FBAR gets a lot of airtime as far as expat tax-related issues go due to its very low thresholds and its very steep consequences. But Form 8938, the Statement of Specified Foreign Financial Assets, while very similar to the FBAR, fills different account reporting requirements that apply only to expats who meet certain financial thresholds. Today, we’re going to take a moment to tackle the step-by-step process expats can follow to determine if they need to file Form 8938, and then to file it successfully.
What Is Form 8938?
The Foreign Account Tax Compliance Act (FATCA) came along in 2010 and compels foreign financial institutions to report on foreign assets held by their US account holders or be subject to withholding on certain payments. As a result, Americans who move abroad may have never had asset and bank-related reporting requirements before, but in their new residence, suddenly, they do. Form 8938 is the IRS form that fulfills certain expats’ FATCA requirement.
Step 1: Determine If You Need to File Form 8938
You’ll need to sort through your financial situation to find out if you’re going to have to file Form 8938, which is based solely on financial thresholds and whether or not you are filing singly or jointly. FATCA can affect Americans who live in the continental US; it also affects expats, but the thresholds are much higher. The thresholds for single filers are whether you had $200,000 on the last day of the year or $300,000 at any point during the year; for expats who are married filing jointly, it doubles to $400,000 on the last day of the year or $600,000 at any point during the year.
Step 2: Locate the Necessary Information
On Form 8938, you’ll be reporting specified foreign assets, which, thankfully, is not usually all of your assets. Add up the numbers from any financial accounts maintained by foreign financial institutions and other assets held for investment that are not in accounts maintained by a US or foreign financial institution – such as stock or securities issued by someone who is not a US person. And don’t forget assets like annuity contracts with cash value or shares in foreign hedge funds and private equity funds. So, this does involve things such as foreign pensions, foreign stock holdings, and foreign partnership interests. Also, in your tabulations, you need to incorporate any interest in a foreign entity and any financial instrument or contract that has as an issuer or counterparty that is not a US person. While specified foreign assets would include your foreign bank accounts, they would not include physical assets like your house.
Step 3: Check for These Exceptions
The tricky part of Form 8938 is that if you’ve already reported some specified foreign assets on Form 5471 for foreign corporations or foreign trusts on Form 3520, then you don’t need to double report them; just make a note in Section IV Excepted Specified Foreign Financial Assets. Also, you do not need to report on financial accounts held at a foreign branch of a US bank, domestic mutual funds that invest in foreign stock, or foreign real estate or currency that you hold directly. A last note: as far as foreign stock held in a foreign brokerage account, you’ll need to report the account, but the stock does not need to be reported separately.
Step 3: File With the IRS
Form 8938 is due with your Federal Tax Return annually, so be prepared for the extra step and don’t miss the deadline! Form 8938 enforces penalties of up to $10,000 for failure to disclose accounts, and an additional $10,000 for every 30 days (up to $60,000) of non-filing after the IRS contacts you – not to mention, you could face criminal penalties.
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