IRS Form 8938 is a tax form used by some U.S. taxpayers, corporations, partnerships, and trusts that hold foreign assets beyond a certain threshold. When required, it must be filed with your annual tax return.
It's important to know whether you need to file Form 8938 and how to properly fill it out if you or your company hold any foreign assets.
What Is IRS Form 8938?
Form 8938 was introduced as part of the Foreign Account Tax Compliance Act (FATCA). This act was signed into law by President Obama on March 18, 2010, to create stricter requirements for taxpayers reporting foreign assets and to curb government losses due to offshore tax noncompliance. Taxpayers, businesses, partnerships with foreign assets at or in excess of the thresholds must file Form 8939 when they file their taxes.
Foreign investments held through U.S.-based investment accounts are not reported on Form 8938 and they're not subject to FATCA rules.
What Counts as a Foreign Financial Asset?
Foreign financial assets—or "specified foreign financial assets," as the IRS calls them—include:
- Financial accounts maintained at institutions outside the U.S., such as bank accounts, investment accounts, retirement accounts, deferred compensation plans, and mutual funds
- Stocks, bonds, or other securities issued by a non-U.S. person and not held through an investment account
- Notes or bonds issued by a foreign person
- Any interest in a foreign entity, such as a foreign corporation, foreign partnership, or foreign estate or trust
- Any financial instrument or contract that has an issuer or counterparty that isn't a U.S. person
- Personal residences and rental properties, but only if they're held by a foreign partnership, corporation, trust, or estate
Who Uses Form 8938?
Technically, all U.S. taxpayers are subject to FATCA, but only under certain circumstances. The IRS Form 8938 instructions refer to "specified individuals" and "specified domestic entities," and explain when reporting is required.
Specified individuals include U.S. citizens, resident aliens, nonresident aliens who elect to be treated as resident aliens for tax purposes, and nonresident aliens who reside in American Samoa or Puerto Rico.
Taxpayers who aren't required to file tax returns because they earn less than the income filing requirements—the same as the standard deduction for most non-dependents as of 2020—do not have to file Form 8938.
Specified domestic entities include any "closely held" corporation or partnership that meets the following conditions:
- 80% of its voting power, shares, or capital is held by one person on the last day of the tex year.
- 50% of its gross income is from passive income or 50% of its assets are held for producing passive income.
This can also apply to a domestic trust that has at least one specified current beneficiary for the specified tax year.
Form 8938 Reporting Thresholds
Beyond these qualifications, taxpayers must meet certain thresholds to be required to file Form 8938. The IRS has set different thresholds for different types of taxpayers. All of these represent the sum total of foreign assets held.
- 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 the 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 the 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 the 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 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 $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.
- Corporations, partnerships, and trusts that meet the requirements mentioned above and have a total value of specified foreign financial assets of more than $50,000 on the last day of the year or more than $75,000 at any time during the year.
These thresholds are applicable as of March 1, 2021.
Taxpayers are not required to file Form 8938 if the reporting thresholds aren't met.
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 to U.S. dollars using the currency exchange rate on as of the last day of the year. Taxpayers should use the currency exchange rates posted by the Bureau of the Fiscal Service or, if that is not available, another public document. 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.
Where to Get a Form 8938
You can download Form 8938 from the IRS website, or get one from your accountant. You can also find most IRS tax forms at many libraries, post offices, grocery stores, office supply stores, and print centers. If you file with online software, such as TurboTax, and if you're required to file Form 8938, it will usually be included automatically when the software determines that you need it.
How to Fill Out and Read Form 8938
Form 8938 spells out all the information that must be reported to the IRS. It consists of six 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.
- Parts V and VI are simply further details for the information you provide in sections I through IV.
Follow the instructions for filling out each section and attach additional sheets as needed to describe all accounts mentioned in sections V and VI.
Can Form 8938 Be E-Filed?
You can e-file Form 8938 with the rest of your annual tax return using your tax filing software of choice. Just be sure to do it by the tax deadline, usually April 15, unless you file an extension.
Residents of Texas and Oklahoma have until June 15, 2021 to file their 2020 tax returns. The IRS announced this extension in February 2021 in response to the severe winter storms in these locations.
Where to Mail Form 8938
If you file by mail, you should send Form 8938 with Form 1040, your tax payment, and any other relevant tax forms, postmarked on or before the annual filing deadline to the IRS processing office for your state. You can find these addresses on the IRS website.
How to File Form 8938
You can fill out a physical copy of Form 8938 and mail it with the rest of your tax return and tax payment by the annual federal tax filing deadline. You can also e-file Form 8938 with the rest of your electronic tax return.
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 and it's part of the tax return. 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 your tax return and is therefore 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 IRS to curb international tax evasion. The form also requests information about various foreign assets, including foreign accounts that hold assets, while the FBAR requests information only about foreign accounts.
An FBAR is required if any United States person, corporation, or other entity 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 Form 8938.
Taxpayers who have a requirement to file Form 8938 usually have an obligation to report much of the same information on the FBAR as well. The FBAR is filed separately with the Treasury Department.
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. What's more, 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 remains unfiled within 90 days of a formal notice by the IRS. The maximum penalty is $50,000.
The IRS presumes that a foreign financial asset has sufficient value to meet the reporting thresholds if a Form 8938 isn't filed, and if it 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.
Consult a tax professional if you own any foreign assets and have any doubt about whether you need to file Form 8938.
- Form 8938 is used by certain U.S. taxpayers and businesses to report foreign-held assets in excess of certain amounts, depending on filing status.
- It is part of FATCA, an act passed by the Obama administration in 2010 to curb foreign tax evasion.
- If required, you must file Form 8938 with your annual tax return by Tax Day, which is usually April 15.
- There are penalties of anywhere from $10,000 to $50,000 if you meet the requirements and fail to file Form 8938 on time.
- If you own foreign assets, you may also be required to file the FBAR separately with the Treasury Department.