5 Facts About Foreign Financial Asset Reporting, Form 8938

 

Do You Need to File an IRS Form 8938 

Do You Need to File an IRS Form 8938

Do You Need to File an IRS Form 8938 

Unlike the FBAR, which is required to be filed in any year a US person meets the threshold requirements for filing the FinCEN Form 114 — even if they are not required to file a tax return in that year — the rules surrounding form filing and reporting Form 8938 are different. While the form is essentially used for the same purpose as the FBAR (to report Foreign Financial Accounts and Assets) — there are some key distinctions, including significantly more reporting requirements and details than the FBAR. In addition, the threshold requirements for filing the FBAR vs 8938, and who has to file are different. Let’s look at five of the most important Form 8938 facts, along with some other equally important facts about Form 8938 that have become increasingly important over the past years. We have a more detailed summary you can access here as well.

Original Publication Date, 4/2021.

Form 8938 Only if a Tax Return is Required

Form 8938 was developed out of FATCA (Foreign Account Tax Compliance Act). The 8938 form is actually part of the tax return filing. Therefore, Taxpayers only have to file form 8938 if they have to file a tax return. In other words, even if a Taxpayer meets the threshold requirements for filing a form 8938, but is not required to file a tax return then they are not required to file a tax return in that year, just so that they can file a form 8938.

Form 8938 Not Limited to US Citizens

FATCA (Foreign Account Tax Compliance Act) is a US law and all US Persons (not just citizens) are required to comply with FACA reporting. Therefore, whether or not the person resides outside of the United States and/or is only a Lawful Permanent Resident or resident based on meeting the Substantial Presence Test —  but not a US Citizen — has no impact on whether or not they have to file IRS Form 8938.

Different Threshold for Foreign Residence & Marital Status

One key distinction between Form 8938 and FBAR is the threshold requirements for filing. The threshold requirements for filing Form 8938 will vary based on whether the filer is filing single/separately — or married filing jointly. In addition, the threshold requirements differ, depending on whether or not the taxpayers reside in the United States or outside of the United States.

Specified Foreign Assets More Expansive than Only ‘Accounts’

Unlike the FBAR, form 8938 requires disclosure of more than just foreign bank and financial accounts. When it comes to reporting form 8938 specified foreign financial assets, items such as ownership in a Foreign Corporation and/or Stock are reportable as well as an “asset.” In addition, the information required to be disclosed on form 8938 is more expansive as well — and generally requires a taxpayer to include income associated with the assets reported on the form.

Crypto and Form 8938

In recent months, the US government has increased enforcement of cryptocurrency compliance as well as publishing a FinCEN Notice (2020-2) identifying that FinCEN intends to require the disclosure of cryptocurrency and other virtual currency on the FBAR. As a result, chances are that if cryptocurrency is not already required (the rules are ambiguous at best) on form 8938, chances are it will be.

Penalties are Per Form, Not Per Asset

Taxpayers who get penalized for Form 8938 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.

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).

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.

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:

      • “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.”

Additional Information Reporting Forms May Be Necessary

There are many different international information reporting forms that a U.S. taxpayer may have to file each year depending on the specific type of foreign accounts, assets, and investments that they maintain overseas. In addition to Form 8938, some of the more common forms include:

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. 

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.

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