Notes

The Form 8938
Although, both forms are used to report the foreign financial accounts, there are significant differences. Specifically, the types of financial accounts vary as well as the filing thresholds. Since we receive the large number of inquires, we decided to prepare the summary and clarify the differences between the FBAR form 114 and Form 8938. The IRS and Department of Treasury have undertaken multiple steps lately to enforce the FATCA compliance among the US citizens and green card holders. However, the FATCA that became effective on July 1, 2014, caught many American expats by surprise.

On Form 8938, however, you do have to identify which and how many of each of these forms you did file. Even if there is no information from a reliable financial information source or other verifiable source, you do not need to obtain an appraisal by a third party in order to reasonably estimate the asset’s maximum value during the tax year.

For example, if a person has one savings account in Taiwan, the reporting is not that bad. But, if a person has 50 accounts, life insurance, mutual funds, and foreign life insurance — the FBAR filing may be much more complicated. For reporting purposes, you may rely on periodic financial account statements to determine the maximum value of a financial account.

Generally, an interest in a foreign estate is a specified foreign financial asset that is reportable on Form 8938 if the total value of all of your specified foreign financial assets is greater than the reporting threshold that applies to you. If you have an interest in a foreign pension or deferred compensation plan, you have to report this interest on Form 8938 if the value of your specified foreign financial assets is greater than the reporting threshold that applies to you.

FATCA allows government personnel to locate U.S. persons not living in the United States, so as to assess U.S. tax or penalties. FATCA was reportedly enacted for the purpose of detecting the non-U.S. financial accounts of U.S. resident taxpayers rather than to identify non-resident U.S. citizens and enforce collections. However, although there might be thousands of resident U.S. citizens with non-U.S.

The value of the foreign financial assets reported on these forms is included in determining the total value of assets for the reporting threshold, but you do not have to list the assets on Form 8938. In this situation, identify on Form 8938 which and how many of these form report the specified foreign financial assets. If you are a specified domestic entity, exclude the value of any specified foreign financial asset reported on another form listed in Part IV, to determine if you satisfy the applicable reporting threshold.

IWTA This failure to file the Form 8938 means the statute of limitations has never expired in any year since 2011. However, under the peak value method, we add together each of the account’s high values reached at any point during the year, without subtracting for double-counting. Here, the US person held $38,000 in Account A and $38,000 in Account B , for a total of $76,000 of specified foreign financial assets. Under the year-end method, we would only find that the taxpayer had $38,000 of specified foreign financial assets at year-end, and would not – under this method – be obligated to file a Form 8938.

, and are required file form 1040 may have to file form 8938 to report there foreign life insurance policies – along with other foreign assets. The maximum penalty for failing to file an FBAR is $100,000 or 50% of the value of the account, whichever is greater for each unfiled report.

For a specified foreign financial asset that is not held in a financial account, you may rely on the year-end value of the asset if it reasonably approximates the maximum value of the asset during the tax year. Special rules also apply for reporting the maximum value of an interest in a foreign trust, a foreign retirement plan or a foreign estate. You will need to determine the value of your specified foreign financial assets to know if the total value exceeds the threshold applicable to you. Generally, a reasonable estimate of the highest fair market value of the asset during the tax year is reported, but special rules apply to ease valuation burdens.

Many of these requirements will also apply when a U.S. resident becomes a beneficiary of a U.S. estate that has foreign financial assets. Resident aliens of U.S. territories and U.S. territory entities must file FBAR, but not Form 8938.

If this failure to file the required Form 8938 was negligent, the IRS may impose and collect penalties of $70,000 (based on seven years inclusive in the 2011 through 2017 reporting years, at $10,000 penalty per year). This enormous penalty is possible, of course, because while the taxpayer may have filed Form 1040 tax returns in each of the last seven years, he did not file the Form 8938.

As such, inquires about the filing requirements for foreign financial accounts have increased. FBAR filings on FinCEN Form 114 are generally required to be made by U.S. persons who have reportable financial interests in or signature authority over a foreign financial account (“FFA”). A U.S. person who has more than a 50% beneficial interest in an estate’s foreign accounts may be deemed to have an FFA interest and may be required to make an FBAR filing. When a U.S. resident receives an inheritance from a foreign relative, they could be subject to a number of international reporting requirements.

A financial account maintained by a U.S. branch or U.S. affiliate of a foreign financial institution does not have to be reported on Form 8938 and any specified foreign financial assets in that account also do not have to be reported. “No penalty will be imposed if you fail to file Form 8938 or to disclose one or more specified foreign financial assets on Form 8938 and the failure is due to reasonable cause and not to willful neglect. You must affirmatively show the facts that support a reasonable cause claim. FBAR Filing can be complicated, depending on the specific FBAR Filing requirements of the filer.

Use Form 8938 to report your specified foreign financial assets if the total value of all the specified foreign financial assets in which you have an interest is more than the appropriate reporting threshold. The IRS continues to roll out new ways to identify Americans holding financial and investment accounts abroad. These disclosure reporting requirements all come loaded with the highest IRS penalties, starting at $10,000 per non-filing or incorrect filing incident. FBAR is filed with the US treasury while Form 8938 is filed with the IRS.

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. 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.

Specified foreign financial assets include foreign financial accounts and foreign non-account assets held for investment , such as foreign stock and securities, foreign financial instruments, contracts with non-U.S. Reporting specified foreign financial assets on other forms filed with the IRS. You have an interest in specified foreign financial assets required to be reported.

If you do not have to file an income tax return for the tax year, you do not need to file Form 8938, even if the value of your specified foreign assets is more than the appropriate reporting threshold. For tax years beginning after December 31, 2015, certain domestic corporations, partnerships, and trusts that are formed or availed of for the purpose of holding, directly or indirectly, specified foreign financial assets must file Form 8938. The aggregate value thresholds of specified foreign financial accounts vary depending on how you file your tax return. So while there is some overlap between 114 and 8938 reporting in the sense that financial assets are often in financial accounts, they are separate requirements with different thresholds and filing one doesn’t preclude filing the other.

If a person falls into one of these common categories and meets certain threshold reporting requirements, then under current U.S. tax law, he or she is required to report their foreign accounts and other foreign money to the US government. But, unlike several other international information reporting forms, if a person does not have a tax return filing requirement, the Form 8938 is not required. Nevertheless, at the current time FATCA is on the books and enforceable. The rules and requirements of FATCA reporting for individuals with foreign accounts/assets is much different and less complex than the requirements for foreign financial institution. Therefore, for example if you own stock directly, you would include the stock ownership on form 8938 — even if it was not in a foreign account.

The key is knowing which foreign accounts and assets qualify towards the threshold. Most expats seek help from a US expat tax specialist with their FBAR and FATCA filing to ensure that they get it right and so avoid penalties.

Because the statute of limitations period is six years, the maximum penalty is essentially 300% of the maximum account balances. Another penalty of $10,000 or more may apply if the person does not report the same account on Form 8938, Statement of Specified Foreign Financial Assets. This would be true even if the taxpayer did not owe any U.S. tax on unreported income from the account, and even if the taxpayer's tax preparer did not inform him or her of the FBAR filing requirement. Such large penalties may be unconstitutional under the excessive fines clause. FATCA is used by government personnel to detect indicia of U.S. persons and their assets and to enable cross-checking where assets have been self-reported by individuals to the IRS or to the Financial Crimes Enforcement Network .

Even if a foreign financial asset is reported on one of the forms listed above, it still must be included it in your calculation of specified foreign financial assets. If you are required to file a Form 8938 and you have a specified foreign financial asset reported onForm 3520, Form 3520-A, Form 5471, Form 8621, Form 8865, or Form 8891, you do not need to report the asset on Form 8938. On the Form 8938, however, you do have to identify which and how many of each of these forms you file. Since 1970 there has been a requirement for US persons with bank accounts held in foreign countries to disclose these accounts on the Foreign Bank Account Report, or FBAR (formerly Form TD F 90-22.1, now FinCEN Form 114).

The FBAR is filed with the US treasury while Form 8938 is filed with the IRS. However, if you are required to file Form 8938, your assets will most likely fall under the FBAR filing requirements accounts. Even if a foreign financial asset is reported on one of the forms listed above, it still must be included In your calculation of specified foreign financial assets. If you are required to file a Form 8938 and you have a specified foreign financial asset reported on Form 3520, Form 3520-A, Form 5471, Form 8621, orForm 8865, you do not need to report the asset on Form 8938.

FATCA stands for the “Foreign Account Tax Compliance Act.” FATCA was enacted in 2010 as part of the HIRE Act. The objective behind FATCA is to combat offshore tax evasion by requiring U.S. citizens to report their holdings in foreign financial accounts and their foreign assets on an annual basis to the IRS. If you meet the applicable reporting threshold, you must report all of your specified foreign financial assets, including the specified foreign financial assets that have a de minimis maximum value during the tax year. For exceptions to reporting, see Exceptions to Reporting in the instructions for Form 8938.

When required, it must be filed with the rest of your annual tax return. In addition to the civil penalties, the IRS states in its instructions to the form that if you fail to file Form 8938, fail to report an asset, or have an underpayment of tax, you may you may be subject to criminal penalties. Both are reporting requirements related to foreign bank accounts held by U.S. citizens and require some form of reporting to the Government. Whereas FATCA reporting is part of the compliance mandated by the Internal Revenue Code, FBAR is technically a reporting requirement required under the Bank Secrecy Act.

There is a lot of confusion when it comes to understanding reporting requirements for offshore accounts, and the IRS likes it that way. The more errors that are made in reporting (or non-reporting), the more penalties the IRS can assess. We have had many clients come to us because they thought filing an FBAR meant they didn't have to file Form 8938, or vice-versa. We get many international tax questions and especially about the FBAR form 114 and Form 8938 comparison.

On the other hand, if you are filing a FBAR, you would not include direct stock ownership on that form, and would only reported that the stock was included in an account. Just because you do not have any foreign income does not mean you are excluded from having to file this form. But, if you are not required to otherwise file a US tax return for any number of reasons, then you are not required to independently file a form 8938, as you would file a form 3520 or 5471 independently, even if no tax return is due.

Directly held precious metals, such as gold, are not specified foreign financial assets. The value of the real estate held by the entity is taken into account in determining the value of the interest in the entity to be reported on Form 8938, but the real estate itself is not separately reported on Form 8938. If you have a financial interest in or signatory authority over an offshore financial account, you must report the account on a Foreign Bank Accounting Report Form 114 (formerly TD F 90-22.1), regardless of your obligation to file Form 8938.

However, you do still have to identify on Part IV of your Form 8938 which and how many of these forms report the specified foreign financial assets. Form 8938 is required to be attached to your U.S. income tax return, but only required if you would otherwise be required to file a U.S. income tax return. So, if you are not required to file a U.S. tax return, you are not required to file form 8938 with it.

assets, such as investors, dual citizens, or legal immigrants, FATCA also applies to the estimated 5.7 to 9 million U.S. citizens residing outside of the United States and those persons believed to be U.S. persons for tax purposes. FATCA also affects non-U.S.-person family members and business partners who share accounts with U.S. persons or who have U.S.-person signatories of accounts.

Filing Form 8938 is mandatory for those U.S citizens, resident aliens, and certain non-resident aliens that have an interest in certain foreign financial assets and meet the reporting threshold set by the IRS. There are many similarities between the Foreign Bank and Financial Accounts Report and IRS Form 8938 , which has caused even more confusion among taxpayers. There is certain information that you must report on both FBAR and Form 8938. But Form 8938 requires information that isn’t included in an FBAR, like details on other foreign financial assets and income.

Failure to file Form 8938 comes with a pretty severe penalty of $10,000 per form. The penalty is increased by $10,000 (up to a maximum of $50,000) for each 30-day period that the failure continues for more than 90 days after the IRS mails you a notice of your failure to file. Additional penalties can also be imposed if you underpay your tax as a result of a transaction involving a foreign financial asset that was not disclosed on the form. The total value of the entity’s specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax 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.

U.S. persons, regardless of residence location and regardless of dual citizenship, are required to self-report their non-U.S. According to qualification criteria, individuals are also required to report this information on IRS information-reporting form 8938. FATCA will allow detection of persons who have not self-reported, enabling collection of large penalties.

Certain foreign financial accounts are reported on both FBAR and Form 8938. However, the information required by the forms is not identical in all cases.
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