10 Key Facts About IRS Form 8938 All Taxpayers Should Know

Key Facts About Form 8938 That All Taxpayers Should Know  

For several years now, the international tax law specialist team at Golding and Golding has provided a “Facts to Know” list of all the different international information reporting forms, including:

• • • Purpose of the Form

    • Who Has to File It?

    • Can the time to File be extended?

    • Penalties

    • Abatement and Amnesty

The purpose of these articles is to assist U.S. taxpayers across the globe with understanding the basics of international tax and reporting since much of the information taxpayers may find out online is incorrect, outdated, and just wrong. It is now 2024 and we thought it a good time to update the most common forms that taxpayers come across come and beginning with IRS Form 8938 – a relative newcomer to the world of international information tax and reporting. Form 8938 was created in conjunction with Internal Revenue Code 6038D and involves the reporting of specified foreign financial assets under FATCA (Foreign Account Tax Compliance Act).

The Purpose of Form 8938

The purpose of Form 8938 is to require U.S. persons would specify foreign financial assets to report the maximum value of the asset to the Internal Revenue Service. Unlike the FBAR, but filed with FinCEN, Form 8938 is submitted as part of a taxpayer’s U.S. tax return. It lets the IRS know the value of the assets the taxpayer owns so that the IRS can cross reference the information with the values it receives from various foreign financial institutions across the globe the report to the US government in compliance with FATCA (Foreign Account Tax Compliance Act).

Not All Taxpayers Have to File Form 8938

Unlike several of the other international information reporting forms such as the FBAR and Form 3520, Form 8938 is only required by taxpayers if they are required to file a tax return. In other words, even if a taxpayer exceeds the threshold for having to file a form 8938, if they are not required to file a tax return in a given year, then they are not required to file the form 8938 in that year as well.

Different Thresholds for Single vs Married/U.S. Residency

Unlike the FBAR which has the same +$10,000 threshold depending on whether the taxpayer lives in the United States or lives abroad, Form 8938 has different threshold requirements depending on whether the taxpayer is filing married versus filing single or married filing separately and whether the taxpayer resides in the United States or is considered a foreign resident.

You May Qualify to Extend the Time for Filing

If a taxpayer files an extension to file their tax return in October instead of April — or October instead of June for taxpayers abroad — then Form 8938 goes on extension as well so that the taxpayer is not required to file a separate extension for Form 8938 as they would have to do for Form 3520 — for example (IRS extension Form 7004)

Form 8938 is Part of Most Tax Software Packages

Unfortunately, many taxpayers fail to file certain international information reporting forms such as Form 3520 or Form 8621 because those forms are not part of most commercial tax software packages such as H&R Block and TurboTax. Luckily, Form 8938 is typically part of the most common tax software packages.

Do You File FBAR and Form 8938?

Depending on the type of foreign assets that taxpayer has, they may be required to file multiple forms for the same asset. Thus, Taxpayers with certain foreign bank accounts, for example, will have to file both the FBAR and Form 8938 if both thresholds are met. Noting, there are different thresholds to consider.

Penalties are Per Form, Not Per Asset

Taxpayers who get penalized for Form 8938 non-compliance should note that it is not based on each account or asset identified in Form 8938 but rather on the non-filing or the late filing of the form itself. Typically, penalties start at $10,000 per year.

Penalties May be Avoided, Waived, or Abated

For Taxpayers who have been (or might be) penalized for late or incomplete filing of Form 8938, the IRS offers several different options to minimize, avoid, or abate penalties. Many Taxpayers will qualify for either the Streamlined Procedures or Delinquency Procedures, which are taxpayer-friendly offshore amnesty tax programs (see below).

Joint Liabilities for Penalties

For taxpayers who file joint tax returns, unfortunately, if penalties are assessed for failure to file form 8938, those penalties are assessed against the joint tax return. In other words, even if assets belong to only one person, both parties to the tax return may be penalized.

As provided by the IRS:

• • • “Married Taxpayers Filing a Joint Income Tax Return If you are married and you and your spouse file a joint income tax return, the failure-to-file penalties apply as if you and your spouse were a single person. Your and your spouse’s liability for all penalties is joint and several.”

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.