IRS Form 8938: What It Is and Who Needs to File
One of the most confusing parts of filing taxes as an expat is knowing which forms you have to fill out and what income you need to report. Form 8938 is one of the more difficult forms you’ll encounter, so below we’ll guide you through what it is, who needs to file, how to file, and what may happen if you don’t.
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What is Form 8938?
Officially called your Statement of Specified Foreign Financial Assets, Form 8938 one of the forms expats use to tell the IRS about financial assets they hold abroad.
When living and working abroad, it’s common for Americans to acquire different types of foreign financial assets—having a foreign pension plan or shares of a foreign company, for example. Well, as a U.S. taxpayer, you’re required to report those foreign assets in your yearly taxes and filing Form 8938 is one way for you to do it.
The biggest things you should know about Form 8938 are:
- Not every expat needs to fill it out—it depends on the types of assets you have and how much they’re valued as
- There’s a hefty fine if you’re supposed to file one and you don’t
- There is a difference between Form 8938 and the FBAR/FinCEN Form 114
Who needs to file?
To get into the nitty gritty of it, if you’re a U.S. taxpayer who lives outside of the U.S. and holds a total combined value of foreign assets worth more than $300,000 at any time during the year (or $200,000 on the last day of the year) you need to report it on Form 8938. If you’re filing a joint return, the thresholds are $600,000 at any time during the year or $400,000 on the last day of the year.
If you live in the U.S. and have qualifying assets (including any bank, investment, and retirement accounts) maintained outside of the U.S., pay attention to when the tax year starts and stops - because it can be different. Of course, in the U.S. it's 1/1 to 12/31, but that's not the case everywhere U.S. as well as foreign stock, interest in a foreign entity and any foreign financial instrument) the thresholds are lower.
What happens if you forget to file?
If you’re supposed to file Form 8938 and you don’t you may be slapped with a fine of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). On top of that, the IRS says that “underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial underpayment penalty of 40%.”
Moral of the story: When it comes to taxes, it’s better to be safe than sorry. If you’re unsure about which forms to file, enlist the guidance of an expert tax advisor (like the ones here at H&R Block).
What’s the difference between Form 8938 and FBAR/FinCEN 114?
|Form 8938 (Statement of Specified Foreign Financial Assets)||FBAR (Report of Foreign Bank and Financial Accounts)|
|Who needs to file?||U.S. individuals (citizens, residents and certain nonresidents) and certain U.S. corporations, trusts, and partnerships who have an interest in foreign financial assets (as specified by the IRS) and meet the reporting threshold.||U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold.|
|Where do you file it?||You file Form 8938 with the IRS||You file your FBAR/FinCEN Form 114 with FinCEN, the U.S. Treasury Department's Financial Crimes and Enforcement Network|
|Does the U.S. include U.S. territories?||No||Yes|
|What are the reporting thresholds?||The Form 8938 thresholds are different for different types of tax filers:
Qualified taxpayers living in the US:
Qualified taxpayers living outside the US:
Other specified domestic entities:
|You need to file an FBAR if the aggregate value of financial accounts exceeds $10,000 at any time during the calendar year. Be careful—this is a cumulative amount, meaning if you have two different foreign bank accounts with a combined account balance greater than $10,000 at any one time during the year, you would need to report both accounts.|
|What do you report?||You are required to report the maximum value of specified foreign financial assets, including foreign financial accounts as well as certain other foreign non-account investment assets||You report the maximum value in foreign financial accounts maintained by a financial institution physically located in a foreign country|
|When is it due?||Form is attached to your annual return and due by the expat tax filing deadline, including any applicable extensions||Received by April 15 (6-month automatic extension to Oct 15)|
|Penalties for not reporting||Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply||Civil monetary penalties are adjusted annually for inflation. For civil penalty assessment prior to Aug 1, 2016, if non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply|
What gets reported on Form 8938?
It can be confusing to understand what actually gets reported. Here’s what does and doesn’t need to be reported on Form 8938 :
|Foreign real estate||Do you need to report foreign real estate on Form 8938? The IRS says no, but if it’s foreign real estate held through a foreign entity owned by the taxpayer it gets tricky. The foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate.|
|Financial accounts held at a foreign financial institution||Yes|
|Foreign financial account for which you have signature authority||No, unless you have an interest in the account as described above|
|Financial accounts held at a foreign branch of a US bank||No|
|Financial accounts held at a U.S. branch of a foreign bank||No|
|Foreign stock held in a foreign brokerage account||You need to report the account; however, the stock within the account does not need to be reported separately|
|Foreign stock held outside a foreign brokerage account||Yes|
|Foreign partnership interests||Yes|
|Foreign mutual funds||Yes|
|Domestic mutual funds that invest in foreign stock||No|
|Foreign accounts non-accounts investments held by foreign or domestic grantor trusts where you are the grantor||Yes, for both|
|Foreign-issued life insurance or annuity with cash value||Yes|
|Foreign hedge and private equity funds||Yes|
|Foreign currency held directly||No|
Get help with Form 8938 instructions from the experts at H&R Block
Confused? We don’t blame you, and the 2019 Form 8938 instructions are a bit tough to understand. But relax, we live for this stuff, and your H&R Block Tax Advisor will know exactly what to do with your specific situation. Have questions about Form 8938? Ready to file? Get started with H&R Block’s Expat Tax Services today.