Filing Requirements for Form 8938
Introduction to Form 8938 Reporting
Filing Requirements for Form 8938: The filing requirements for IRS form 8938 or more encompassing then what is required for the comparable FBAR form, but nowhere near as bad as the reporting that is required for other international information reporting forms such as Form 5471 or 8865. Taxpayers with certain specified foreign financial assets are required to report all of their foreign assets that are otherwise reportable –unless they meet an exception, exclusion or limitation. They also have to include the foreign income generated from the offshore assets. One common exception to reporting is foreign rental property that is owned by an individual (as opposed to being held in an entity such as a Sociedad Anonima).
Let’s take a brief look at the different filing requirements.
Who Has To File the 8938
US Persons, including US citizens, Legal Permanent Residents, and Foreign Nationals who meet the substantial presence test — or otherwise make an election to be treated part year as a US resident — may have a Form 8938 filing requirement. In addition, certain domestic entities such as corporations, partnerships, and trusts may also have to file a Form 8938 in order to report their specified foreign financial assets.
When is Filing Due
The form is due at the same time the tax return is due. In addition, if a person is on extension for filing their tax return, then the Form 8938 goes on extension as well. Unlike other reporting forms that require filing an extension on Form 7004 (such as 3520-A) — this is not required to extend the filing of Form 8938.
What Assets are Reportable
Lots of different foreign assets are required to be disclosed. The IRS does not account for exactly which asset is included or excluded from the form — but they are given some guidance as to what is included/excluded (see below).
Here is a list of some of the more common assets that may be reportable on the 8938 Form.
Foreign Real Estate
If a Taxpayer owns a rental property as an individual, then the rental property is not included on Form 8938. If instead, the Taxpayer owns the rental property in a foreign corporation that was not disregarded or that cannot be disregarded such as a sociedad anonima, then the value of the real estate is included when determining the asset value of the company. The company itself is included in Form 8938.
In other words, Taxpayers do not exclude the value of the foreign real estate if it is in a business. If it was owned as an individual, it would not be included on Form 8938.
Foreign Bank Accounts
Form 8938 requires financial accounts that are held in certain foreign financial institutions to be included on the form. Foreign accounts are not limited to bank accounts. They also include investment accounts and other accounts as well. There may be crossover with other forms such as when the taxpayer owns foreign mutual funds or SICAVs — which may require the taxpayer to file Form 8621.
Duplicate reporting is generally not required.
Foreign Investment Accounts
Foreign investment accounts are included, since they qualify as financial accounts that are being held in a foreign financial institution.
Foreign Stock & Stock Accounts
For Form 8938 reporting, both stock accounts and stock certificates are required to be reported.
Foreign Pension Accounts
Depending on the type of pension account, reporting may be included on Part 1 or Part 2 of the form. Due to some IRS “guidance,” there is some confusion regarding pension accounts. An IRS publication seemingly provided that (in general) pension accounts are not reportable on FBAR or Form 8938.
In actuality, what the publication seemed to be saying was that accounts held within an investment account such as accounts held within a foreign pension do not need to be parsed out individually and separately reported on the Form 8938 or FBAR.
So for example, if you have a pension that has 10 different bank accounts within the pension, those accounts do not need to be identified separately on Form 8938, but the pension itself should be reported in full.
Different tax practitioners handle this differently, so you should speak with your tax professional when it comes time to report.
Overseas Cryptocurrency
There is no set rule yet as to whether cryptocurrency is reportable on Form 8938. The draft version of the 2020 tax return includes a question about virtual currency (which would include cryptocurrency). In addition, cryptocurrency is an asset; so if it is being held on an exchange — as opposed to being held within a personal wallet — then it may be reportable.
What if You Miss the Filing Requirements
As with most international information reporting forms, if you don’t file it timely then you may be subject to fines and penalties.
The penalties start at $10,000 and tend to max out at around $60,000 per year.
If you are able to show reasonable cause, you may be able to limit, reduce, or eliminate the penalties. There are some limitations about using reasonable cause to support a Form 8938 penalty waiver — and the 8938 IRS instructions does explain what some of those limitations are.
How to Reduce or Avoid 8938 Penalties
Currently (as of December 2020), the main options for amnesty are the following:
- Voluntary Disclosure Program (VDP or “New” OVDP)
- Streamlined Domestic Offshore Procedures
- Streamlined Foreign Offshore Procedures
- Reasonable Cause
- DFSP
- DIIRSP (ended in November 2020 and is now essentially a reasonable cause submission)
Golding & Golding: About Our Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS disclosure & compliance.
Contact our firm today for assistance.
