Instructions for IRS Form 8938, Specified Foreign Assets

Instructions for IRS Form 8938, Specified Foreign Assets

Instructions for IRS Form 8938 

While there are many international information reporting forms that a U.S. person may have to file, one of the most important and common international tax forms is IRS form 8938. Form 8938 is a relative newcomer in the world of international tax reporting and compliance and was developed to facilitate compliance with FATCA (Foreign Account Tax Compliance Act). The form is similar to another form that has been around for more than 50 years (FBAR) — but has its own set of challenges common pitfalls, and compliance requirements. The instructions published by the Internal Revenue Service can be overwhelming, especially for taxpayers who may not have experience in preparing the form, so we wanted to provide you with a summary of what to consider when preparing the form.  Here is a basic summary of the Form 8938 instructions to assist you with preparing IRS Form 8938.

Listing Out All of Your Form 8938 Assets

For taxpayers who have foreign accounts, assets, or investments, the first thing that they will want to do is to make a list of all the different foreign accounts, assets, and investments that they have.

Categorize Accounts, Pensions, and Other Investments

Taxpayers should consider categorizing it by type, such as bank account, investment account, pension plan, etc. This is because there are different sections to Form 8938 and some assets go in one part of the form while other assets go in a different part of the form. Likewise, some assets may be classified as deposit accounts, while others are classified as deposit accounts.

Do You Have a Financial Interest in the Asset or Account

It is important to note that for Form 8938, taxpayers only include accounts in which they have a financial interest. Thus, the next step for taxpayers may be to go through the different assets they have and determine which ones they have a financial interest in and which ones they do not.

Total Value, Filing Status, U.S. or Foreign Resident

The next step taxpayer should take is to determine the total value of their foreign assets. Once the taxpayer knows the total value of their foreign assets, they need to determine whether or not they are considered a US resident or foreign resident for form 8938 purposes. In addition, they have to determine whether they will be filing jointly or married filing separately or single. The reason that this is important is that the different Form 8938 threshold filing requirements are based on the status of the taxpayer.

Income Generated from Form 8938 Assets

For taxpayers who may be familiar with filing the FBAR, Form 8938 will be an exercise in duplicity for many of the steps they would take to do the FBAR. But, something to keep in mind though, is unlike the FBAR, with Form 8938 taxpayers have to identify what income is sourced from these foreign assets, accounts, and investments. For example, if there is $15,000 of interest income generated from Form 8938 identified on the front page of Form 8938.

Missing Data, Estimates, Addresses, Account Numbers

Taxpayers do not have to get it exactly right, 100% of the time. Oftentimes, depending on the foreign country and the foreign financial institution, the taxpayer may not be able to obtain all the necessary information to score 100% on their Form 8938. Still, the taxpayer should do their best to do a reasonable and diligent search to obtain all of the information that they can get to most accurately report based on the information available.

Preparing the Form 8938

When it comes time to prepare Form 8938, taxpayers may consider using commercial software such as TurboTax or TaxAct. While many foreign international forms are not contained in these commercial software programs (such as Form 3520, Form 5471, or Form 8621) — typically form 8938 is a part of the software package. For taxpayers who are overwhelmed by the process, they may consider working with specialists to assist them with preparing their forms. But, taxpayers who were out of compliance for prior years should take heed before filing for the current year so that they can avoid a quiet disclosure.

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.