What Form 8938 (2020) Is For
Form 8938 provides a statement of specified foreign financial assets that qualify for reporting through your federal income tax return. The form applies when you hold financial accounts at foreign financial institutions or maintain foreign holdings that require disclosure. You use the form to report foreign assets when the information involves an economic account, a foreign entity, or a foreign bank.
The form identifies specified foreign financial assets, which include foreign economic interests, foreign stocks, and specific holdings connected to foreign institutions. Direct ownership of foreign real estate does not trigger reporting requirements, whereas indirect ownership through an entity may necessitate disclosure. These rules help you understand how the Internal Revenue Service evaluates asset information for tax compliance purposes.
When You’d Use Form 8938 (2020)
Form 8938 applies when you qualify as either a specified individual or a specified person. Filing thresholds change for taxpayers living abroad or married couples filing jointly who hold qualifying assets that require disclosure. Requirements also apply when a specified domestic entity maintains foreign holdings that meet Internal Revenue Service rules.
Resident aliens follow these thresholds when they hold interests in controlled or related foreign corporations. A joint income tax return may require combining values when both spouses manage foreign assets. These guidelines help you confirm your responsibilities and support your review of the next section.
Key Rules or Details for 2020
Form 8938 outlines foreign financial assets required for reporting based on your residence and filing status. Reporting thresholds differ when you live in the United States or qualify as a taxpayer living abroad for the calendar year. Married couples and single filers review financial accounts and foreign stocks to determine if values reach the required total value.
You calculate the maximum value of each account or asset by using the highest figure recorded during the year. The Internal Revenue Service instructs you to apply values recorded on the last day of the year when you complete comparisons. These rules apply to passive assets when totals influence filing requirements.
Specified foreign financial assets include foreign trusts, financial accounts, and interests in various entities. Your personal residence does not qualify for reporting, while indirect holdings through an entity may apply. These guidelines help you prepare for the next section with a clear understanding of the required information.
Step-by-Step (High Level)
Form 8938 utilizes a structured review to help you determine your foreign asset reporting responsibilities. You examine information related to a foreign branch, bank, or entity to confirm filing requirements. To evaluate foreign income details and financial accounts, follow the steps below.
- You identify certain accounts that involve a foreign branch or a foreign bank connection.
- You gather financial institution records that support each value listed in foreign asset reporting for the tax year.
- You calculate the aggregate value across all foreign accounts to confirm whether the totals meet the required thresholds for Form 8938.
- You review each foreign entity interest to determine whether the disclosure rules for foreign asset reporting apply.
These steps help you organize essential information. They support accurate preparation for reporting. They guide you toward the next section.
Common Mistakes and How to Avoid Them
Many taxpayers make mistakes when they report interests in a foreign corporation or a domestic corporation that manages foreign assets. These mistakes appear when taxpayers confuse reporting requirements for foreign trusts, foreign real estate, and specific accounts held through domestic entities. These situations affect forms filed and may limit your ability to ensure compliance.
- Misclassified Entities: Some taxpayers misreport a foreign corporation; you can prevent this mistake by verifying whether ownership involves domestic entities before completing disclosures.
- Incorrect Asset Treatment: Some taxpayers report foreign real estate that does not qualify for disclosure, and you prevent this issue when you confirm whether indirect ownership through an entity triggers reporting.
- Valuation Errors: Some taxpayers miscalculate values. You can reduce this problem by applying consistent valuation methods and confirming whether totals require additional forms.
These reminders help you report information carefully. They support responsible filing decisions. They prepare you for the next section.
What Happens After You File
The Internal Revenue Service reviews your Form 8938 alongside your income tax return to confirm that your statement matches the required reporting requirements. The review process verifies values, financial details, and supporting information relevant to the current year. The Internal Revenue Service also compares information from a joint return to ensure that each figure aligns with the submitted records.
You may receive a notice that requests clarification or additional documents when information appears incomplete, and tax software can help you track these updates. The Internal Revenue Service may apply interest when corrections influence your balance or lead to adjustments. You can contact our team when you need guidance with notices or have questions that arise after filing.
Frequently Asked Questions
Are foreign retirement plans included in Form 8938 for the tax year?
Foreign retirement plans may be classified as specified foreign financial assets if they create an ownership interest linked to a foreign corporation or foreign bank. You report the plan when the structure meets the foreign financial assets required for disclosure by the IRS. You review plan documents to confirm whether the account functions as an investment asset rather than a government social program.
Do I report foreign real estate on Form 8938?
Foreign real estate held directly does not require reporting because direct ownership does not qualify as a foreign asset for these rules. Reporting may apply when a foreign corporation or foreign branch owns the property, and you hold an interest in that entity. You evaluate the structure carefully because an ownership interest in an entity can trigger a requirement to report foreign assets.
How do I calculate the maximum value of my foreign holdings?
You calculate maximum value figures by identifying the highest balance for each financial account during the calendar year. You gather information from foreign banks, foreign branches, and controlled foreign corporations when you act as a United States shareholder. You keep statements and records that match income tax return entries and verify values through secure downloads that display the locked padlock icon.
Do I need to file any additional forms in conjunction with Form 8938?
You may need other forms when your foreign asset reporting overlaps with additional obligations, such as FBAR or ownership rules tied to a specified foreign corporation. Form 8938 does not supersede these obligations, and each filing adheres to its own specific instructions and thresholds. You consult detailed guidance from the IRS when assets fall across multiple reporting categories.
What if I qualify for streamlined procedures?
Streamlined procedures may apply when you correct late filings for specified foreign financial assets due to non-willful errors. These procedures do not remove your responsibility to report a foreign asset or correct entries tied to your tax home. You include each example of missing information to complete your filing and restore compliance.
