One of the most difficult parts of living and working abroad as a U.S. citizen is the countless forms that must be filed around tax season each year. One of the more complicated forms is Form 8938, the Statement of Specified Foreign Financial Assets. This form is filed by expats and allows the IRS to keep track of foreign assets that are held by U.S. citizens abroad. While this form is complicated, the international tax attorneys at Evolution Tax and Legal is breaking it down for you: who needs to file it, how to file it, and penalties if it is left unfiled.
What is Form 8938?
Form 8938 is also known as the Statement of Specified Foreign Assets. When U.S. citizens live and work abroad, it is likely they will begin to acquire different types of foreign assets and as a taxpayer, you are required to report these acquired assets to the IRS during your yearly tax return. Form 8938 allows individuals with specified foreign assets to do so.
What Is a Specified Foreign Financial Asset?
A specified foreign asset includes:
- Any notes or bonds issued by a foreign person.
- Any financial accounts held at a foreign bank or institution, including investment accounts, retirement accounts, deferred compensation plans and mutual funds.
- Stocks and bonds issued by a foreign person that are not held within a bank or foreign institution.
- Any interest in a foreign partnership, foreign corporation, foreign estate or foreign trust.
- Any financial contract that has an issuer that is not a U.S. taxpayer.
- Personal residences or rental properties abroad that are held by a foreign partnership or foreign corporation.
Who Files Form 8938?
U.S. taxpayers who live abroad and hold any combination of foreign assets that are worth more than $300,000 at any point throughout the year are required to file Form 8938. If you typically file a joint tax-return, you must file Form 8938 if your combined foreign assets are greater than $600,000 at any point throughout the year.
If you are a U.S. taxpayer living within the U.S. and have any assets that are maintained abroad and are qualified as specified foreign financial assets, it is important to be aware of the dates the tax year in the country your assets are held starts and stops. These dates may vary from the U.S. dates of January 1 to December 31. The thresholds for taxpayers living in the United States can be lower than those living abroad, and may vary based on the tax period the country relies on.
Form 8938 Reporting Thresholds
The reporting thresholds vary based on your permanent residence and marriage status as a U.S. taxpayer. The thresholds are as follows:
Individual Filers
For unmarried taxpayers who live in the United States and file as an individual, they are required to file Form 8938 if at any point throughout the year their specified foreign financial assets are greater than $75,000, or if on the last day of the year their assets are greater than $50,000.
For unmarried taxpayers who live outside of the United states and file as an individual, they are required to file Form 8938 if at any point throughout the year their specified foreign financial assets are greater than $300,000, or if on the last day of the year their assets are greater than $200,000.
Joint Filers
For married individuals who file a joint tax-return and live within the United States, they are required to file Form 8938 if at any point throughout the year their specified foreign financial assets are greater than $150,000, or if on the last day of the year their assets are greater than $100,000.
For married individuals who file a joint tax-return and live outside of the United States, they are required to file Form 8938 if at any point throughout the year their specified foreign financial assets are greater than $600,000, or if on the last day of the year their assets are greater than $400,000.
Form 8938 vs. FBAR/FinCEN 114
If you are familiar with filing foreign tax forms, Form 8938 may look similar to the FBAR and FinCEN 114. However, Form 8938 calls for a greater attention to detail and is a more complex form, serving a different purpose than the FBAR. The purpose of the FBAR is to ensure foreign corporations are in compliance with the Bank Secrecy act, while the purpose of Form 8938 is to ensure compliance with the IRS tax returns, and it is a confidential form. This form is designed to allow the IRS to curb international tax evasion.
The FBAR and FinCEN 114 are reported to the U.S. Treasury Department of Financial Crimes and Enforcement Network. These forms are shared among various government agencies in order to keep track of U.S. individuals who have a stake in foreign corporations. The reporting thresholds for the FBAR and FinCEN 114 are lower than Form 8938, and the penalties for not filing the FBAR or FinCEN 114 can often result in higher fines.
Form 8938 Penalties
Failing to file or improperly filing Form 8938 can result in financial penalties and even criminal charges. There is up to a $10,000 fine for failure to disclose information on Form 8938, and an additional $10,000 penalty for each 30 days past the deadline that a taxpayer fails to return Form 8938. The maximum penalty can be as high as $60,000 for failing to disclose or return Form 8938.
How Evolution Tax and Legal Can Help You File Form 8938
Form 8938 is a complicated form, even for well-seasoned international tax professionals. With tens of thousands of dollars in potential fines for failure to disclose or return this international tax form, it is important that if you are required to file you do so correctly and on time each year. The team at Evolution Tax and Legal has the knowledge and skills to help you file both Form 8938 and the many other international tax forms you may be required to file each year. Contact the team at Evolution Tax and Legal to make your international tax filings as easy as possible.