Form 8938 – An Introduction
The requirement to file Form 8938 was borne out of legislation known as FATCA (the “Foreign Account Tax Compliance Act”). FATCA was enacted in 2010 with the goal of curtailing offshore tax evasion. As part of FATCA, beginning in 2011, U.S. citizens, including those living abroad, became obligated to report their holdings in foreign financial accounts and their foreign assets on an annual basis to the IRS, assuming certain asset value thresholds are met.
Who must file Form 8938?
If you reside outside the U.S. and have a bank account or investment account in a foreign financial institution, you are generally required to include Form 8938 with your U.S. federal income tax return if you meet the following thresholds:
- You are filing a return other than a joint return and the total value of your specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or
- You are filing a joint return and the value of your specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
If you reside within the U.S., the thresholds are significantly lower than the above amounts and depend on your filing status.
Starting with the 2016 tax year, certain domestic entities, including corporations, partnerships, may need to file Form 8938 if the following applies:
- The corporation or partnership is “closely held” (an 80% holding interest) by a U.S. citizen or resident alien (or certain nonresident aliens);
- At least 50 percent of the corporation or partnership’s gross income for the taxable year is “passive” income (e.g., dividends, interest, rent, royalties, annuities, etc.) or at least 50 percent of the assets held by the corporation or partnership for the taxable year are assets that produce or are held for the production of passive income; and
- The total value of the entity’s 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.
What type of information is requested on Form 8938?
In addition to listing the accounts and their maximum values during the tax year, the form requires the taxpayer to list income reported on the tax return relating to the accounts. As to these, various tax items must be specified (interest, dividends, royalties, etc.), the amount reported must be provided, and the corresponding reporting on the tax return must be provided (i.e., which form and line or which schedule and line).
What is the due date for Form 8938?
Form 8938 must be attached to your income tax return and must be filed by the due date (including extensions) for that return.
Am I required to file Form 8938 if I file an FBAR?
Yes. Although similar, these forms are not related to one another. The FBAR is filed with the U.S. Treasury, whereas Form 8938 is filed with the IRS. In addition, there are several minor differences between the reporting requirements for each form.
What are the penalties for not filing Form 8938?
Failure to file Form 8938 comes with a pretty severe penalty of $10,000 per form. The penalty is increased by $10,000 (up to a maximum of $50,000) for each 30-day period that the failure continues for more than 90 days after the IRS mails you a notice of your failure to file. Additional penalties can also be imposed if you underpay your tax as a result of a transaction involving a foreign financial asset that was not disclosed on the form.