What is Form 8938?
Form 8938 is an Internal Revenue Service form used to report your specified foreign financial assets if the total value of all the specified foreign financial assets in which you have an interest is more than the appropriate reporting threshold.
If you are required to file Form 8938, you must report the specified foreign financial assets in which you have an interest even if none of the assets affects your tax liability for the year.
What are the reporting thresholds?
If you are a specified individual, your applicable reporting threshold depends upon whether you are married, file a joint federal income tax return, and live inside (or outside) the United States. Different thresholds apply to specified domestic entities. Please open the reporting thresholds tab below to learn more.
When and How to File Form 8938
Attach Form 8938 to your annual return and file by the due date (including extensions) for that return. Do not send a Form 8938 to the IRS unless it is attached to an annual return or an amended return.
Penalties for not filing Form 8938
Failure to report foreign financial assets on Form 8938 may result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.
Form 8938 vs FBAR
The Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file FinCEN Form 114 (Report of Foreign Bank and Financial Accounts). Unlike Form 8938, the FBAR (FinCEN Form 114) is not filed with the IRS. It must be filed directly with the office of Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury, separate from the IRS.
Individuals and domestic entities must check the requirements and relevant reporting thresholds of each form and determine if they should file Form 8938 or FinCEN Form 114, or both.
What is Considered a Foreign Asset?
Foreign financial assets, or "specified foreign financial assets" as the IRS calls them, consist of:
- Financial accounts maintained at financial institutions outside the United States, such as bank accounts, investment accounts and mutual funds;
- Stocks, bonds or other securities issued by a non-U.S. person and not held through an investment account;
- Any interest in a foreign entity, such as a foreign corporation
- Any financial instrument or contract that has an issuer or counterparty that is not a US person.
Does Offshore Real Estate Need to Be Reported on Form 8938?
Foreign real estate is not a foreign financial asset required to be reported on Form 8938. So, a personal residence or a rental property outside of the United States does not need to be reported on this form.
However, if the real estate is held through a foreign entity, such as a corporation, partnership, or trust, then your interest in the entity is a specified foreign financial asset that might be reportable on Form 8938. The value of the real estate held by the entity is used to determining the value of the shares to be reported on Form 8938, but the real estate itself is not separately reported on Form 8938.
Additionally, if you open a foreign bank account to facilitate the purchase of the property, or the receipt of rental income, and that account has more than $10,000 in it on any one day of the year, then you must report the bank account on US Treasury Form TD F 90-22.1, commonly referred to as the FBAR or Foreign Bank Account Report.
Help with All of Your Form 8938 and Foreign Reporting Requirements
Freeman Tax Law is a comprehensive international tax firm, comprised of a full-service team of Attorneys, CPA's and former IRS agents.
We have handled hundreds of offshore disclosure cases, and will help you understand your obligation in regards to the receipt of foreign gifts and bequests. We will clearly explain your options in making all necessary disclosures to the IRS. Please contact our office if you would like to discuss your personal tax situation.