Reporting Foreign Financial Assets on Form 8938

Form 8938 Instructions

A closeup of international currency
•••

The Image Bank/Getty Images

United States taxpayers have been required to report financial assets they hold outside the U.S. since March 18, 2010. This reporting requirement to the Internal Revenue Service is part of the Foreign Account Tax Compliance Act (FATCA), which was part of the larger Hiring Incentives to Restore Employment Act (HIRE).

About FATCA

FATCA consists of two parts. The first is a withholding regime designed to encourage global financial institutions to submit reports to the IRS regarding the international finances of U.S. citizens. The other is a reporting mechanism by which U.S. taxpayers must self-report financial assets held outside the United States to the IRS. This is accomplished using IRS Form 8938.

What Counts As a Foreign Financial Asset?

Foreign financial assets—or "specified foreign financial assets," as the IRS calls them—consist of:

  • Financial accounts maintained at 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, foreign partnership, or foreign trust
  • Any financial instrument or contract that has an issuer or counterparty that isn't a U.S. person

Foreign investments held through U.S.-based investment accounts are not reported on Form 8938 or subject to FATCA rules.

Who Is Required to File Form 8938?

Technically, all U.S. taxpayers are subject to FATCA, but only under isolated circumstances. The IRS's Form 8938 instructions refer to "specified individuals" and delineate when reporting is required.

"Specified individuals" who may be required to file Form 8938 include U.S. citizens, resident aliens, non-resident aliens who elect to be treated as if they were resident aliens, and non-resident aliens who reside in American Samoa or Puerto Rico.

Tracking Measures for Form 8938

Taxpayers must track two measures of the market value of their foreign financial assets:

  • The maximum value of the asset at any time during the year, and
  • The value of the asset at the end of the tax year

Taxpayers will then take the sum of all the maximum values and the sum of the year-end values. These totals are used to determine if the value of the assets exceeds the FATCA reporting thresholds. If so, taxpayers must report all their foreign financial assets to the IRS.

Taxpayers are not required to file Form 8938 if the thresholds aren't met.

Form 8938 Thresholds

The IRS has set different thresholds for different types of taxpayers:

  • Unmarried individuals residing in the United States are required to file Form 8938 if the market value of their foreign financial assets is greater than $50,000 on last day of the year or greater than $75,000 at any time during the year.
  • Married individuals filing jointly and residing in the United States are required to file Form 8938 if the market value of their foreign financial assets is greater than $100,000 on last day of the year or greater than $150,000 at any time during the year.
  • Married individuals filing separate returns and residing in the United States are required to file Form 8938 if the market value of their foreign financial assets is greater than $50,000 on last day of the year or greater than $75,000 at any time during the year.
  • Unmarried individuals residing outside the United States and satisfying either the bona fide resident or physical presence tests are required to file Form 8938 if the market value of their foreign financial assets is greater than $200,000 on last day of the year or greater than $300,000 at any time during the year.
  • Married individuals filing jointly residing outside the United States and satisfying either the bona fide resident or physical presence tests are required to file Form 8938 if the market value of their foreign financial assets is greater than $400,000 on last day of the year or greater than $600,000 at any time during the year.
  • Married individuals filing separately and residing outside the United States and satisfying either the bona fide resident or physical presence tests are required to file Form 8938 if the market value of their foreign financial assets is greater than $200,000 on last day of the year or greater than $300,000 at any time during the year.

These thresholds are applicable in the 2019 tax year.

You can also refer to the Form 8938 instructions, and specifically the section "Who Must File."

How to Value Foreign Assets

Foreign financial assets are measured using their fair market value in the currency in which the asset is denominated. Taxpayers have to know the highest fair market value for that asset at any time during the year, as well as the fair market value on the last day of the year.

These market values are then converted into U.S. dollars using the currency exchange rate on as of the last day of the year. Taxpayers should use the currency exchanges rates posted by the Bureau of the Fiscal Service, or those on the IRS website, which lists the applicable rates per country from 2013 through 2018.

Taxpayers must specify the foreign currency, the exchange rate used, and the source of the exchange rate information, particularly if it's something other than the Bureau of the Fiscal Service.

The Structure of Form 8938

Form 8938 spells out all information that must be reported to the IRS. It consists of five parts:

  • Part I is for financial accounts, such as a deposit or custodial account with a financial institution.
  • Part II is for other types of financial assets, such as stocks, bonds, and other financial instruments.
  • Part III is a summary showing where income from the foreign financial assets is reported elsewhere on the tax return.
  • Part IV is a summary for certain types of financial assets excepted from reporting on Form 8938 because that information is reported elsewhere on the tax return.
  • Part V asks for more detailed, specific information on assets included in Part I.

Form 8938 is filed with the Form 1040 tax return. Filing an extension for your 1040 also extends the time to file Form 8938. These parts and the associated information apply to the 2018 Form 8938. Previous versions of the form are different.

Form 8938 vs. the Foreign Bank Account Report (FBAR)

Form 8938 closely resembles older versions of the Foreign Bank Account Report (FBAR), but Form 8938 calls for greater detail and it serves a different purpose than the FBAR. Form 8938 facilitates compliance with an internal revenue law (FATCA) and it's part of the tax return. As such, it's considered to be confidential tax return information.

The purpose of the FBAR is to ensure compliance with the Bank Secrecy Act. It's not part of the tax return, and it's not considered to be confidential tax return information. FBARs can be and are shared among various governmental agencies. They're used primarily by the Treasury Department's Financial Crimes Enforcement Network to track and combat international money laundering.

Form 8938 is designed to be used by the Internal Revenue Service for combating international tax evasion. Form 8938 also requests information about foreign assets, including foreign accounts that hold assets, while the FBAR requests information only about foreign accounts.

Taxpayers who have a requirement to file Form 8938 probably also have an obligation to report substantially the same information on the FBAR, which is filed separately with the Treasury Department.

An FBAR is required if any United States person, corporation, or other entities has at least $10,000 held in foreign accounts at any time during the year. The types of financial accounts reported on the FBAR differ slightly from the types of accounts reported on the Form 8938, however.

The IRS provides a chart with a detailed comparison of Form 8938 and FBAR requirements.

Penalties Relating to Form 8938

The IRS can impose a $10,000 penalty for failing to file Form 8938 by the due date of the tax return, including extensions, or for filing an incomplete or inaccurate Form 8938.

If the Form 8938 has not been filed within 90 days of a formal notice by the IRS, the IRS can assess additional penalties of $10,000 for each 30-day period or part of a 30-day period that the Form 8938 continues to be not filed. The maximum penalty is $50,000.

The IRS is allowed to presume that the foreign financial asset has sufficient value to meet the reporting thresholds if no Form 8938 is filed, and if the IRS determines that a taxpayer owns one or more foreign financial assets that are required to be reported. Penalties can be waived if the taxpayer can show reasonable cause for not reporting an asset on Form 8938.

NOTE: Tax laws change periodically and the above information may not reflect the most recent changes. Forms, penalties, and value thresholds are current as of the 2018 and 2019 tax years. Please consult with a tax professional for the most up-to-date advice and specific questions if you hold foreign financial assets. The information contained in this article is not intended as tax advice and it is not a substitute for tax advice.