Do I need to file Form 8938?

What is Form 8938?

Form 8938 is an information return that reports a US Taxpayer’s Foreign Financial Assets, where the combined balance exceeds certain thresholds (more info below). On this form, you must report various details about the accounts and assets. This all might sound quite similar to an FBAR but there are some key differences.

Who needs to file?

Not all US taxpayer’s (residents, citizens, and green-card holders) are required to file this form. It is only those individuals who have significant assets held outside of the US that would need to file. The threshold for which you must report your financial assets depends on your filing status and whether you are a US resident. Non-residents who have elected to be treated as residents for tax purposes (e.g. under a 6013(g) election) may also need to file.

The following tables summarise the 2019 thresholds for individuals living outside of the US and in the US. These thresholds should be measured against the combined balance of your Foreign Financial Assets (explained below).

Living Outside of the US: This applies to individuals who satisfy the bona fide resident or physical presence tests.

Filing statusThreshold: Market value on the last day of the yearThreshold: Market value at any time during the year
Single$200,000$300,000
Married filing jointly$400,000$600,000
Married filing separately$200,000$300,000

Living in the US:

Filing statusThreshold: Market value on the last day of the yearThreshold: Market value at any time during the year
Single$50,000$75,000
Married filing jointly$100,000$150,000
Married filing separately$50,000$75,000

For joint accounts you would generally include the full value of the account or asset unless it is held jointly with your spouse and they are filing a separate tax return.  

What is a Foreign Financial Asset?

Foreign financial assets include but are not limited to:

  • Foreign (Non-US) financial accounts e.g. bank accounts, investment accounts, retirement accounts, deferred compensation plans, and mutual funds held outside of the US
  • Foreign (Non-US) stocks, bonds, or securities that are not held through an investment account
  • Any interest in a foreign (non-US) entity, such as a foreign corporation, foreign partnership, or foreign estate

Items that are not included on Form 8938:

  • Foreign (Non-US) investments that are held through US-based investment accounts
  • Foreign (Non-US) properties or mortgages
  • Accounts where the taxpayer has no financial interest but has signatory authority (however this would be reported on an FBAR)

You may be thinking that this sounds very similar to filing an FBAR. However, the thresholds for filing Form 8938 are significantly higher and the Form does not replace nor affect a taxpayer’s obligation to file FinCEN Form 114 (FBAR). For more information on FBAR’s please read the following article: https://pjdtax.co.uk/updates/what-is-the-fbar-and-do-i-need-to-file-one/

How do I file?

Form 8938 is included and filed as part of your US federal tax return and the deadline for filing is the same as your annual return, including extensions.

What are the penalties for not filing?

Failure-To-File Penalty as stated in the instructions; “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.

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.”

However, if you have failed to file and the IRS are yet to contact you about your requirement, then there are procedures in place that would allow you to get back into compliance and minimise your exposure to penalties. More information on the Foreign Offshore Streamlined procedure can be found here –https://pjdtax.co.uk/updates/delinquent-us-tax-filers/

If you have any questions, please don’t hesitate to contact us directly.