Common Mistakes to Avoid when Reporting Foreign Assets

5 Common Form 8938 Errors and Mistakes You Should Know

Form 8938 Errors You Need to Know

IRS Form 8938 is one of the more common types of international information reporting forms. As we have referenced our many of our prior articles, Form 8938 is a ‘relative newcomer‘ when it comes to foreign account and asset disclosure. Unlike many of the other international tax forms, IRS Form 8938 is only required when a U.S. Taxpayer is required to file a U.S. tax return. This is different than other international information reporting forms such as the FBAR — which is required to be filed by all us persons who meet the reporting requirements whether or not they’re required to file a U.S. tax return. Let’s review some of the more common errors that taxpayers make when filing Form 8938.

Original Publication Date, 9/2019.

First, What is IRS Form 8938?

The 8938 FATCA Form is used to report specified foreign financial assets to the IRS per FATCA (Foreign Account Tax Compliance Act).  There are different reporting requirements and thresholds, and just because you may have ownership of or interest in a “specified foreign financial asset” does not mean you meet the threshold requirement for filing the form.

Form 8938 Filing Errors

There are many errors that taxpayers make when completing the 8938 Form. As with most other things related to offshore tax, these errors are not typically fatal.

5 Common 8938 Form Problems

Here are 5 common 8938 Form errors you should know:

Filing a Tax Return Just to File the 8938 FATCA Form

Unlike Form 5471 or 8865, which you have to file, even if you do not otherwise have to file a U.S. tax return (presuming you meet the filing requirements), the FATCA 8938 Form is different. You only file the 8938 Form in a year in which you are required to file a tax return and meet the threshold filing requirements.

Only Include Assets You have an Interest In

Unlike the FBAR, a person only includes assets that the filer has an interest in. In other words, if you are associated with the asset, but you do not have an interest in the asset, you generally do not have to file.

Using Domestic Thresholds when the Filer is a Foreign Resident

The threshold filing requirements for the 8398 FATCA form are much higher than the threshold for U.S. residents.  If you are a foreign resident and do not meet the threshold, then you do not have to file the form.

Excluding Assets which should be Reported

There are many assets that you may need to include in an 8938 FATCA Form submission. This will generally include:

• • • Retirement Accounts

    • Foreign Entities (subject to 8865 and 5471)

    • Foreign Investment Funds

    • Foreign Life Insurance

If you do not include all the necessary assets, you may become subject to fines and penalties.

Filing the Return Late or Amending without RC or Amnesty

If you filed the tax return late or missed the 8938 FATCA form requirements for prior years, you are out of compliance. When a taxpayer is out of compliance, they may become subject to excessive fines and penalties for not filing the form (or filing late using quiet disclosure). There are many amnesty, voluntary disclosure, and delinquency procedures that the IRS makes available to limit, reduce, minimize, and avoid penalties.

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. 

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.