Contents
- 1 What is IRS Form 8938, Who Must File & Report Foreign Assets
- 2 When is Form 8938 Required?
- 3 Taxpayers Living Abroad Must Still File Form 8938
- 4 How to Extend the Form 8938 Filing Due Date
- 5 Form 8938 is Included with Commercial Software Packages
- 6 You Must Have a Financial Interest in the Asset/Account
- 7 Are Both the FBAR and Form 8938 Required?
- 8 Different Thresholds for Single vs Married/U.S. Residency
- 9 Penalties are Per Form, Not Per Asset
- 10 Penalties May be Avoided, Waived, or Abated
- 11 Joint and Several Liability
- 12 Late Filing Penalties May be Reduced or Avoided
- 13 Current Year vs Prior Year Non-Compliance
- 14 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 15 Need Help Finding an Experienced Offshore Tax Attorney?
- 16 Golding & Golding: About Our International Tax Law Firm
What is IRS Form 8938, Who Must File & Report Foreign Assets
While there are many different types of international information reporting forms that a U.S. Taxpayer may have to file with the IRS, Form 8938 (a relative newcomer to the world of international tax) is one of the most common types of foreign reporting forms that should be on a U.S. Taxpayer’s radar. Form 8938 is used by U.S. persons who are required to report foreign assets and accounts as required by FATCA and in conjunction with Internal Revenue Code Section 6038D. FATCA refers to the Foreign Account Tax Compliance Act and depending on the type of assets that the taxpayer has — along with the value of the assets — will determine whether or not they are required to file this IRS Form. The 8938 Form is similar to another international reporting form called the FBAR (Foreign Bank and Financial Account Reporting) — otherwise known as FinCEN Form 114, but comes with its own set of filing requirements and reporting headaches.
*Golding & Golding previously published our 5 Facts About IRS Form 8983 You Should Know article back in 2021, and have since updated and expanded the list.
When is Form 8938 Required?
Unlike several of the other international information reporting forms such as the FBAR and Form 3520, Form 8938 is only required by taxpayers if they are required to file a tax return. In other words, even if a taxpayer exceeds the threshold for having to file Form 8938, if they are not required to file a tax return in that year, then they are not required to file Form 8938 in that year as well.
Taxpayers Living Abroad Must Still File Form 8938
Taxpayers who live overseas and are still being taxed as U.S. Persons for tax purposes are still required to file IRS Form 8938 even though they live overseas, but the threshold requirements for foreign residents are much higher than U.S. residents. A successful treaty election may impact the filing requirements.
How to Extend the Form 8938 Filing Due Date
If a Taxpayer files an extension to file their tax return in October instead of April — or October instead of June for taxpayers abroad — then Form 8938 goes on extension as well so that the taxpayer is not required to file a separate extension for Form 8938 as they would have to do for Form 3520A — which requires the filing of IRS extension Form 7004.
Form 8938 is Included with Commercial Software Packages
Unfortunately, many taxpayers fail to file certain international information reporting forms such as Form 3520 or Form 8621 because those forms are not part of most commercial tax software packages such as H&R Block and TurboTax. However, Form 8938 is typically part of the most common tax software packages.
You Must Have a Financial Interest in the Asset/Account
Unlike other tax forms such as the FBAR (in which Taxpayers must file whether or not they have interest in an account or mere signature authority), Form 8938 is only required when a Taxpayer has a ‘financial interest’ in the underlying account or asset. Thus, if the filer does not have a financial interest in the account or asset, Form 8938 may not be required.
Are Both the FBAR and Form 8938 Required?
Depending on the type of foreign assets that the Taxpayer owns, they may be required to file multiple forms for the same asset. Thus, Taxpayers with certain foreign bank accounts, for example, will have to file both the FBAR and Form 8938 if both thresholds are met. Noting, there are different thresholds to consider.
Different Thresholds for Single vs Married/U.S. Residency
Unlike the FBAR which has the same +$10,000 threshold depending on whether the taxpayer lives in the United States or lives abroad, Form 8938 has different threshold requirements depending on whether the taxpayer is filing married versus filing single or married filing separately (and whether the taxpayer resides in the United States or is considered a foreign resident).
Penalties are Per Form, Not Per Asset
Taxpayers who are assessed Form 8938 penalties for non-compliance should note that it is not based on each account or asset identified in Form 8938 but rather on the non-filing or the late filing of the form itself. Typically, penalties start at $10,000 per year, and there are potential continuing failure-to-file penalties. As provided by the IRS:
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“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.”
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Penalties May be Avoided, Waived, or Abated
For Taxpayers who have been (or might be) penalized for late or incomplete filing of Form 8938, the IRS offers several different options to minimize, avoid, or abate penalties. Many Taxpayers will qualify for either the Streamlined Procedures or Delinquency Procedures, which are taxpayer-friendly offshore amnesty tax programs (see below).
Joint and Several Liability
For taxpayers who file joint tax returns, unfortunately, if penalties are assessed for failure to file form 8938, those penalties are assessed against the joint tax return. In other words, even if assets belong to only one person, both parties to the tax return may be penalized.
As provided by the IRS:
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“Married Taxpayers Filing a Joint Income Tax Return: If you are married and you and your spouse file a joint income tax return, the failure-to-file penalties apply as if you and your spouse were a single person. Your and your spouse’s liability for all penalties is joint and several.”
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Late Filing Penalties May be Reduced or Avoided
For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.
Current Year vs Prior Year Non-Compliance
Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.
Need Help Finding an Experienced Offshore Tax Attorney?
When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.
*This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
Contact our firm today for assistance.