What is Form 8938?
Published on July 25, 2024
by Jeff Patterson
Jeff Patterson is an American living in Scotland and joined the team at Expat Tax Online after experiencing the complexities of living abroad with a family.
Table of Contents
Form 8938 is an IRS tax form used to report certain types of foreign financial assets. The form must be included with your annual 1040 tax return if your foreign financial assets exceed the reporting threshold.
The primary purpose of Form 8938 is to identify and track US taxpayers’ foreign financial assets. It includes assets such as foreign bank accounts, foreign securities, and interests in foreign entities.
Who needs to file Form 8938?
US taxpayers, including US citizens and green card holders, are required to file Form 8938 if they meet the thresholds for foreign financial assets. However, the thresholds vary depending on your filing status and whether you live in the US or abroad.
Filing Thresholds
Single or Married Filing Separately
- Living in the US. The total value of your specified foreign financial assets is more than US$50,000 on the last day of the tax year or more than US$75,000 at any time during the tax year.
- Living Abroad. The total value of your specified foreign financial assets is more than US$200,000 on the last day of the tax year or more than US$300,000 at any time during the tax year.
Married Filing Jointly
- Living in the US. The total value of your specified foreign financial assets is more than US$100,000 on the last day of the tax year or more than US$150,000 at any time during the tax year.
- Living Abroad. The total value of your specified foreign financial assets is more than US$400,000 on the last day of the tax year or more than US$600,000 at any time during the tax year.
What are the types of assets that need reporting?
- Foreign bank accounts
- Foreign brokerage accounts
- Foreign stock and securities
- Foreign partnership interests
- Foreign mutual funds
- Foreign-issued life insurance or annuity contracts with a cash value
Are there penalties for non-compliance?
Yes, there are. The IRS can impose a penalty of US$10,000 for failing to disclose and an additional US$10,000 for each 30 days of non-filing after receiving an IRS notice, up to a maximum of US$60,000. Additionally, criminal penalties may also apply.
What’s the difference between Form 8938 and FBAR/FinCEN 114?
Form 8938 is filed with your annual tax return, and reports specified foreign financial assets if the total value exceeds the specified thresholds.
FBAR/FinCEN 114 is filed separately from your tax return and specifically reports foreign bank and financial accounts if the total value exceeds US$10,000 at any point during the year.
Why use the IRS Streamlined Tax Amnesty Program?
It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties.
Connect with over 10,000+ expats today!
Embarking on an international journey shouldn’t mean navigating the complex world of US taxation alone. If you’re living and working abroad, our friendly, supportive Expat Tax Online Help Facebook group is here to assist. We’ve designed a community that serves as a comprehensive guide and resource platform tailored for US expats.
What are the reporting obligations for PFICs?
Each PFIC investment requires its own Form 8621 to be filed annually. The IRS estimates that completing Form 8621 can take around 20-32 hours per PFIC, from start to finish. This process is complex and costly, especially with multiple PFIC investments.
What gets reported on Form 8938?
- Foreign Bank Accounts: Checking, savings, and deposit accounts held at foreign financial institutions.
- Foreign Brokerage Accounts: Accounts holding foreign stocks, bonds, or other securities.
- Foreign Stocks and Securities: Direct ownership of foreign stocks and bonds not held in a brokerage account.
- Foreign Partnership Interests: Ownership interests in foreign partnerships.
- Foreign Mutual Funds: Ownership in foreign mutual funds.
- Foreign-issued Life Insurance or Annuity Contracts: Contracts with cash value issued by foreign insurers.
- Foreign Trusts and Estates: Beneficial interests in foreign trusts or estates.
Can I file Form 8938 electronically with my tax return?
Yes, you can file Form 8938 electronically with your tax return. When you submit your annual tax return (Form 1040 or Form 1040-SR) through the IRS e-file system, you can include Form 8938 as part of your electronic submission.
This is a convenient way to ensure all your required forms are submitted together and reduces the risk of missing any documentation.
If I am required to file both Form 8938 and the FBAR, do I need to report the same accounts on both?
Yes, if you are required to file both Form 8938 and the FBAR (FinCEN Form 114), you must report the same accounts on both forms if they meet the reporting criteria for each form.
Are there exceptions to the requirement to file Form 8938?
Yes, there are exceptions to the requirement to file Form 8938. Some of the key exceptions include:
- No Income Tax Return Filing Requirement: If you are not required to file a US income tax return for the year, you do not need to file Form 8938, regardless of the value of your specified foreign financial assets.
- Assets Reported on Other Forms: If you report interests in foreign entities and certain foreign gifts on other forms (such as Form 3520 or Form 5471), you may just list those forms on Form 8938 without repeating the detailed information.
- Excluded Assets: Some assets, such as foreign real estate directly owned, foreign currency, and directly owned precious metals, are not required to be reported on Form 8938.
These exceptions help reduce the reporting burden for taxpayers who might otherwise be required to provide redundant information or who hold assets that fall outside the scope of specified foreign financial assets.
How do I determine the value of my foreign financial assets for reporting on Form 8938?
To determine the value of your foreign financial assets for reporting on Form 8938, you need to follow specific guidelines set by the IRS. Here’s a step-by-step approach:
- Identify Specified Foreign Financial Assets.
- Determine Maximum Value During the Tax Year. For each specified foreign financial asset, determine the highest value it reached during the tax year. This includes all interest, dividends, and other earnings.
- Use Reasonable Estimates. If you cannot obtain exact values, you can use reasonable estimates. Ensure these estimates are based on reliable sources and methods, such as bank statements or financial institution records.
- Convert to US Dollars: Convert the value of each asset to US dollars using the Treasury Department’s Financial Management Service foreign currency exchange rates as of the last day of the tax year. You can find these rates on the treasury website (https://fiscaldata.treasury.gov/datasets/treasury-reporting-rates-exchange/).
- Example: If you have a foreign bank account with a maximum value of €50,000, you must convert this amount to US dollars using the exchange rate on December 31st of the tax year.
- Aggregate the Values. Combine the values of all specified foreign financial assets to determine if they exceed the reporting thresholds.
- Report on Form 8938. Complete Form 8938 with the total value of your specified foreign financial assets. Include the form with your annual tax return (Form 1040 or Form 1040-SR).
Spread the word. Please share… 👉
