Better not hide the gold abroad: Filing IRS Form 8938

How to Report Your Foreign Financial Assets on Form 8938

If you are a U.S. citizen or resident who owns or has an interest in specified foreign financial assets, you may need to file Form 8938 with your tax return. This form is used to report the value and type of your foreign assets, as well as any income, gains, losses, deductions, or credits attributable to them. Filing Form 8938 can help you avoid penalties and ensure compliance with the Foreign Account Tax Compliance Act (FATCA).

In this article, we will explain what Form 8938 is, who needs to file it, what assets need to be reported, how to fill out the form, and where to find more information.

Table of Contents

• What is Form 8938?
• Who needs to file Form 8938?
• What assets need to be reported on Form 8938?
• How to fill out Form 8938
• Penalties for not filing Form 8938

What is Form 8938?

Form 8938 is a statement of specified foreign financial assets that you must attach to your tax return if you meet certain reporting thresholds. The form is part of the FATCA, which aims to prevent tax evasion by U.S. taxpayers who hold offshore accounts and assets.

By filing Form 8938, you are disclosing the value and type of your foreign assets, as well as any income, gains, losses, deductions, or credits related to them. This information helps the IRS verify that you are paying the correct amount of tax on your foreign income and assets.

Filing Form 8938 does not replace the requirement to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if you are otherwise required to do so. The FBAR is a separate form that you must file electronically with the Financial Crimes Enforcement Network (FinCEN) if you have a financial interest in or signature authority over foreign financial accounts that exceed $10,000 in aggregate value at any time during the year. The FBAR has different reporting thresholds and rules than Form 8938. For more information on the FBAR, see FinCEN’s website.

Who needs to file Form 8938?

There are two types of taxpayers who may need to file Form 8938: individuals and specified domestic entities.

You must file Form 8938 if you are a U.S. citizen or resident who owns or has an interest in specified foreign financial assets and the total value of those assets exceeds the applicable reporting threshold. The reporting threshold varies depending on your filing status and whether you live in the U.S. or abroad.

You are considered to live abroad if you are a U.S. citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes the entire tax year, or if you are a U.S. citizen or resident who is present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months that ends in the tax year.

The following table summarizes the reporting thresholds for individuals for tax year 2022:

Specified domestic entities include certain domestic corporations, partnerships, and trusts that are formed or used for the purpose of holding specified foreign financial assets. Specified means that a domestic entity has at least 50% of its gross income or assets that are passive or attributable to passive entities. A domestic entity must file Form 8938 if the total value of its specified foreign financial assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year.

If you are required to file Form 8938, you must attach it to your annual tax return (such as Form 1040) and file it by the due date (including extensions) for that return.

What assets need to be reported on Form 8938?

You must report specified foreign financial assets on Form 8938 if you have an interest in them. Specified foreign financial assets include:

• Financial accounts maintained by a foreign financial institution, such as bank accounts, brokerage accounts, mutual funds, trusts, or other types of foreign financial accounts.
• Foreign stock or securities not held in a financial account, such as shares of a foreign corporation, bonds issued by a foreign government, or interests in a foreign partnership.
• Foreign financial instruments or contracts that have an issuer or counterparty that is not a U.S. person, such as options, swaps, futures, forwards, or similar agreements.
• Foreign hedge funds and private equity funds.
• Foreign pensions and deferred compensation plans.
• Foreign life insurance or annuity contracts with a cash value.

You have an interest in a specified foreign financial asset if any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the asset are or would be required to be reported, included, or otherwise reflected on your income tax return.

You do not need to report the following assets on Form 8938:

• Financial accounts held at a U.S. branch of a foreign financial institution.
• Financial accounts held at a foreign branch of a U.S. financial institution.
• Foreign real estate held directly by you (but you may need to report it if you hold it through a foreign entity).
• Foreign currency held directly by you (but you may need to report it if you hold it in a financial account).
• Precious metals held directly by you (but you may need to report them if you hold them in a financial account).
• Personal property held directly by you (but you may need to report it if you hold it through a foreign entity).
• Social security benefits paid by a foreign government.

How to fill out Form 8938

To fill out Form 8938, you will need to provide the following information for each specified foreign financial asset that you own or have an interest in:

• The name and address of the foreign financial institution where the account is maintained (if applicable).
• The type of asset and how it is held (such as directly, indirectly, jointly, etc.).
• The maximum value of the asset during the year in U.S. dollars. You can use the currency exchange rates published by the U.S. Treasury Department at https://www.fiscal.treasury.gov/reports-statements/treasury-reporting-rates-exchange.html.
• The income, gains, losses, deductions, credits, gross proceeds, or distributions from the asset that are reported or reflected on your tax return.

You will also need to indicate whether you meet any of the exceptions from reporting certain assets on Form 8938. For example, you do not need to report an asset if:

• You reported it on another form that is attached to your tax return (such as Form 3520, Form 5471, Form 8621, Form 8865, or Form 8891).
• You have a beneficial interest in a trust and the trustee of the trust reports the trust’s specified foreign financial assets on Form 8938.
• You have an interest in or authority over an account that is owned by your employer and you report it on FinCEN Form 114.

Form 8938 has four parts:

• Part I: General information about the taxpayer and the tax year
• Part II: Summary of specified foreign financial assets and the reporting threshold
• Part III: Detailed information about each specified foreign financial asset, such as the type, value, income, and maximum value during the year
• Part IV: Information about any joint owners, disregarded entities, or dual resident taxpayers

To fill out Form 8938, you need to follow these steps:

1. Gather information about your specified foreign financial assets, such as account statements, tax forms, contracts, etc.
2. Determine the value of each asset in U.S. dollars using the exchange rate on the last day of the tax year. You can use the Currency Exchange Rates Converter Tool on the IRS website to find the exchange rate.
3. Add up the values of all your specified foreign financial assets and compare them to the reporting threshold for your filing status and residence. If you meet or exceed the threshold, you need to file Form 8938.
4. Complete Part I with your name, address, social security number, and tax year.
5. Complete Part II with the total value of your specified foreign financial assets and the applicable reporting threshold. Check the box if you are filing as a specified domestic entity.
6. Complete Part III with the details of each specified foreign financial asset. Use a separate row for each asset and attach additional sheets if necessary. If you have more than one type of asset within a single account, use a separate row for each type of asset. For example, if you have a brokerage account that holds stocks, bonds, and mutual funds, use three rows to report them.
7. If you have any joint owners, disregarded entities, or dual resident taxpayers related to your specified foreign financial assets, complete Part IV with their information.
8. Sign and date Form 8938 and attach it to your tax return.

Penalties for not filing Form 8938

If you are required to file Form 8938 but fail to do so by the due date of your return (including extensions), you may face a number of penalties depending on the situation.

To help you understand the penalties for not filing Form 8938 or paying tax on your undisclosed assets, here is another table with the amounts and consequences:

Conclusion

We hope this article has given you more clarity about IRS form 8938, and the importance of filing it in a proper way whenever you (or your business) own or have an interest in specified foreign financial assets that exceed the reporting thresholds as mentioned above. It is always better to be compliant with our tax law and avoid paying costly penalties.