What Form 8938 (2015) Is For
IRS Form 8938 (2015), known as the Statement of Specified Foreign Financial Assets, is used by U.S. taxpayers to report foreign financial assets held outside the United States. The Internal Revenue Service requires this filing to ensure compliance with federal tax laws and prevent tax evasion through the disclosure of foreign accounts.
This form applies to specified individuals, resident aliens, and certain nonresident aliens who hold specified foreign financial assets exceeding the applicable reporting thresholds. It covers foreign bank accounts, brokerage accounts, annuity contracts, and interests in foreign corporations, partnerships, or trusts. Filing Form 8938 helps the IRS maintain financial transparency and verify that income from foreign financial institutions is correctly reported on a federal tax return.
When You’d Use Form 8938
Taxpayers must file Form 8938 with their annual income tax return, typically Form 1040 or Form 1040-NR. The form cannot be filed independently and must be accompanied by the full federal tax return.
When a taxpayer realizes after filing that Form 8938 was required but omitted, an amended return must be filed using Form 1040X with Form 8938 attached. Filing as soon as possible helps minimize penalties, which begin at $10,000 and increase with continued noncompliance.
Late or amended filings are necessary when the total value of foreign financial assets exceeds the reporting threshold but was not initially reported. The IRS considers failure to file a serious compliance issue, which can result in substantial fines or even criminal penalties in severe cases.
Key Rules or Details for 2015
For the 2015 tax year, U.S. citizens, resident aliens, and specified domestic entities must file Form 8938 if their total value of specified foreign financial assets exceeds the reporting thresholds. These thresholds vary based on filing status and residency, such as married filing jointly or separately, and whether the taxpayer resides in a foreign country.
Foreign financial assets required to be reported include bank and financial accounts, foreign mutual funds, and foreign partnership interests. Taxpayers must convert the maximum value of each foreign asset to U.S. dollars using the Treasury exchange rate. Certain foreign assets, such as directly owned foreign real estate, are not reportable; however, ownership through a foreign entity must be disclosed on the Form 8938 statement of specified foreign financial assets.
Learn more about federal tax filing through our IRS Form Help Center or explore IRS assistance options.
Step-by-Step (High Level)
Step 1: Determine Whether Filing Is Required
The taxpayer must calculate the total value of all specified foreign financial assets and compare it to the applicable reporting threshold for their filing status.
Step 2: Gather All Necessary Information
The taxpayer should collect statements from each foreign financial institution, including account numbers, maximum values during the year, institution names, and any income earned.
Step 3: Convert Foreign Currency to U.S. Dollars
All foreign financial assets must be reported in U.S. dollars using the U.S. Treasury Bureau of the Fiscal Service exchange rate as of December 31, 2015.
Step 4: Complete the Form
- Part I: Report foreign deposit and custodial accounts.
- Part II: Report other foreign financial assets such as stocks, bonds, and partnerships
- Part III: Summarize income and tax items from foreign assets
- Part IV: Identify excepted assets already reported on other IRS forms such as Forms 3520, 5471, 8621, or 8865
Step 5: Attach to the Annual Income Tax Return
Form 8938 must be attached to the taxpayer’s federal tax return and filed by the due date, including any approved extensions.
Common Mistakes and How to Avoid Them
- Confusing Form 8938 with the FBAR (FinCEN Form 114): File both when required—Form 8938 goes to the IRS with your tax return, while FBAR is submitted separately to FinCEN.
- Undervaluing foreign financial assets: Report the maximum value during the year, not just the year-end balance, to ensure accurate disclosure.
- Omitting certain foreign investments: Include all reportable assets, such as foreign mutual funds, partnerships, and trusts, even if they generated no income.
- Reporting U.S.-based accounts as foreign: Exclude accounts held at U.S. branches of foreign banks; they are considered domestic for reporting purposes.
- Ignoring ownership through foreign entities: Report interests in corporations, partnerships, or trusts that own foreign assets, as these are considered reportable on Form 8938.
Reviewing filing thresholds, asset classifications, and ownership structures carefully ensures accurate Form 8938 reporting and helps taxpayers avoid IRS penalties.
What Happens After You File
After submitting Form 8938 with the annual income tax return, the Internal Revenue Service reviews the statement to confirm accurate reporting of foreign income and assets. The information helps identify discrepancies between reported foreign financial assets and income declared on the taxpayer’s federal tax return.
If inconsistencies or omissions are found, the IRS may request additional documentation or conduct an audit to verify the reported financial accounts and assets. Failure to file Form 8938 or report the aggregate value of foreign financial assets exceeding the threshold can result in civil fines or criminal penalties, emphasizing the importance of compliance and accurate foreign asset reporting.
FAQs
Who must file Form 8938 for the 2015 tax year?
U.S. taxpayers, including citizens, resident aliens, and certain nonresident aliens, must file Form 8938 if their specified foreign financial assets exceed the applicable reporting thresholds. This includes foreign financial accounts, foreign bank holdings, and other foreign financial assets.
What types of foreign financial assets are required to be reported?
Form 8938 requires taxpayers to disclose specified foreign financial assets, including foreign bank accounts, brokerage accounts, foreign mutual funds, annuity contracts, and interests in foreign partnerships, corporations, and trusts. Each foreign financial institution must be clearly identified on the form.
How is the maximum value of foreign assets determined?
Taxpayers must calculate the maximum value of their foreign financial assets based on account statements and valuations during the tax year. The aggregate value must be converted to U.S. dollars using the Treasury’s exchange rate for accurate foreign asset reporting.
What is the difference between Form 8938 and the FBAR?
Form 8938 is filed with the IRS as part of the annual income tax return, while the FBAR is submitted to the Financial Crimes Enforcement Network using the BSA E-Filing System. Both forms require reporting of foreign bank and financial accounts under different tax laws.
Are domestic entities required to file Form 8938?
Certain domestic entities and specified domestic entities must file Form 8938 if they hold foreign financial assets exceeding the applicable reporting threshold. The Internal Revenue Service uses this information to ensure financial transparency and prevent tax evasion.
Does Form 8938 include directly owned foreign real estate?
Directly owned foreign real estate is not reportable on Form 8938. However, if the property is owned through a foreign corporation, partnership, or trust, the ownership interest is a specified foreign financial asset and must be reported.
What are the potential penalties for failing to file Form 8938?
The Internal Revenue Service may impose a $10,000 penalty for failing to file Form 8938, as well as additional penalties for continued noncompliance. In severe cases, willful failure to report foreign assets may result in criminal penalties under federal tax laws.
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