Delinquent Form 8938 & Penalty Abatement

Delinquent Form 8938 & Penalty Abatement

Delinquent Form 8938 & Penalty Abatement for Late-Filing 

Delinquent Form 8938 & Penalty Abatement for Late-Filing: In recent years, the IRS has significantly increased enforcement of offshore related compliance. One of the most common forms that a US person may have to file is a form 8938. The form 8938 was introduced in accordance with FATCA. FATCA is the Foreign Account Tax Compliance Act. For individuals, FATCA requires the Taxpayer to disclose their foreign financial accounts and assets to the IRS each year if they meet the threshold for reporting. When a person does not file the 8938 form timely, the form 8938 is considered delinquent– and the taxpayer may become subject to fines and penalties.

Form 8938 Filing

The form 8938 is filed at the time a taxpayer’s tax return is filed.

It is important to note that if a Taxpayer does not have to file a tax return in the current year, then they do not have to file a form 8938 in the current year as well.

Some taxpayers will file a form 8938 anyway, but that is not necessary. The 8938 form is not as complicated as some of the other international reporting forms, such as form 5471 but it is more detailed than it’s FinCEN counterpart – the FBAR.

Form 8938 requires a taxpayer to include both the maximum account or asset value – along with income associated with this specific asset(s).

Missed Form 8938 Filing

When a Taxpayer misses a form 8938 filing requirement, they may become subject to fines and penalties.

There are various ways in which the taxpayer may become aware of the delinquent filing and penalties. It could be that the Taxpayer received a CP15 penalty notice, or they may have received a soft letter from the Internal Revenue Service noting that the IRS’ records show the Taxpayer owns certain assets that should have been filed but was not reported by the taxpayer.

Alternatively, the taxpayer may be on the receiving end of an IRS audit/examination — or may have been discovered as a result of a third party voluntary disclosure.

Form 8938 Penalties

The IRS reserves the right to issue penalties and in recent years has significantly increased penalty enforcement.

As provided by the IRS:


      • You may be subject to penalties if you fail to timely file a correct Form 8938 or if you have an understatement of tax relating to an undisclosed specified foreign financial asset. Failure-To-File Penalty If you are required to file Form 8938 but do not file a complete and correct Form 8938 by the due date (including extensions), you may be subject to a penalty of $10,000.

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.

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.

Presumption of Maximum Value

      • If the IRS determines that you have an interest in one or more specified foreign financial assets and asks you for information about the value of any asset, but you do not provide enough information for the IRS to determine the value of the asset, you are presumed to own specified foreign financial assets with a value of more than the reporting threshold that applies to you. See Determining the Total Value of Your Specified Foreign Financial Assets, earlier.
      • In such case, you are subject to the failure-to-file penalties if you do not file Form 8938.

Reasonable Cause Exception

      • No penalty will be imposed if you fail to file Form 8938 or to disclose one or more specified foreign financial assets on Form 8938 and the failure is due to reasonable cause and not to willful neglect.
      • You must affirmatively show the facts that support a reasonable cause claim. The determination of whether a failure to disclose a specified foreign financial asset on Form 8938 was due to reasonable cause and not due to willful neglect will be determined on a case-by-case basis, taking into account all pertinent facts and circumstances.

Penalty Abatement

      • When a taxpayer becomes subject to form 8938 penalties, they may be able to avoid or eliminate them by either qualifying for reasonable cause, meeting one of the exemptions or exceptions – or by making a voluntary disclosure/ offshore tax amnesty submission. It is important to identify the strategy the taxpayer wants to make before engaging with the IRS because the IRS does not always play fair so it is important to have your ducks in a row before engaging them.”

Continued Increased 8938 Enforcement & Taxpayer Rights

In conclusion, all signs point toward the IRS continuing its enforcement of form 8938, along with other international information reporting requirements such as 3520, 3520-A and 5471. But, just because a person gets hit with form 8938 penalties does not mean they lose the opportunity to try to fight those penalties.

There are various offshore disclosure/tax amnesty programs that may assist a taxpayer with reducing, eliminating and abating form 8938 penalties.

Our International Tax Lawyers Represent Clients Worldwide

Our FBAR Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure and Form 8938 compliance.

Contact our firm today for assistance.

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