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What is a 8938 and who needs to file one?

Form 8938 is ‘Statement of Specified Foreign Financial Assets’.

Who needs to file Form 8938

You need to file form 8938 if you are a Specified Person and your specified foreign financial assets in which you have an interest are more than the appropriate reporting threshold.

You are a Specified Person if you are either a Specified Individual or a Specified Domestic Entity.   A Specified Individual is a US Person.  A US Person is someone who is a US resident.  You are a US resident if you are a citizen, hold a green card or you are a substantial presence test alien. [See blog – Am I a US resident]

You are a Specified Domestic Entity if you are a closely held corporation or partnership and at least 50% of your income produces passive income or is held for the purpose of producing passive income.

What is a Specified Foreign Financial Asset

Specified foreign financial assets include the following assets:

  1. Financial accounts maintained by a foreign financial institution.
  2. The following foreign financial assets if they are held for investment and not held in an account maintained by a financial institution:
    • Stock or securities issues by someone that is not a US Person,
    • Any interest in a foreign entity, and
    • Any financial instrument or contract that has an issuer or counterparty that is not a US Person.

What is the Appropriate Reporting Threshold

If you are an unmarried taxpayer or a married taxpayer filing separate and you live in the US, the threshold for filing the 8938 is more than $50,000 on the last day of the tax year or more than $75,000 on any day of the tax year.

If you are a married taxpayer filing a joint return and you live in the US, the threshold for filing the 8938 is $100,000 on the last day of the year or more than $150,000 at any time in the tax year.

If you are unmarried taxpayer or married filing separate and you do not live in the US, the threshold for filing the 8938 is more than $200,000 on the last day of the tax year or more than $300,000 at any time in the tax year.

If you are married taxpayer filing a joint return and you live outside the US, the threshold for filing the 8938 is $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.

Do special rules apply to ownership

Yes, special rules do apply to ownership.  You can be a direct, indirect or constructive owner of a foreign financial asset.  You need to consider whether you are an owner on this basis.

When is it due

Form 8938 is due at the same time your tax return is due.

Penalties

If you are required to file form 8938 but you do not file a complete and correct form 8938 by the due date, you will be subject to a penalty of $10,000.

If you do not file a correct and complete form 8938 after the IRS mails you a notice of failure to file, you may be subject to an additional penalty of $10,000 for each 30-day period in which you continue to fail to file Form 8938.  The maximum additional penalty is $50,000.