Reporting Foreign Financial Assets & Form 8938

foreign currencyAny individual taxpayer that holds specific foreign financial assets must file a Statement of Specified Foreign Financial Assets (Form 8938) starting with the 2011 tax year and all years moving forward.

What Are Foreign Financial Assets

Here are some examples of what the IRS considers a foreign financial asset:

1. Financial accounts maintained by a foreign financial institution
2. Any interest that you may have in a foreign entity
3. Stock or securities that have been issued by someone who is not a U.S. citizen
4. Any financial instrument that was issued by someone who is not a U.S citizen

Threshold Requirements for Form 8938

There are four main threshold categories that you should understand in regard to whether or not you are required to file Form 8938. These four categories include:

1. If a taxpayer lives inside the United States and is unmarried they may be required to file Form 8938 only if the foreign financial asset exceeds $50,000 at the end of the tax year or the foreign financial asset exceeds $75,000 at any time during the tax year. It is important to keep track of the value of the asset throughout the year in order to be in compliance with this filing requirement.

2. If a taxpayer lives inside the United States and is married they may be required to file Form 8938 only if the foreign financial asset exceeds $100,000 at the end of the tax year or the foreign financial asset exceeds $150,000 at any time during the tax year. It is important to keep track of the value of the asset throughout the year in order to be in compliance with this filing requirement.

3. If a taxpayer lives inside the United States and is married but files a separate tax return they may be required to file Form 8938 only if the foreign financial asset exceeds $50,000 at the end of the tax year or the foreign financial asset exceeds $75,000 at any time during the tax year. It is important to keep track of the value of the asset throughout the year in order to be in compliance with this filing requirement.

4. The last threshold requirement involves a taxpayer that has a tax home in a foreign country and has met the presence abroad test. In this case, he has satisfied the reporting threshold if he has not filed a joint tax return and the total of his specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year. If the taxpayer is married and files a joint return the numbers increase from $200,000 to $400,000 and from $300,000 to $600,000.

Presence Abroad Test

To satisfy the presence abroad test a taxpayer has to be a U.S citizen who has been a bona fide resident of a foreign country for an entire uninterrupted tax year. The IRS will also consider 330 full days during any period of 12 consecutive months a taxpayer resides in a foreign country to pass the presence abroad test.

Exceptions to Filing Form 8938

There are a few exceptions that make it unnecessary for a taxpayer to file Form 8938, these exceptions include:

1. If a taxpayer were to hold an asset in a domestic branch of a foreign bank
2. If a taxpayer were to hold an asset in a domestic branch of a foreign insurance company
3. If a taxpayer were to hold an asset in a foreign branch of a U.S. financial institution

Penalties for Not Filing Form 8938

If a taxpayer is required to file Form 8938 and does not do so by the due date the IRS may fine the taxpayer up to $10,000. Once this occurs the IRS will mail a taxpayer a notice indicating there requirement to file Form 8938. If the taxpayer does not file Form 8938 within 90 days of receiving this notice, the IRS will fine the taxpayer an additional $10,000 penalty for each 30 day period the taxpayer does not file Form 8938. The maximum additional penalty is $50,000.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.


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