What Form 8938 (2016) Is For
IRS Form 8938 (2016), known as the Statement of Specified Foreign Financial Assets, is used to report certain foreign financial assets owned by specified persons, including U.S. citizens, resident aliens, and certain domestic entities. It ensures compliance with the Foreign Account Tax Compliance Act (FATCA), which requires transparency in foreign financial accounts and assets held abroad. The form captures foreign financial accounts, foreign bank accounts, and other assets such as stocks, pensions, and partnerships that meet reporting thresholds.
Form 8938 helps the IRS track financial accounts maintained by foreign financial institutions and verify foreign income that may affect a taxpayer’s federal tax return. Individuals or domestic entities with an aggregate value of specified foreign financial assets above the reporting threshold must file Form 8938 with their income tax return for the calendar year.
For a detailed breakdown of filing requirements, eligibility rules, and step-by-step instructions, see our comprehensive guide for Form 8938: Statement of Specified Foreign Financial Assets (2016).
When You’d Use Form 8938
Taxpayers must file Form 8938 when their foreign financial assets or foreign financial accounts exceed the IRS reporting thresholds for their filing status or location. For example, resident aliens or U.S. citizens living abroad may have higher reporting thresholds than domestic filers. This filing requirement applies to specified persons with ownership or financial interest in certain foreign assets.
If a taxpayer fails to file Form 8938 as required, penalties may apply. Amended returns are necessary when the form was omitted from a previously filed income tax return. Filing Form 8938 properly ensures compliance with tax laws, reduces the risk of criminal penalties, and prevents issues related to undisclosed foreign financial assets.
Key Rules or Details for 2016
For the 2016 tax year, filing thresholds for Form 8938 depend on filing status and residency. Taxpayers living in the United States must report foreign financial assets exceeding $50,000 on the last day of the tax year or $75,000 at any point during the year. Married taxpayers filing jointly must report if the total value exceeds $100,000 at year-end or $150,000 at any time during the year. Higher reporting thresholds apply to taxpayers living abroad, with values ranging from $200,000 to $600,000, depending on filing status.
Specified foreign financial assets include foreign bank accounts, foreign mutual funds, foreign corporations, and interests in foreign partnerships or trusts. Foreign real estate is excluded unless owned through a foreign entity. Proper foreign asset reporting ensures compliance with the Account Tax Compliance Act and prevents penalties related to unreported foreign income.
For complete details on wage reporting, withholdings, and unemployment tax filings, see our guide for Individual Tax Forms.
Step-by-Step (High Level)
Step 1: Determine if filing is required
Calculate the total and maximum value of all specified foreign financial assets for 2016. If the aggregate value exceeds the reporting threshold, the taxpayer must file Form 8938.
Step 2: Gather detailed information
Collect the name and address of each foreign financial institution, account numbers, type of ownership, and fair market value in U.S. dollars.
Step 3: Convert foreign currency values
Use the Treasury’s official year-end exchange rate for conversions. Estimates must be reasonable and based on available information.
Step 4: Complete the form
Form 8938 contains multiple sections:
- Part I: Foreign deposit and custodial accounts
- Part II: Other foreign financial assets such as partnerships, stocks, and trusts
- Part III–IV: Summary and cross-references to other IRS forms, such as Form 5471 or Form 8621
Step 5: Attach to your return
Attach Form 8938 to Form 1040, 1040NR, or another applicable income tax return and file it by the due date, including extensions. For more information about IRS assistance, including help with your tax questions and payment options, see this comprehensive guide.
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.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
Once a taxpayer files Form 8938 with their federal tax return, the IRS reviews the information and cross-references it with data from foreign financial institutions under FATCA agreements. This ensures accurate reporting of foreign accounts, foreign corporations, and foreign entities involved in the taxpayer’s holdings.
If discrepancies exist, the IRS may request clarification or supporting documents for specified foreign financial assets. Failing to comply can lead to additional penalties. Filing an accurate and complete form supports financial transparency, fulfills tax obligations, and prevents future issues related to foreign asset reporting.
FAQs
What is IRS Form 8938 (2016) used for?
IRS Form 8938 (2016) is used to report specified foreign financial assets owned by U.S. taxpayers. It helps ensure compliance with the Foreign Account Tax Compliance Act by disclosing foreign financial accounts, foreign entities, and other assets exceeding reporting thresholds.
Who must file Form 8938 for the 2016 tax year?
Specified persons, including U.S. citizens, resident aliens, and certain domestic entities, must file Form 8938 if the total value of their foreign financial accounts or assets exceeds the applicable reporting thresholds based on filing status and residency.
What types of foreign assets must be reported?
Foreign financial assets required for reporting include foreign bank accounts, foreign mutual funds, foreign pensions, and foreign partnerships. Financial accounts maintained by foreign financial institutions must also be listed if the aggregate value exceeds the threshold.
Does Form 8938 include foreign real estate or foreign stocks?
Directly owned foreign real estate is not reported on Form 8938. However, foreign stocks, mutual funds, or securities issued by a foreign corporation or held through a foreign entity must be included as specified foreign financial assets.
What is the difference between Form 8938 and the FBAR?
Form 8938 is filed with a federal tax return under the Foreign Account Tax Compliance Act, while the FBAR is submitted separately through the BSA E-Filing System. Both may apply if foreign financial accounts held exceed their respective thresholds.
What happens if someone fails to file Form 8938?
Failing to file Form 8938 can result in penalties, extended audit exposure, and potential criminal penalties. The IRS may impose fines of up to $60,000, notably if the taxpayer neglects to report foreign assets or intentionally conceals foreign financial accounts.
Can a tax professional or enrolled agent assist with Form 8938?
Yes, a qualified tax professional or enrolled agent can help clients navigate foreign asset reporting, determine filing requirements, calculate aggregate value, and ensure the complete form complies with current tax laws and FATCA reporting standards.
