What is Form 8938 ?
Form 8938 is a tax form used by U.S. taxpayers to report specified foreign financial assets for the purpose of compliance with the Foreign Account Tax Compliance Act (FATCA). FATCA requires certain taxpayers to report their foreign financial accounts and offshore assets to the Internal Revenue Service (IRS).
The form consists of several sections where taxpayers must provide information about their foreign financial assets, including details such as the type of asset, its maximum value during the tax year, and its location. Taxpayers must also indicate whether they had any foreign accounts or foreign financial assets that exceeded the reporting thresholds set by the IRS.
Reporting requirements for Form 8938 vary depending on the taxpayer's filing status and residency status. Failure to file Form 8938 or accurately report foreign financial assets can result in significant penalties imposed by the IRS. Form 8938 serves as a crucial tool for the IRS to track and enforce tax compliance regarding foreign financial assets held by U.S. taxpayers, ensuring transparency and accountability in the reporting of offshore income and assets.
Who Must File Form 8938 ?
Form 8938 must be filed by certain U.S. taxpayers who have an interest in specified foreign financial assets and meet the reporting thresholds set by the IRS. Generally, the following individuals are required to file Form 8938:
- Individual taxpayers: U.S. citizens, resident aliens, and certain non-resident aliens who meet the substantial presence test must file Form 8938 if they have specified foreign financial assets that exceed the reporting thresholds.
- Married taxpayers filing jointly: If married taxpayers file a joint tax return, they must include information about their combined specified foreign financial assets on a single Form 8938.
- Taxpayers living abroad: U.S. citizens or resident aliens who live abroad may have to file Form 8938 if they meet the specified requirements, even if they are not required to file a U.S. income tax return.
- Certain domestic entities: Certain domestic entities, such as partnerships, corporations, or trusts, may also have to file Form 8938 if they have an interest in specified foreign financial assets.
Form 8938 Filing Requirements
The filing requirements for Form 8938 depend on various factors including your filing status, residency status, and the value of your specified foreign financial assets. Here are the key filing requirements:
1) Thresholds: You must file Form 8938 if the total value of your specified foreign financial assets exceeds certain thresholds. These thresholds vary depending on your filing status and whether you live in the United States or abroad.
2) Filing Status: The filing thresholds for Form 8938 differ for taxpayers who live in the United States and those who live abroad. Married taxpayers filing jointly have higher thresholds than those filing separately.
3) Residency Status: If you live abroad and meet the requirements for the foreign earned income exclusion or the foreign housing exclusion, you may have higher reporting thresholds for Form 8938.
4) Reporting Thresholds: Reporting thresholds for Form 8938 generally start at $50,000 for individuals living in the United States and $200,000 for individuals living abroad. Thresholds are higher for married taxpayers filing jointly.
5) Aggregate Value: When determining whether you need to file Form 8938, calculate the aggregate value of all your specified foreign financial assets. This includes the maximum value of each asset during the tax year.
6) Exclusions and Exceptions: Some taxpayers may be exempt from filing Form 8938, such as certain dual-resident taxpayers, bona fide residents of certain U.S. territories, and individuals who report foreign financial assets on other IRS forms.
7) Specified Foreign Financial Assets: Form 8938 covers various types of foreign financial assets, here are some examples of assets that should be reported on 8938 form :
- Foreign bank accounts
- Foreign brokerage accounts
- Foreign mutual funds
- Foreign pension accounts
- Foreign stock or securities held directly
- Foreign partnership interests
- Foreign-issued life insurance or annuity contracts with a cash-value component
- Foreign-issued bonds or notes
- Foreign-issued derivatives or financial instruments
- Foreign-issued trusts or estates in which you have an interest
What Information is Needed to Complete Form 8938 ?
To complete Form 8938, you'll need the following information:
1) Personal Information: Your name, address, Social Security Number (SSN), and other identifying details.
2) Details of Specified Foreign Financial Assets: Information about each specified foreign financial asset you own, including:
- Type of asset (e.g., bank account, brokerage account, stock, or securities)
- Maximum value of each asset during the tax year
- Description and location of each asset
- Any income derived from the assets
3) Foreign Currency Exchange Rates: If assets are valued in a foreign currency, you may need to convert the values to U.S. dollars using the appropriate exchange rates.
4) Supporting Documentation: Keep any supporting documentation related to your specified foreign financial assets, such as account statements, investment statements, or ownership certificates.
5) Tax Return Information: Ensure that the information provided on Form 8938 aligns with your annual tax return, as certain details may need to be reported on both forms.
How to File Form 8938 ?
To file Form 8938, follow these general steps:
1) Download Form 8938: Obtain Form 8938 and its instructions from the IRS website or through your tax preparation software.
2) Complete the Form: Fill out Form 8938 accurately and completely, providing all required information about your specified foreign financial assets.
3) Calculate Thresholds: Determine whether the aggregate value of your specified foreign financial assets exceeds the reporting thresholds specified by the IRS.
4) Attach to Tax Return: If filing electronically, attach Form 8938 to your electronic tax return. If filing by mail, include a paper copy of Form 8938 with your tax return.
5) Submit to the IRS: File your tax return, including Form 8938, by the appropriate deadline. If filing electronically, follow the instructions provided by your tax preparation software. If filing by mail, send your tax return and Form 8938 to the address specified in the IRS instructions.
6) Keep Records: Retain copies of your completed Form 8938 and any supporting documentation for your records. This will help in case of future inquiries or audits by the IRS.
If you encounter difficulties or have questions while completing 8938 form, consider seeking assistance from a qualified tax professional or consulting the IRS website for guidance.
Penalties for Non-compliance Form 8938
The penalties for non-compliance with Form 8938 requirements can be significant. Here are the potential penalties:
1) Failure to File Penalty: If you are required to file Form 8938 but fail to do so by the due date (including extensions), you may be subject to a penalty of $10,000. This penalty can increase by $10,000 for each 30-day period of non-compliance after the IRS issues a notice of failure to file, up to a maximum penalty of $50,000.
2) Accuracy-Related Penalty: If the information reported on Form 8938 is inaccurate or incomplete, you may be subject to an accuracy-related penalty of 40% of the understatement of tax attributable to the non-disclosed foreign assets. This penalty can apply in addition to any other penalties assessed by the IRS.
3) Criminal Penalties: Willful failure to file Form 8938 or willfully filing a false Form 8938 may result in criminal prosecution. The penalties for criminal non-compliance can include fines, imprisonment, or both.
4) Continued Non-Compliance: If the IRS determines that you have continued to not comply with Form 8938 filing requirements after receiving notice, additional penalties may apply.
When to File Form 8938 ?
1) Regular Filing Deadline: For most individual taxpayers, the regular filing deadline for the annual income tax return is April 15th of each year. If April 15th falls on a weekend or holiday, the deadline is usually extended to the next business day.
2) Extensions: If you are unable to file your income tax return by the regular deadline, you can request an extension using IRS Form 4868. The extension gives you an additional six months to file your tax return, including Form 8938. However, it's important to note that an extension to file does not extend the deadline for paying any taxes owed. You must estimate your tax liability and pay any taxes owed by the original due date to avoid penalties and interest.
3) Reporting Thresholds: Even if you are granted an extension to file your income tax return, you must still meet the reporting thresholds for 8938 form to determine whether you are required to file the form.
4) Special Circumstances: Certain taxpayers, such as those living abroad or serving in a combat zone, may have different filing deadlines and requirements. It's essential to consult the IRS guidelines or seek guidance from a tax professional if you have questions about your specific situation.
FAQ's
What are specified foreign financial assets?
Specified foreign financial assets include foreign bank accounts, brokerage accounts, interests in foreign entities, and certain other financial instruments.
Who needs to file Form 8938?
U.S. citizens, resident aliens, and certain non-resident aliens who meet specified criteria and have foreign financial assets exceeding reporting thresholds must file 8938 form.
When is Form 8938 required ?
Form 8938 is required to be filed with your annual income tax return if you are a U.S. citizen, resident alien, or certain non-resident aliens, and you have specified foreign financial assets that exceed reporting thresholds.
What are the reporting thresholds for Form 8938?
Reporting thresholds vary based on factors such as filing status and residency status. They generally range from $50,000 to $600,000 in aggregate value depending on the taxpayer's situation.
Do I need to file Form 8938 if I already report foreign accounts on FBAR?
Yes, filing Form 8938 is required even if you report foreign financial accounts on the Report of Foreign Bank and Financial Accounts (FBAR) form, FinCEN Form 114.
Can I e-file Form 8938?
Yes, Form 8938 can be filed electronically along with your annual tax return. Taxpayers can also attach a paper copy of 8938 form to their tax return if filing by mail.
Do I need to file Form 8938 if my foreign financial assets are below the reporting thresholds?
No, if the aggregate value of your specified foreign financial assets is below the reporting thresholds, you generally do not need to file Form 8938.