Understanding Form 8938: Who Must Meet FATCA Reporting Requirements?

Key Takeaways:

1. Understand Form 8938 and the FATCA reporting requirements for US taxpayers with foreign financial assets.
2. Form 8938 is a mandatory form that taxpayers must file to disclose the value of their foreign financial assets.
3. Failure to file Form 8938 can result in penalties of up to $50,000, and 40% penalties on undocumented income.

Understanding Form 8938 and the FATCA Reporting Requirements

The United States government has established a set of regulations for U.S. taxpayers holding foreign financial assets. One crucial element of these regulations is Form 8938, which pertains to the reporting of specified foreign financial assets on an individual’s tax return. This form is a part of the Foreign Account Tax Compliance Act (FATCA), which aims to prevent tax evasion by Americans using foreign accounts. In this blog post, we will delve into the intricacies of Form 8938 and determine who is required to file it.

What Is Form 8938?

Form 8938, officially titled “Statement of Specified Foreign Financial Assets”, must be submitted by certain taxpayers along with their annual tax returns. This form requires taxpayers to disclose the total value of their foreign financial assets if they exceed the threshold limits set by the IRS. It is worth noting that Form 8938 is separate from the FBAR (Foreign Bank and Financial Accounts Report), another form that some taxpayers may need to file.

Who Needs to File Form 8938?

Filing requirements for Form 8938 are specifically targeted at U.S. citizens, resident aliens, and certain non-resident aliens who have an interest in specified foreign financial assets and meet the reporting threshold. The criteria are based on the value of the foreign assets and the taxpayer’s filing status and residency:

• Single or married filing separately living in the US: The total value of your foreign assets must be more than $50,000 on the last day of the tax year or more than $75,000 at any time during the year.
• Married filing jointly living in the US: The value must exceed $100,000 on the last day of the tax year or more than $150,000 at any time.
• Single or married filing separately living abroad: You must file if you have more than $200,000 worth of assets on the last day of the year or more than $300,000 at any point.
• Married filing jointly living abroad: The thresholds rise to more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

It is also important for residents of U.S. territories and certain nonresident aliens to check the specific rules that may apply to them, as they might need to file Form 8938 under certain conditions.

Specified Foreign Financial Assets to Report

Specified foreign financial assets include but are not limited to:

• Bank accounts held at foreign financial institutions
• Foreign stocks or securities not held in a financial account
• Foreign partnership interests
• Foreign mutual funds
• Foreign-issued life insurance or annuity contracts with a cash value

It is vital to carefully review the types of assets required to be reported, as the failure to report these assets can result in substantial penalties.

Consequences of Not Filing Form 8938

Taxpayers who do not file a required Form 8938 face a penalty of $10,000, and if they continue to neglect this duty after IRS notification, they can accumulate additional penalties up to $50,000. Additionally, the IRS could apply a 40% penalty on undocumented income from foreign financial assets not correctly reported on Form 8938.

How to File Form 8938

To file Form 8938, you must attach it to your annual federal income tax return (typically by the April 15th deadline, or October 15th if an extension is filed) and submit it to the IRS. If you have any doubts about whether you are required to file Form 8938 or if you are reporting your foreign assets correctly, you should consult the IRS instructions for Form 8938 or speak with a tax professional who specializes in international tax law.

In Conclusion

The FATCA reporting requirements, encapsulated in Form 8938, are a fundamental part of ensuring tax compliance for those with foreign financial assets. Accurate reporting and timely filing can help you avoid hefty penalties and ensure your tax affairs are in order. Always stay updated with the latest instructions from the IRS and seek assistance from a tax expert when in doubt.

Still Got Questions? Read Below to Know More:

Are there any exceptions for reporting a small foreign pension account on Form 8938 if it’s below a certain value

Yes, there are certain exceptions for reporting foreign financial assets on Form 8938, “Statement of Specified Foreign Financial Assets,” and this includes small foreign pension accounts, depending on their value and your tax filing status.

If you are a U.S. taxpayer living abroad, you don’t have to file Form 8938 unless the total value of your 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 year (these amounts are doubled for married couples filing jointly). If you’re living in the U.S., the thresholds are lower: more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year (also doubled for married couples filing jointly).

The IRS specifies these thresholds as follows:
– “If you do not live abroad and you are not filing a joint income tax return, you must file Form 8938 if you have more than $50,000 in foreign financial assets at the end of the year, or if you had more than $75,000 at any point during the year. If you do live abroad, these amounts increase to $200,000 and $300,000, respectively.”
– “For married taxpayers living in the U.S. and filing jointly, the thresholds are $100,000 at the end of the year and $150,000 at any time during the year. Living abroad, these thresholds are $400,000 and $600,000.”

For the most up-to-date information and additional details, you should visit the IRS website and review the instructions for Form 8938.

Remember, these are the reporting thresholds for Form 8938 and are separate from the reporting requirements for the FBAR (Foreign Bank and Financial Accounts Report), which may have different thresholds and reporting requirements. Always consult with a tax professional for personalized advice if you’re not sure about your own reporting obligations.

My spouse is a non-resident alien with a foreign bank account; does this affect whether I need to file Form 8938

If you are a U.S. taxpayer married to a non-resident alien, the requirement to file Form 8938, Statement of Specified Foreign Financial Assets, will depend on your filing status and whether you choose to file a joint tax return with your spouse. Generally, Form 8938 is used to report specified foreign financial assets if the total value exceeds the appropriate reporting threshold.

Here’s how it works:

• Individual Filing: If you are filing as “married filing separately” or “single,” you must file Form 8938 if you have an interest in foreign financial assets and the total value of those 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.

• Joint Filing: If you are filing a joint income tax return with your non-resident alien spouse, you will need to include their foreign assets as well for determining the reporting threshold, which is more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the tax year.

It’s important to note that even if you’re living in the U.S., there’s an option to elect to file a joint tax return with your non-resident alien spouse, making them subject to the same reporting requirements as U.S. residents. So, if you make this election, your spouse’s foreign bank accounts would be considered in determining whether you need to file Form 8938.

For more detailed information, the IRS provides comprehensive guidance on Form 8938 filing requirements:

• IRS Form 8938 instructions

Remember, this is a broad overview, and your situation may vary depending on other factors. Consider consulting with a tax professional for personalized advice.

If I moved abroad in June and sold my foreign stocks in July, do I need to report them on Form 8938 this year

If you moved abroad and sold your foreign stocks after that move, whether or not you need to report the sale on Form 8938 depends on a few factors, including your tax status and the amount you realized from the sale. Firstly, Form 8938, “Statement of Specified Foreign Financial Assets,” is used to report foreign financial assets to the Internal Revenue Service (IRS) when the total value of those assets exceeds certain thresholds.

Here’s a simplified breakdown of the conditions under which you would need to report your foreign stocks on Form 8938:

1. You qualify as a “specified individual”, which typically includes U.S. citizens, resident aliens, and certain non-resident aliens with a connection to the United States (such as visa holders).
2. The total value of your specified foreign financial assets is more than the reporting threshold that applies to you. For a single taxpayer living abroad, you must report if your total foreign assets were more than $200,000 on the last day of the tax year or more than $300,000 at any point during the year. For married individuals filing jointly, these thresholds are $400,000 and $600,000, respectively.

If both of these conditions apply to you, you will need to report your foreign stocks using Form 8938. The form should be attached to your annual tax return and filed by the regular filing deadline (including extensions, if you’ve obtained one).

For the most reliable information, you should check the instructions for Form 8938 available on the IRS website:
https://www.irs.gov/forms-pubs/about-form-8938

Keep in mind, even if you are required to report the stocks on Form 8938, this does not mean the sale is taxable—it is simply a reporting requirement. You would need to report any capital gains from the sale of the stocks on your tax return and pay any tax due in accordance with U.S. tax law.

Remember to consult with a tax professional if you are unsure about your reporting requirements or need assistance with your tax situation.

Can I get help from a tax preparer for understanding how to report my foreign rental property on Form 8938

Certainly! If you have foreign rental property and need to report it on Form 8938, “Statement of Specified Foreign Financial Assets,” seeking help from a qualified tax preparer is recommended. Tax preparers who are experts in international taxation can guide you on how to correctly report your foreign assets and income.

When you work with a tax preparer, they will typically need the following information to assist you with Form 8938:

• The location and type of foreign rental property you own
• The total value of the foreign financial assets, including the rental property
• Any income generated from the foreign rental property
• Information about any financial accounts associated with the property

It is important to ensure that your tax preparer has experience with the Foreign Account Tax Compliance Act (FATCA) requirements. You can find professionals through the IRS directory of Federal Tax Return Preparers with credentials and select qualifications here.

“Form 8938 is used to report 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.”

For detailed instructions on how to fill out Form 8938 and understand your tax obligations regarding foreign assets, refer to the IRS’s Instructions for Form 8938 here.

If you’re new to the United States or unfamiliar with the U.S. tax system, getting assistance from a tax preparer is a wise decision to ensure compliance and prevent any possible penalties. Remember to choose a tax preparer who is well-versed in international tax matters and can offer personalized advice based on your specific situation.

I inherited foreign mutual funds from a relative this year. Should that be included in Form 8938

Yes, if you inherited foreign mutual funds, you may need to report them on Form 8938, “Statement of Specified Foreign Financial Assets,” if the total value of your specified foreign financial assets is above the reporting threshold that applies to you. Here are some key points to consider:

1. Reporting Thresholds: The requirement to file Form 8938 depends on your filing status and where you live. For example, if you are a single taxpayer living in the United States, you must file Form 8938 if the total value of your 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. These amounts are higher if you live abroad or file a joint tax return. You can find the specific thresholds on the IRS website: Foreign Account Tax Compliance Act (FATCA).

2. Specified Foreign Financial Assets: According to the IRS, specified foreign financial assets include foreign financial accounts and foreign non-account assets held for investment (not held in a financial account), such as foreign stocks or securities, foreign mutual funds, and foreign hedge funds. Here is how the IRS describes it:

   “Specified foreign financial assets include financial accounts maintained by a foreign financial institution and 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 issued by someone that is not a U.S. person, any interest in a foreign entity, and any financial instrument or contract that has an issuer or counterparty that is not a U.S. person.”

   Source: IRS Form 8938 instructions.

3. Consider Professional Advice: Because tax regulations can be complex, especially when dealing with foreign assets, it’s often wise to seek out professional tax advice. A qualified tax advisor can help determine if you need to file Form 8938 and assist with any other reporting obligations, such as the FBAR (FinCEN Form 114), which is a separate report for foreign bank and financial accounts.

Remember that failing to report foreign financial assets can result in significant penalties, so it is crucial to understand your reporting obligations under U.S. tax law. Always refer to the official IRS resources or consult with a tax professional for your specific situation.

Learn today

Glossary:

1. Form 8938: A form officially titled “Statement of Specified Foreign Financial Assets” that must be submitted by certain U.S. taxpayers along with their annual tax returns. It requires taxpayers to disclose the total value of their foreign financial assets if they exceed the threshold limits set by the IRS.

2. Foreign Account Tax Compliance Act (FATCA): A set of regulations established by the United States government to prevent tax evasion by American taxpayers using foreign financial accounts. FATCA requires taxpayers to report specified foreign financial assets, and Form 8938 is a part of this act.

3. FBAR (Foreign Bank and Financial Accounts Report): A separate form that some U.S. taxpayers may need to file along with their annual tax returns. FBAR is used to report information about foreign bank and financial accounts, while Form 8938 is specifically for reporting specified foreign financial assets.

4. Specified Foreign Financial Assets: Assets that are required to be reported on Form 8938. These include bank accounts held at foreign financial institutions, foreign stocks or securities not held in a financial account, foreign partnership interests, foreign mutual funds, and foreign-issued life insurance or annuity contracts with a cash value.

5. Reporting Threshold: The minimum value of foreign financial assets that triggers the requirement to file Form 8938. The reporting thresholds vary depending on the taxpayer’s filing status, residency, and location (in the U.S. or abroad).

6. Penalty: A consequence imposed by the IRS on taxpayers who fail to comply with the requirement to file Form 8938. The penalty for not filing Form 8938 is $10,000, with additional penalties up to $50,000 for continued non-compliance. The IRS may also apply a 40% penalty on undocumented income from foreign financial assets not correctly reported on Form 8938.

7. Federal Income Tax Return: An annual tax return submitted by individual taxpayers to report their income, deductions, and tax liabilities for the previous year. Form 8938 must be attached to the federal income tax return when filing. The deadline for filing the federal income tax return is typically April 15th, with an extension available until October 15th.

8. IRS (Internal Revenue Service): The U.S. government agency responsible for administering and enforcing tax laws. The IRS provides instructions, forms, and guidance for taxpayers, including the instructions for Form 8938.

9. Tax Professional: A professional who specializes in tax law and provides expert advice and assistance to individuals and businesses. It is recommended to consult a tax professional when unsure about the requirements and reporting of foreign financial assets on Form 8938.

So there you have it, folks! Form 8938 and the FATCA reporting requirements may seem complex, but understanding them is crucial to staying on top of your tax obligations. Remember, accurate reporting and timely filing can save you from potential penalties. If you want to dive deeper into this topic or explore other immigration-related information, don’t forget to visit visaverge.com. Happy researching!