Form 8938, the Statement of Specified Foreign Financial Assets, is the individual side of the Foreign Account Tax Compliance Act. It is attached to your federal income tax return and asks for your foreign accounts and certain foreign investments when their total value is above a threshold that depends on your filing status and where you live. It sits alongside the FBAR rather than replacing it, and it reaches some assets the FBAR does not.
Who has to file Form 8938
Specified individuals: US citizens, resident aliens, and certain nonresident aliens, who have an interest in specified foreign financial assets above the applicable threshold. One condition comes first. If you are not required to file an income tax return for the year, you are not required to file Form 8938, whatever your foreign assets are worth. Certain US companies, partnerships and trusts, called specified domestic entities, can also have a filing requirement.
The reporting thresholds
If you live in the United States and are unmarried, or married filing separately, you file when your specified foreign financial assets were worth more than $50,000 on the last day of the tax year or more than $75,000 at any time during the year. Married couples filing jointly and living in the United States file above $100,000 at year end or $150,000 at any time.
If you live outside the United States, the thresholds are higher: $200,000 at year end or $300,000 at any time for unmarried filers and those married filing separately, and $400,000 at year end or $600,000 at any time for married couples filing jointly.
What counts as a specified foreign financial asset
Financial accounts held at foreign financial institutions are the core of it. Beyond accounts, Form 8938 also reaches foreign stock or securities you hold outside a financial account, interests in foreign partnerships, foreign mutual funds, foreign hedge funds and private equity funds, foreign-issued life insurance or annuity contracts with a cash value, and interests in foreign pension and deferred compensation plans.
Some things do not count. Foreign real estate you own directly is not reported, although a foreign company that owns real estate is. Foreign currency and precious metals held directly are not reported. Rights to a foreign government's social security type benefits are not reported. And two kinds of bank account fall outside Form 8938: an account at a US branch of a foreign bank, and an account at a foreign branch of a US bank. The second one still goes on the FBAR.
Foreign pensions and how to value them
Pensions from a previous job abroad come up often in the cases we see, and they are easy to leave off. If your specified foreign financial assets are over your threshold, your interest in a foreign pension or deferred compensation plan is reported. Its value is generally the fair market value of your beneficial interest on the last day of the year. If you do not know that value and cannot readily find it out, you use the value of what the plan distributed to you during the year, and if it distributed nothing, the value is zero, both for reporting and for testing the threshold.
What happens if you leave Form 8938 off your return
The penalty for failing to file is up to $10,000. If you still have not filed 90 days after the IRS mails you a notice, an additional $10,000 can apply for each 30 days, or part of 30 days, that the failure continues, up to a further $50,000. If you underpay tax through a transaction involving an undisclosed foreign asset, a penalty of 40% of that underpayment can apply. And the statute of limitations on your return can stay open, for all or part of the return, until three years after the date you finally file Form 8938.
There is a reasonable cause exception: no penalty applies if the failure was due to reasonable cause and not willful neglect, but you have to show the facts that support it. The IRS decides this case by case.
Form 8938 does not replace the FBAR
This is where most confusion starts. Filing Form 8938 does not satisfy the FBAR, and filing the FBAR does not satisfy Form 8938. They go to different agencies, use different thresholds and cover slightly different assets. Our guide to FBAR vs Form 8938 walks through the differences, and our FBAR filing requirements guide covers the Treasury side.
Getting it right on this year's return
Because Form 8938 travels with your return, the cleanest fix is a correct return. We prepare returns with Form 8938 as part of our individual tax return service, and when earlier years were filed without it, our FBAR and FATCA compliance service handles the catch-up, including whether the IRS streamlined procedures fit your situation. A No-Obligation Tax Resolution Case Evaluation will tell you which of your assets are reportable before anything is filed.