Irs form 8938

What Is IRS Form 8938?

IRS Form 8938, "Statement of Specified Foreign Financial Assets," is a U.S. Internal Revenue Service (IRS) form used by certain U.S. taxpayers to report their interests in specified financial assets held outside the United States. This form falls under the broader category of Tax Compliance within International Taxation, aiming to enhance transparency and combat global tax evasion. Taxpayers must file Form 8938 with their annual federal tax return if the aggregate value of their specified foreign financial assets exceeds certain thresholds.

History and Origin

The requirement to file IRS Form 8938 originated with the enactment of the Foreign Account Tax Compliance Act (FATCA) in 2010. FATCA was introduced to address concerns about tax evasion by U.S. persons holding assets in offshore accounts. The law mandates that foreign financial institutions report information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest, to the IRS. Form 8938 was created as the primary mechanism for individual taxpayers to disclose these assets to the IRS directly, complementing FATCA's objectives.

Key Takeaways

• IRS Form 8938 is used by U.S. taxpayers to report specified foreign financial assets.
• It is filed with the annual federal income tax return, not as a standalone document.
• Reporting thresholds vary based on filing status and whether the taxpayer resides in the U.S. or abroad.
• The form aims to promote transparency and deter offshore tax evasion under the Foreign Account Tax Compliance Act (FATCA).
• Failure to file Form 8938 when required can result in significant penalties.

Interpreting the IRS Form 8938

IRS Form 8938 requires taxpayers to report detailed information about their specified foreign financial assets. This includes the maximum value of each asset during the tax year, the name of the financial institution or other entity holding the asset, and any income generated from these assets, such as interest income, dividends, or capital gains¹⁶, ¹⁷. The form is designed to provide the IRS with a comprehensive view of a taxpayer's foreign financial holdings, aiding in the enforcement of U.S. tax laws. It's crucial for taxpayers to accurately assess the highest value of their assets throughout the year, not just at year-end, as reporting thresholds are often based on this maximum value.

Hypothetical Example

Consider Sarah, a single U.S. citizen living in the United States. During the 2024 tax year, she maintained a foreign bank account in her home country with a maximum balance of $60,000 at one point in the year, though the year-end balance was $45,000. She also held foreign stocks in a brokerage account valued at $18,000 at its peak.

For a single taxpayer living in the U.S., the threshold for filing Form 8938 is typically met if the total value of specified foreign financial assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the year¹⁵.

Sarah's maximum aggregate value during the year was $60,000 (bank account) + $18,000 (stocks) = $78,000. Since $78,000 exceeds the $75,000 threshold for assets held at any time during the year, Sarah is required to file IRS Form 8938 with her federal tax return. On the form, she would report both the foreign bank account and the foreign stock holdings, including their maximum values and any income earned from them.

Practical Applications

IRS Form 8938 is primarily used by U.S. citizens and resident aliens who have financial interests abroad. This includes individuals living in the United States with overseas investments, as well as U.S. expatriates living and working in foreign countries. The form helps the IRS gather information on various types of foreign assets, such as foreign bank accounts, foreign-issued stocks and bonds not held in financial accounts, interests in foreign partnerships, foreign mutual funds, and foreign trusts or estates¹³, ¹⁴. The form is a key component in the IRS's efforts to ensure compliance with U.S. tax laws and to track potentially unreported income from foreign sources. Enforcement efforts related to FATCA, supported by disclosures like Form 8938, have aimed to target significant amounts of unreported offshore assets globally. [Reuters, 3]

Limitations and Criticisms

One common point of confusion and potential limitation of IRS Form 8938 is its similarity to, yet distinct requirements from, FinCEN Form 114, also known as the Report of Foreign Bank and Financial Accounts (FBAR). While both forms require reporting of foreign financial accounts, they have different reporting thresholds, cover different types of assets, and are filed with different government agencies¹¹, ¹². This can lead to taxpayers mistakenly believing they only need to file one form when both are required. For instance, the FBAR generally applies if the aggregate value of foreign financial accounts exceeds $10,000 at any time during the year, a much lower threshold than Form 8938. The IRS provides specific guidance to help taxpayers differentiate between the two requirements. [IRS.gov, 3]

IRS Form 8938 vs. FBAR (FinCEN Form 114)

Both IRS Form 8938 and FBAR (FinCEN Form 114) are crucial for U.S. taxpayers with foreign financial interests, but they serve different purposes and have distinct requirements. Understanding these differences is essential to avoid non-compliance.

While there can be overlap in the assets reported, fulfilling the requirements for one form does not automatically satisfy the other. Many taxpayers with foreign assets may need to file both.

FAQs

Who needs to file IRS Form 8938?

U.S. citizens, resident aliens, and certain non-resident aliens must file Form 8938 if they have an interest in specified foreign financial assets and the total value of those assets exceeds specific thresholds. These thresholds vary based on your filing status (e.g., single, married filing jointly) and whether you live in the U.S. or abroad⁶.

What kind of foreign assets must be reported on Form 8938?

Form 8938 requires reporting of various specified foreign financial assets, including foreign bank accounts, foreign stock and securities not held in a financial account, interests in foreign partnerships, foreign mutual funds, foreign-issued life insurance policies with a cash value, and interests in foreign trusts and estates⁴, ⁵.

Is Form 8938 the same as FBAR (FinCEN Form 114)?

No, IRS Form 8938 and FBAR (FinCEN Form 114) are not the same, though both relate to reporting foreign financial assets. They are filed with different government agencies (IRS for Form 8938, FinCEN for FBAR), have different reporting thresholds, and cover slightly different types of assets. It is possible to be required to file one, both, or neither², ³.

What are the penalties for not filing Form 8938?

Failure to file Form 8938 when required, or providing incomplete or inaccurate information, can result in significant penalties. These can include a $10,000 penalty for failure to file, with additional penalties of up to $50,000 for continued failure to file after IRS notification. There may also be a 40% penalty on underpayments of tax attributable to non-disclosed assets¹.

Where can I find the official instructions for Form 8938?

The official instructions for IRS Form 8938, along with the form itself, can be found on the Internal Revenue Service (IRS) website. [IRS.gov, 2] It's always advisable to consult the most current instructions for the specific tax year you are reporting.