IRS Form 8938 Statute of Limitations and 6-Year Audit Risk (IRC 6501)

IRS Form 8938 Statute of Limitations: 6-Year Audit Risk (6051)

Form 8938 Statute of Limitations 

Each year, U.S. taxpayers who have ownership or an interest in foreign accounts or foreign assets may have several international information reporting requirements they have to comply with. One of the most common forms that the taxpayer may have to file is Form 8938, Statement of Specified Foreign Financial Assets, which is used to report foreign accounts and assets such as:

• • • Foreign Bank Accounts

    • Foreign Investment Accounts

    • Foreign Mutual Funds and ETFs

    • Foreign Pension Plans

    • Foreign Stock

    • Foreign Life Insurance

When a taxpayer does not file the form, it could lead to an extended statute of limitations. In addition, depending on how much income is generated from the assets, it may also lead to an extended statute of limitations. There may be penalties for the failure to file, but oftentimes these penalties could be minimized or abated by using one of the offshore disclosure programs.

Unfiled Form 8938 Extends Statute of Limitations

For taxpayers who do not file Form 8938, it is important to note that their tax return may remain open indefinitely. In other words, an otherwise correctly filed tax return will not be considered failed for statute of limitation purposes if a form 8938 was required to be included but was not reported with the tax return.

As provided by the IRS:

• • • Statute of Limitations

      • If you fail to file Form 8938 or fail to report a specified foreign financial asset that you are required to report, the statute of limitations for the tax year may remain open for all or a part of your income tax return until 3 years after the date on which you file Form 8938.

More than $5,000 of Unreported Income Also Extends the Statute

The majority of the time, the Internal Revenue Service has three years to audit or examine a tax return. Sometimes that statute of limitations may be extended to six years and one of the more common situations in recent years is when the taxpayer has more than $5000 of income generated from form 8938 assets that was not reported.

As provided by the IRS:

• • • If you do not include in your gross income an amount relating to one or more specified foreign financial assets, and the amount you omit is more than $5,000, any tax you owe for the tax year can be assessed at any time within 6 years after you filed your return.

Failure to File Penalties

For taxpayers who either do not file the form or file the form late or incomplete, they may become subject to fines and penalties including a continuing failure to file penalty.

As provided by the IRS:

• • • Failure-To-File Penalty

      • If you are required to file Form 8938 but do not file a complete and correct Form 8938 by the due date (including extensions), you may be subject to a penalty of $10,000.

    • 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.

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.