Form 8938 is used by certain U.S. taxpayers and businesses to report foreign-held assets in excess of certain amounts, depending on filing status.
It is part of FATCA, an act passed by the Obama administration in 2010 to curb foreign tax evasion.
You must file Form 8938 with your annual tax return by Tax Day if it's required. This is usually April 15.
Penalties range from $10,000 to $50,000 if you're required to file Form 8938 and you fail to do so on time.
You may also be required to file the FBAR separately with the Treasury Department if you own foreign assets.
Definition and Example of IRS Form 8938
FATCA was signed into law by President Obama on March 18, 2010, to create stricter requirements for taxpayers reporting foreign assets and to curb government losses due to offshore tax noncompliance. Taxpayers, businesses, and partnerships with foreign assets at or in excess of the thresholds must file Form 8939 when they file their tax returns.
Note
Foreign investments held through U.S.-based investment accounts are not reported on Form 8938, and they're not subject to FATCA rules.
What Counts As a Foreign Financial Asset?
The IRS calls foreign financial assets "specified foreign financial assets." They include:
Financial accounts maintained at institutions outside the U.S., such as bank accounts, investment accounts, retirement accounts, deferred compensation plans, and mutual funds
Stocks, bonds, or other securities issued by a non-U.S. person and not held through an investment account
Notes or bonds issued by a foreign person
Any interest in a foreign entity, such as a foreign corporation, foreign partnership, or foreign estate or trust
Any financial instrument or contract that has an issuer or counterparty that isn't a U.S. person
Personal residences and rental properties, but only if they're held by a foreign partnership, corporation, trust, or estate
Who Uses Form 8938?
Technically, all U.S. taxpayers are subject to FATCA, but only under certain circ*mstances. The IRS Form 8938 instructions refer to "specified individuals" and "specified domestic entities," and they explain when reporting is required.
Specified individuals include U.S. citizens, resident aliens, nonresident aliens who elect to be treated as resident aliens for tax purposes, and nonresident aliens who reside in American Samoa or Puerto Rico.
Note
Taxpayers who aren't required to file tax returns because they earn less than the income requirement do not have to file Form 8938. The filing requirement is the same as the standard deduction for most non-dependents as of 2022.
Specified domestic entities include any "closely held" corporation or partnership that meets the following conditions:
80% of its voting power, shares, or capital is held by one person on the last day of the tax year.
50% of its gross income is from passive income, or 50% of its assets are held for producing passive income.
This can also apply to a domestic trust that has at least one specified current beneficiary for the specified tax year.
Form 8938 Reporting Thresholds
Taxpayers must also meet certain thresholds to be required to file Form 8938. The IRS has set different thresholds for different types of taxpayers. All of these represent the sum total of foreign assets held:
Unmarried individuals residing in the United States are required to file Form 8938 if the market value of their foreign financial assets is greater than $50,000 on the last day of the year or greater than $75,000 at any time during the year.
Married individuals filing jointly and residing in the United States are required to file Form 8938 if the market value of their foreign financial assets is greater than $100,000 on the last day of the year or greater than $150,000 at any time during the year.
Married individuals filing separate returns and residing in the United States are required to file Form 8938 if the market value of their foreign financial assets is greater than $50,000 on the last day of the year or greater than $75,000 at any time during the year.
Unmarried individuals residing outside the United States and satisfying either the bona fide resident or physical presence tests are required to file Form 8938 if the market value of their foreign financial assets is greater than $200,000 on the last day of the year or greater than $300,000 at any time during the year.
Married individuals filing jointly and residing outside the United States and satisfying either the bona fide resident or physical presence tests are required to file Form 8938 if the market value of their foreign financial assets is greater than $400,000 on the last day of the year or greater than $600,000 at any time during the year.
Married individuals filing separately and residing outside the United States and satisfying either the bona fide resident or physical presence tests are required to file Form 8938 if the market value of their foreign financial assets is greater than $200,000 on the last day of the year or greater than $300,000 at any time during the year.
Corporations, partnerships, and trusts that meet the requirements mentioned above and have a total value of specified foreign financial assets of more than $50,000 on the last day of the year or more than $75,000 at any time during the year.
These thresholds are applicable as of Feb. 25, 2022.
Note
Taxpayers are not required to file Form 8938 if the reporting thresholds aren't met.
How to Value Foreign Assets
Foreign financial assets are measured using their fair market value in the currency in which they are denominated. Taxpayers have to know the highest fair market value for that asset at any time during the year, as well as the fair market value on the last day of the year.
These market values are then converted to U.S. dollars using the currency exchange rate as of the last day of the year. Taxpayers should use the currency exchange rates posted by the Bureau of the Fiscal Service or another public document if that isn't available. Taxpayers must specify the foreign currency, the exchange rate used, and the source of the exchange rate information, particularly if it's something other than the Bureau of the Fiscal Service.
Where To Get a Form 8938
You can download Form 8938 from the IRS website or get one from your accountant. You can also find most IRS tax forms at many libraries, post offices, grocery stores, office supply stores, and print centers. The form will usually be included automatically if you file your return with online software, such as TurboTax, and if you're required to file it.
How To Fill Out and Read Form 8938
Form 8938 spells out all the information that must be reported to the IRS. It consists of six parts:
Part I is for financial accounts, such as a deposit or custodial account with a financial institution.
Part II is for other types of financial assets, such as stocks, bonds, and other financial instruments.
Part III is a summary showing where income from the foreign financial assets is reported elsewhere on the tax return.
Part IV is a summary for certain types of financial assets that are excepted from reporting on Form 8938 because that information is reported elsewhere on the tax return.
Parts V and VI are simply further details for the information you provide in sections I through IV.
Follow the instructions for filling out each section, and attach additional sheets as needed to describe all accounts mentioned in sections V and VI.
Can Form 8938 Be E-Filed?
You can e-file Form 8938 with the rest of your annual tax return using your tax filing software of choice. Just be sure to do it by the tax deadline, usually April 15, unless you file for an extension.
Where To Mail Form 8938
If you file by mail, you should send Form 8938 with Form 1040, your tax payment, and any other relevant tax forms, postmarked on or before the annual filing deadline to the IRS processing office for your state. You can find these addresses on the IRS website.
How To File Form 8938
You can fill out a physical copy of Form 8938 and mail it with the rest of your tax return and tax payment by the annual federal tax filing deadline. You can also e-file it with the rest of your electronic tax return.
Form 8938 and the Foreign Bank Account Report (FBAR)
Form 8938 closely resembles older versions of the Foreign Bank Account Report (FBAR). However, it calls for greater detail and serves a different purpose than the FBAR. The purpose of the FBAR is to ensure compliance with the Bank Secrecy Act. It's not part of your tax return, and it's therefore not considered to be confidential tax return information.
Note
FBARs can be, and are, shared among various governmental agencies. They're used primarily by the Treasury Department's Financial Crimes Enforcement Network to track and combat international money laundering.
Form 8938 is designed to be used by the IRS to curb international tax evasion. It also requests information about various foreign assets, including foreign accounts. The FBAR requests information only about foreign accounts.
An FBAR is required if any United States person, corporation, or other entity has at least $10,000 held in foreign accounts at any time during the year. The types of financial accounts reported on the FBAR differ slightly from the types of accounts reported on Form 8938.
Taxpayers who have a requirement to file Form 8938 usually have an obligation to report much of the same information on the FBAR as well. The FBAR is filed separately with the Treasury Department.
The IRS can impose a $10,000 penalty for failing to file Form 8938 by the due date of the tax return, including extensions, or for filing an incomplete or inaccurate Form 8938. What's more, the IRS can assess additional penalties of $10,000 for each 30-day period or part of a 30-day period that the Form 8938 remains unfiled within 90 days of a formal notice by the IRS. The maximum penalty is $50,000.
The IRS presumes that a foreign financial asset has sufficient value to meet the reporting thresholds if a Form 8938 isn't filed, and if it determines that a taxpayer owns one or more foreign financial assets that are required to be reported. Penalties can be waived if the taxpayer can show reasonable cause for not reporting an asset on Form 8938.
Consult a tax professional if you own any foreign assets and have any doubt about whether you should file Form 8938.
Specified Domestic Entities: The total value of your 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.
Use Form 8938 to report your specified foreign financial assets if the total value of all the specified foreign financial assets in which you have an interest is more than the appropriate reporting threshold.
Form 8938 Statute of Limitations: Under most circ*mstances, the IRS has three (3) years to initiate an audit against a taxpayer. In some circ*mstances the 3-year statute may extend to 6-years, and even beyond in civil fraud matters.
Form 8938 is due at the same time as your tax return. If you file a paper tax return, you should attach Form 8938 to your tax return and mail it to the address listed on your tax return. If you file your tax return electronically, you will need to attach Form 8938 to your tax return before submitting it to the IRS.
The Form 8938 filing requirement does not replace or otherwise affect a taxpayer's obligation to file FinCEN Form 114 (Report of Foreign Bank and Financial Accounts). Unlike Form 8938, the FBAR (FinCEN Form 114) is not filed with the IRS.
Who Must File the FBAR? A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
If you don't disclose your offshore accounts, you may be caught through an IRS audit and your foreign accounts may be frozen. The IRS may also impose penalties for failure to comply with offshore account disclosures.
A U.S. person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, must file an FBAR to report: a financial interest in or signature or other authority over at least one financial account located outside the United States if.
The failure to timely file a Form 8938 (or timely filing a Form 8938, but one which was incorrect or incomplete) is subject to a $10,000 penalty for each year of noncompliance.
Assets required to be reported on Form 8938 are stocks and securities that are issued by a foreign corporation, contact, or investment with an issuer or counterparty that is not a U.S.-based person.
In general, Form 8938 penalties will be $10,000 per year. Unlike the FBAR penalties, there has been no indication that the Internal Revenue Service plans on seeking penalties against Taxpayers based on each specific asset reported, as opposed to a “per form” violation — but you never know.
Yes, eventually the IRS will find your foreign bank account. When they do, hopefully your foreign bank accounts with balances over $10,000 have been reported annually to the IRS on a FBAR “foreign bank account report” (Form 114).
Form 8938 is a supplemental form, which means it must be filed with your federal income tax return. It should be attached to page 1 of Form 1040 or Form 1040NR. Form 8938 consists of six parts. Part I is used to report financial accounts.
Who Must File the FBAR? A United States person is required to file an FBAR if that person has a financial interest in or signature authority over any financial account(s) outside of the United States and the aggregate maximum value of the account(s) exceeds $10,000 at any time during the calendar year.
FBARs will not be automatically subject to audit but may be selected for audit through the existing audit selection processes that are in place for any tax or information returns.
Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS generally using Form 8938, Statement of Specified Foreign Financial Assets.
The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.
Penalties for failure to file a Foreign Bank Account Report (FBAR) can be either criminal (as in you can go to jail), or civil, or some cases, both. The criminal penalties include: Willful Failure to File an FBAR.Up to $250,000 or 5 years in jail or both.
On February 28, 2023, the U.S. Supreme Court, in a narrow 5-4 opinion, determined that taxpayers who non-willfully fail to file annual Foreign Bank Account Reports (FBARs) face a maximum $10,000 penalty for each report they failed to file.
Through FATCA, the IRS receives account numbers, balances, names, addresses, and identification numbers of account holders. Americans with foreign accounts must also submit Form 8938 to the IRS in addition to the largely redundant FBAR form.
If you're an expat and you qualify for a Foreign Earned Income Exclusion from your U.S. taxes, you can exclude up to $108,700 or even more if you incurred housing costs in 2021. (Exclusion is adjusted annually for inflation). For your 2022 tax filing, the maximum exclusion is $112,000 of foreign earned income.
Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.
Financial institutions and money transfer providers are obligated to report international transfers that exceed $10,000. You can learn more about the Bank Secrecy Act from the Office of the Comptroller of the Currency. Generally, they won't report transactions valued below that threshold.
How does IRS Investigate Foreign Bank Accounts? With the IRS' increased enforcement of offshore account compliance, trust reporting and income disclosure, U.S. Taxpayers are at higher risk of penalties. The failure to properly report foreign money may result in significant fines.
As per the Income Tax law, the disclosure of foreign assets in ITR is mandatory for resident taxpayers who own specified foreign assets at any time during the entire accounting year. However, non-resident or resident but not ordinarily resident taxpayers do not have to disclose their foreign assets in ITR.
Do US Citizens Have to Pay Taxes on Foreign Property? All US citizens must file a yearly tax return regardless of where they live in the world. When filing your return, you must report your worldwide income. This includes any gain or loss from selling a foreign property and rental income.
In general, criminal FBAR penalties are rare – and they typically only rear their ugly head in situations in which other crimes have been committed, such as money laundering, structuring, smurfing, etc. Let's take a look at what the FBAR penalties may look like in 2023 and beyond.
As a U.S. taxpayer, you can face penalties for failing to report your foreign-earned income even if you don't owe any federal income tax. The IRS penalizes both failures to report and failures to pay and the penalties for reporting violations can be substantial.
The IRS does monitor international wire transfers, and that there's an overseas money transfer limit of $10,000¹ before your transfer will be reported to the IRS.
They require any form of acceptable proof such as receipts, bank statements, credit card statements, cancelled checks, bills or invoices from suppliers and service providers. Without the appropriate documentation, the IRS won't allow your deductions. Remember, it's better to be safe than sorry.
To file the FBAR as an individual, you must personally and/or jointly own a reportable foreign financial account that requires the filing of an FBAR (FinCEN Report 114) for the reportable year. There is no need to register to file the FBAR as an individual.
If you omitted Form 8938 when you filed your income tax return, you should file Form 1040X, Amended U.S. Individual Income Tax Return, with your Form 8938 attached.
Your FBAR must be filed electronically online. You can do this either through FinCEN's BSA e-filing system or you can file your FBAR alongside your taxes with a tax preparation service that offers FBAR submissions, such as H&R Block Expat Tax Services.
To get into the nitty gritty of it, if you're a U.S. taxpayer who lives outside of the U.S. and holds a total combined value of foreign assets worth more than $300,000 at any time during the year (or $200,000 on the last day of the year) you need to report it on Form 8938.
Buyers (transferees), who are generally the withholding agents, must use Forms 8288 and 8288-A to report and pay to the IRS any tax withheld on the acquisition of U.S. real property interests from foreign persons.
FATCA Form 8938 is new, and was first introduced on the 2011 1040 tax return, but the FBAR has been around since 1970. It was developed by FinCEN (Financial Crimes Enforcement Network), but since 2003, it has been enforced by the IRS. FBAR is all about reporting – not tax.
Who Must File the FBAR? A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
Assets required to be reported on Form 8938 are stocks and securities that are issued by a foreign corporation, contact, or investment with an issuer or counterparty that is not a U.S.-based person. Foreign accounts maintained by foreign financial institutions must also be reported on Form 8938.
The failure to timely file a Form 8938 (or timely filing a Form 8938, but one which was incorrect or incomplete) is subject to a $10,000 penalty for each year of noncompliance.
Yes, eventually the IRS will find your foreign bank account. When they do, hopefully your foreign bank accounts with balances over $10,000 have been reported annually to the IRS on a FBAR “foreign bank account report” (Form 114).
If the IRS suspects that you have $10,000 or more in one or more foreign financial accounts and have not filed a Foreign Bank Account Report (FBAR), or if they believe you misreported assets and income on the FBAR, you may be subject to audit.
Since foreign accounts are taxable, the IRS and U.S. Treasury have a very rigid process for declaring overseas assets. Any American citizen with foreign bank accounts totaling more than $10,000 in aggregate, or at any time during the calendar year, is required to report such accounts to the Treasury Department.
Generally, the IRS has explained that a specified foreign financial asset includes any financial account maintained by a foreign financial institution; Other foreign financial assets, which include stock or securities issued by someone other than a U.S. person,any interest in a foreign entity, and any financial ...
Form 8938 is a supplemental form, which means it must be filed with your federal income tax return. It should be attached to page 1 of Form 1040 or Form 1040NR. Form 8938 consists of six parts. Part I is used to report financial accounts.
Failing to file an FBAR can carry a civil penalty of $10,000 for each non-willful violation. If it is willful, the penalty is the greater of $100,000 or 50 percent of the amount in the account for each violation.
Filing Form 8938 is only available to those using TurboTax Deluxe or higher. To get to the 8938 section in TurboTax, refer to the following instructions: Open or continue your return if you're not already in it. Search for 8938 and select the Jump to link at the top of the search results.
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