10 Facts About IRS Form 8938 All Taxpayers Should Know

10 Things About IRS Form 8938 All Taxpayers Should Know

10 Important Facts About IRS Form 8938

While there are many different types of international information reporting forms that a U.S. Taxpayer may have to file each year with the IRS, Form 8938 (a relative newcomer to the world of international tax) is one of the most common types of foreign reporting forms that should be on a U.S. Taxpayer’s radar.  Form 8938 is used by U.S. persons who are required to report foreign assets and accounts as required by FATCA (Foreign Account Tax Compliance Act) and in conjunction with Internal Revenue Code Section 6038D.  It is important to note that while Form 8938 is similar to another international reporting form called the FBAR (Foreign Bank and Financial Account Reporting), it is a separate form with its own set of filing requirements (and headaches).

*Golding & Golding previously published the 5 Facts About IRS Form 8938 You Should Know article back in 2021 and has since updated and expanded the list.

When Is Form 8938 Required?

Form 8938 is part of the tax return. So, unlike several of the other standalone international information reporting forms such as the FBAR and Form 3520, Form 8938 is only required by Taxpayers if they are required to file a tax return in the same year they meet the threshold requirements. In other words, even if a Taxpayer exceeds the threshold requirements for filing Form 8938, if they are not required to file a tax return that year, then they are also not required to file Form 8938 that year.

Taxpayers Living Abroad Must Still File Form 8938

Taxpayers who live overseas and are still being taxed as U.S. Persons are still required to file Form 8938 even though they live overseas, but the threshold requirements for foreign residents are much higher than for U.S. residents. Also, a successful treaty election may eliminate (or modify) the filing requirements.

How to Extend the Form 8938 Filing Due Date

If a Taxpayer files an extension to file their tax return in October instead of April (or October instead of June for taxpayers abroad), Form 8938 goes on extension as well so that taxpayers are not required to file a separate extension for Form 8938 as they would have to do for Form 3520-A, which requires filing IRS extension Form 7004.

Form 8938 Is Included With Commercial Software Packages

Unfortunately, many Taxpayers fail to file certain international information reporting forms such as Form 3520 or Form 8621 because those forms are usually not part of most commercial tax software packages such as H&R Block and TurboTax. However, Form 8938 is typically part of the most common tax software packages.

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 an actual interest in the foreign account), 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.

Are Both the FBAR and Form 8938 Required?

Depending on the type of foreign assets that the Taxpayer owns, they may be required to file multiple forms for the same asset in the same year. For example, Taxpayers with certain foreign bank accounts may have to file both the FBAR and Form 8938 if they meet both thresholds (noting there are different thresholds to consider).

Different Thresholds for Single vs Married/U.S. Residency

Unlike the FBAR which has the same $10,000+ threshold depending on whether the Taxpayer lives in the United States or lives abroad, Form 8938 has different threshold requirements depending on whether the Taxpayer is filing Married vs. Single/Married Filing Separately (and whether the Taxpayer resides in the United States or is considered a foreign resident).

Penalties Are Per Form, Not Per Asset

Taxpayers who are assessed Form 8938 penalties for 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, although there are potential continuing failure-to-file penalties.

As provided by the IRS:

• • • “Continuing Failure To File: If you do not file a correct and complete Form 8938 within 90 days after the IRS mails you a notice of the failure to file, you may be subject to an additional penalty of $10,000 for each 30-day period (or part of a period) during which you continue to fail to file Form 8938 after the 90-day period has expired. The maximum additional penalty for a continuing failure to file Form 8938 is $50,000.”

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 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).

Joint and Several Liability

Penalties involving Form 8938 are assessed against the joint tax return, not just the individual taxpayer with the foreign accounts/assets. 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.”

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. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

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.