 or equivalent) and provides the IRS with a broader snapshot of foreign assets.
Who Must File Form 8938?
Not every taxpayer with foreign investments needs to file Form 8938. You are required to file if:
- You are a specified individual (U.S. citizen, resident alien, or certain non-resident aliens), and
- You have an interest in specified foreign financial assets, and
- The total value of those assets exceeds the IRS reporting threshold for your filing status and residency.
Reporting Thresholds
Thresholds vary based on whether you live in the U.S. or abroad:
| Filing Status | Living in the U.S. | Living Abroad |
|---|---|---|
| Single / MFS | $50,000 (end of year) or $75,000 (any time during year) | $200,000 (end of year) or $300,000 (any time during year) |
| Married Filing Jointly | $100,000 (end of year) or $150,000 (any time during year) | $400,000 (end of year) or $600,000 (any time during year) |
Note: “Living abroad” typically means your tax home is in a foreign country, and you are either a bona fide resident or physically present abroad for at least 330 full days in a 12-month period.
What Is a Specified Foreign Financial Asset?
Form 8938 requires reporting of “specified foreign financial assets,” which include:
- Foreign bank and brokerage accounts
- Foreign stocks and securities held outside of U.S. brokerage accounts
- Foreign partnership interests or ownership in foreign corporations
- Foreign mutual funds, hedge funds, and private equity funds
- Foreign retirement accounts (depending on structure)
- Foreign-issued life insurance or annuity contracts with a cash value
- Foreign trusts or estates
It’s important to note that assets held through a U.S. brokerage or bank are generally not considered foreign financial assets for Form 8938 purposes, even if they include foreign investments.
Key Information Required on Form 8938
When filling out Form 8938, you’ll need to disclose the following details for each reportable asset:
- Description and category of the asset (e.g., account, stock, partnership)
- Maximum value during the tax year (in U.S. dollars)
- Currency used and exchange rate method
- Financial institution or issuer’s name and address
- Type of ownership (direct, joint, etc.)
- Whether the asset generated income reported on your tax return
Failure to report even one qualifying asset could be considered non-compliance.
How to Complete and File Form 8938
Form 8938 is filed as an attachment to your annual income tax return (Form 1040, 1040-SR, or 1040-NR). It should be submitted by the standard tax deadline (April 15 or June 15 if living abroad), including any applicable extensions.
Steps to complete Form 8938:
- Calculate the total value of all foreign financial assets held during the year.
- Determine if your total exceeds the filing threshold.
- For each asset, gather required information: account numbers, maximum value, location, ownership type, and income earned.
- Complete each section of Form 8938 using accurate valuations and currency conversions.
- Attach Form 8938 to your Form 1040 and file electronically or by mail.
IRS Form 8938 should not be confused with the FBAR (FinCEN Form 114), which is filed separately and has different thresholds and definitions.
Differences Between Form 8938 and FBAR
While both forms involve foreign financial disclosures, they serve different legal purposes:
| Feature | Form 8938 | FBAR (FinCEN 114) |
|---|---|---|
| Filed With | IRS (with tax return) | FinCEN (electronically via BSA E-Filing) |
| Filing Threshold | $50,000 – $600,000 depending on status and location | $10,000 aggregate value |
| Account Types | Accounts + investments + trusts + securities | Accounts only |
| Penalties | $10,000–$50,000+ for non-filing | Up to $100,000+ and criminal charges |
If you meet the threshold for both, you must file both forms. Filing one does not satisfy the other’s requirement.
Penalties for Not Filing Form 8938
Form 8938 is not optional, and the penalties for failure to comply can be significant:
- $10,000 failure-to-file penalty for each tax year
- Additional $10,000 for each 30-day period after IRS notice, up to a maximum of $50,000
- Accuracy-related penalties (20% of underpaid tax) for non-disclosed income
- Criminal penalties in cases of willful failure to file or fraudulent reporting
These penalties are separate from and in addition to any penalties for FBAR violations or other tax issues.
Common Mistakes to Avoid
- Assuming that foreign investments under $10,000 don’t need to be reported (that applies only to FBAR)
- Failing to report jointly owned accounts or assets
- Using incorrect currency exchange rates
- Not including Form 8938 with your 1040 when required
- Assuming that income must be earned to require disclosure (even zero-yield assets must be reported)
Best Practices for Compliance
- Track the value of your foreign assets year-round
- Maintain supporting documentation in case of an IRS audit
- Use the IRS’s year-end currency exchange rates for conversions
- Consult a tax professional if you own complex foreign assets like foreign trusts, PFICs, or foreign partnerships
- File early to avoid last-minute errors or missed deadlines
Conclusion: Report Right to Protect Yourself
Foreign investments offer diversification and global exposure, but they also bring a host of reporting responsibilities. Filing IRS Form 8938 is a vital step in ensuring your full compliance with FATCA and avoiding hefty penalties that can follow from non-disclosure.
If you hold significant assets abroad—whether in a bank, brokerage, trust, or partnership—make it a priority to understand your Form 8938 obligations. When in doubt, work with a tax professional who specializes in international tax compliance to guide your filing. Transparency today can save you thousands in penalties tomorrow.
