Tax Form 8938 Filing Requirements for Foreign Assets
Tax Form 8938 Filing Requirements for Foreign Assets: When it comes to international tax and offshore reporting, IRS Form 8938 is the new kid on the block. This article will focus on the requirements for US Person individuals who have certain specified foreign financial assets and are required to file US tax returns. The Form 8938 is similar to the FBAR (FinCEN Form 114), but more encompassing. And, unlike the FinCEN Form 114 which is filed electronically on the FinCEN website — the Form 8938 is filed directly with the IRS.
Let’s go through 25 important things you should know about Form 8938 & FATCA.
We will also provide some comparisons to the FBAR, which is oftentimes filed in conjunction with the Form 8938.
1. Who Has to File Form 8938?
US Persons, including US citizens, Legal Permanent Residents, and Foreign Nationals who meet the substantial presence test — or otherwise make an election to be treated part year as a US resident — may have a Form 8938 filing requirement. In addition, certain domestic entities such as corporations, partnerships, and trusts may also have to file a Form 8938 in order to report their specified foreign financial assets.
2. When is Form 8938 Due?
The form is due at the same time the tax return is due. In addition, if a person is on extension for filing their tax return, then the Form 8938 goes on extension as well. Unlike other reporting forms that require filing an extension on Form 7004 (such as 3520-A) — this is not required to extend the filing of Form 8938.
3. How to Apply for an Extension?
In order to apply for an extension to file the Form 8938, the filer would apply for an extension to file their US tax return (4868).
4. What if There is No Tax Return Filing Requirement?
Here is one important way the form differs from the FBAR. With the FBAR, a US person must file the FBAR form even if they are not required to file a tax return in the current year — if they otherwise meet the reporting threshold for filing the FBAR. Conversely, if a person does not have to file a tax return, but otherwise meets the reporting requirements under Form 8938, they are not required to file a tax return just so that they can file a Form 8938.
Stated another way, the Form 8938 is only required by persons who are required to file a tax return in that year and meet the threshold for filing.
5. How is Form 8938 Filed?
The form is filed with the tax return. In other words, if you are using commercial software such as TurboTax or Tax Act, then the Form 8938 should be included when you print or electronically submit the tax return. This is different than several other international reporting forms that are either not part of the commercial software package and/or require the filer to submit the document to a different location from their tax return.
6. What Foreign Assets are Included on Form 8938?
Lots of different foreign assets are required to be disclosed. The IRS does not account for exactly which asset is included or excluded from the form — but they are given some guidance as to what is included/excluded (see below).
7. Is Foreign Real Estate Included on Form 8938?
Yes and no.
For example, if a Taxpayer owns a rental property as an individual, then the rental property is not included on Form 8938. If instead, the Taxpayer owns the rental property in a foreign corporation that was not disregarded or that cannot be disregarded such as a sociedad anonima, then the value of the real estate is included when determining the asset value of the company. The company itself is included in Form 8938.
In other words, Taxpayers do not exclude the value of the foreign real estate if it is in a business. If it was owned as an individual, it would not be included on Form 8938.
8. Are Foreign Bank Accounts Reportable on Form 8938?
Yes. Form 8938 requires financial accounts that are held in certain foreign financial institutions to be included on the form. Foreign accounts are not limited to bank accounts. They also include investment accounts and other accounts as well. There may be crossover with other forms such as when the taxpayer owns foreign mutual funds or SICAVs — which may require the taxpayer to file Form 8621.
Duplicate reporting is generally not required.
9. Are Foreign Investment Accounts Reportable on Form 8938?
Yes, foreign investment accounts are included, since they qualify as financial accounts that are being held in a foreign financial institution.
10. Are Foreign Stock & Stock Accounts Reportable on Form 8938?
Yes, and this is another big difference between the Form 8938 and the FBAR.
Stock certificates would not be reportable on the FBAR, whereas stock accounts would be reportable on the FBAR.
For Form 8938 reporting, both stock accounts and stock certificates are required to be reported.
11. Are Foreign Pension Accounts Reportable on Form 8938?
Yes, and depending on the type of pension account, it may be included on Part 1 or Part 2 of the form. Due to some IRS “guidance,” there is some confusion regarding pension accounts. An IRS publication seemingly provided that (in general) pension accounts are not reportable on FBAR or Form 8938.
In actuality, what the publication seemed to be saying was that accounts held within an investment account such as accounts held within a foreign pension do not need to be parsed out individually and separately reported on the Form 8938 or FBAR.
So for example, if you have a pension that has 10 different bank accounts within the pension, those accounts do not need to be identified separately on Form 8938, but the pension itself should be reported in full.
Different tax practitioners handle this differently, so you should speak with your tax professional when it comes time to report.
12. Is Cryptocurrency Reportable on Form 8938?
There is no set rule yet as to whether cryptocurrency is reportable on Form 8938. The draft version of the 2020 tax return includes a question about virtual currency (which would include cryptocurrency). In addition, cryptocurrency is an asset; so if it is being held on an exchange — as opposed to being held within a personal wallet — then it may be reportable.
13. What if I Have an Interest in the Account?
Another difference between the Form 8938 and the FBAR is the ownership requirement — or technically the “having an interest in” requirement. With the FBAR, the filer must report the form if they have ownership, joint ownership, or signature authority in a financial account. When a person has mere signature authority (such as an employee with signature authority over a business account), they generally do not have ownership in the account — and may not have any interest in the account.
For the Form 8938, the taxpayer only reports accounts or assets they have an “interest in.”
The IRS provides the following definition as to what is “having an interest in”:
- “If any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return.”
14. What is the Threshold for Unmarried US Resident?
For an unmarried US resident, taxpayers file Form 8938 in any year that the total value on the last day of the year exceeded $50,000, or if they have less than $50,000 on the last day of the year — but have more than $75,000 on any other day of the year.
15. What is the Threshold for Married Filing Joint US Resident?
For married US residents filing jointly, taxpayers file Form 8938 in any year that the total value on the last day of the year exceeded $100,000, or if they have less than $100,000 on the last day of the year — but have more than $150,000 on any other day of the year.
16. What is the Threshold for Married Filing Separate US Resident?
For married US residents filing separately, taxpayers file Form 8938 in any year that the total value on the last day of the year exceeded $50,000, or if they have less than $50,000 on the last day of the year — but have more than $75,000 on any other day of the year.
17. What is the Threshold for Single Foreign Resident?
For an unmarried foreign resident, taxpayers file Form 8938 in any year that the total value on the last day of the year exceeded $200,000, or if they have less than $200,000 on the last day of the year — but have more than $300,000 on any other day of the year.
18. What is the Threshold for Married Filing Joint Foreign Resident?
For married foreign residents filing jointly, taxpayers file Form 8938 in any year that the total value on the last day of the year exceeded $400,000, or if they have less than $400,000 on the last day of the year — but have more than $600,000 on any other day of the year.
19. What is the Threshold for Married Filing Separate Foreign Resident?
For married foreign residents filing separately, they file Form 8938 in any year that the total value on the last day of the year exceeded $200,000, or if they have less than $200,000 on the last day of the year — but have more than $300,000 on any other day of the year.
20. What about Dual-Status Taxpayers?
When a person makes an election to be treated as a dual-status taxpayer in a tax year, they may have to file the 8938 to reflect the portion of the year they were treated as a US resident. Exceptions, exclusions, or limitations may apply.
*This is different than the exception for filing the FBAR and being treated as a resident under 6013(g).
21. What about Reportable Income?
Another distinction between the FBAR and Form 8938 is that for Form 8938, the filer must include the income generated by the foreign assets.
On the more recent versions of the Form 8938, the first page of the form requires a taxpayer to parse out and gross-up the different categories of income and where that income is reflected on the US tax return being filed – such as Schedule B for foreign interest.
22. What is the Maximum Account Value?
The maximum account or asset value is essentially the highest balance you are able to obtain when diligently and reasonably searching for the information. Depending on which country the assets are in — and nature and category of asset — you may have more or less resources available to you in order to obtain the maximum balance.
Don’t sweat it; just give it your best.
23. Which Exchange Rate do I Use?
The IRS does not require taxpayers to use any specific exchange rate. The two most common exchange rates would be the Department of Treasury and the IRS annual average exchange rate — both of these are acceptable, although most practitioners tend to lean towards the Department of Treasury Exchange rates when it comes to Form 8938 based on verbiage contained directly on the form.
24. What if I Do Not File 8938 Timely?
As with most international information reporting forms, if you don’t file it timely then you may be subject to fines and penalties.
The penalties start at $10,000 and tend to max out at around $60,000 per year.
If you are able to show reasonable cause, you may be able to limit, reduce, or eliminate the penalties. There are some limitations about using reasonable cause to support a Form 8938 penalty waiver — and the 8938 IRS instructions does explain what some of those limitations are.
25. What are the Form 8938 Amnesty Programs?
Currently (as of December 2020), the main options for amnesty are the following:
- Voluntary Disclosure Program (VDP or “New” OVDP)
- Streamlined Domestic Offshore Procedures
- Streamlined Foreign Offshore Procedures
- Reasonable Cause
- DIIRSP (ended in November 2020 and is now essentially a reasonable cause submission)