What Form 8938 Is For
U.S. taxpayers use Form 8938 to report specified foreign financial assets that exceed certain reporting thresholds. The Internal Revenue Service created this form under the Foreign Account Tax Compliance Act to improve financial transparency and prevent tax evasion. It applies to individuals and certain domestic entities with foreign financial accounts or other foreign financial assets required to be disclosed on their annual income tax return. Filing ensures compliance with U.S. tax laws regarding assets overseas and income from foreign sources.
When You’d Use Form 8938
U.S. taxpayers must file Form 8938 when the total value of their foreign financial assets exceeds the applicable reporting threshold. This includes financial accounts held in foreign financial institutions, such as foreign bank accounts, brokerage accounts, or retirement accounts. Foreign assets include stock in foreign corporations, interests in foreign partnerships, and cash value shares from foreign insurance or pension plans. You must attach the form to your federal tax return, and if you missed it in a prior filing, submit it with an amended income tax return.
Key Rules or Details for the 2023 Tax Year
- Reporting thresholds for U.S. residents: Single or married filing separately taxpayers must report when the aggregate value of foreign assets exceeds $50,000 on the last day of the tax year or $75,000 at any time.
- Thresholds for married couples filing jointly: Married filing jointly taxpayers must file Form 8938 when their total value of foreign holdings surpasses $100,000 on the last day of the tax year or $150,000 at any time.
- Thresholds for taxpayers living abroad: Those living abroad must file if their foreign financial assets exceed $200,000 on the last day of the year or $300,000 during the year, with higher thresholds for joint filers.
- Specified domestic entities: Certain domestic entities, including closely held corporations, partnerships, and trusts, must report foreign financial interests once the aggregate value of their foreign accounts exceeds $50,000 at year-end.
- Types of reportable assets: Report foreign accounts in foreign financial institutions, foreign stocks, foreign partnerships, and other foreign financial assets exceeding the applicable threshold.
- Exclusions: Foreign real estate owned directly and assets held in a U.S. financial institution are not reportable, but assets held through a foreign entity are.
- Valuation and conversions: Use accurate statements from financial institutions and the Treasury’s year-end exchange rates to determine the maximum value of your foreign financial assets.
- IRS penalties: Failing to file can result in civil and criminal penalties, starting at $10,000, which increase for each 30-day delay after the IRS notification.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Determine filing obligation
Determine if you meet the applicable reporting threshold based on your filing status and residency. Review all foreign accounts, including bank accounts, brokerage accounts, and retirement accounts, to determine if you are required to file.
Step 2: Collect asset information
Gather statements from foreign financial institutions showing balances and transaction activity. Include details of any foreign partnerships, foreign mutual funds, and foreign corporations where you hold ownership or economic interests.
Step 3: Complete and review Form 8938
Enter your foreign financial assets into the correct sections: list accounts, financial instruments, and other foreign assets, such as foreign trusts or foreign partnership interests. Verify accuracy to ensure compliance with reporting requirements.
Step 4: Convert to U.S. dollars
Use the Treasury’s official year-end exchange rates to convert your foreign investments and financial accounts into U.S. dollars. Maintain documentation to support the determination of each value for IRS review and audit purposes.
Step 5: File your tax return
Attach Form 8938 to your annual income tax return and file it with the Internal Revenue Service. If you file electronically, confirm that your software allows you to attach the completed filing form.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Mistaking Form 8938 for the FBAR: Form 8938 and the FinCEN FBAR report different types of foreign assets. To avoid errors, confirm which filing requirements apply and submit both when necessary.
- Failing to report certain foreign assets: Many taxpayers overlook the need to include foreign partnerships, foreign mutual funds, or cash value life insurance shares. Review all your foreign investments carefully to ensure all financial assets are reported.
- Undervaluing foreign holdings: Some taxpayers estimate, instead of using verified figures. Always use actual bank or brokerage statements and Treasury exchange rates to show the maximum value of assets reported.
- Ignoring small overages: Even if your total value only slightly exceeds the threshold, you must report foreign assets. Review both your year-end and maximum values for the tax year to ensure compliance with the tax regulations.
- Not amending a missing form: If you realize after filing that you omitted Form 8938, submit an amended tax return promptly to avoid additional IRS penalties and preserve your compliance record.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After you file Form 8938 with your annual income tax return, the Internal Revenue Service reviews it for consistency with information received from foreign financial institutions under FATCA agreements. Proper foreign asset reporting helps confirm compliance and minimize tax liability. Failure to report completely or accurately can lead to extended audit periods or penalties. Maintain records for at least six years, including statements, valuations, and correspondence from each financial institution or foreign counterparty.
FAQs
What types of foreign financial assets must be reported on Form 8938 (2023)?
You must report foreign bank accounts, foreign mutual funds, foreign stocks, foreign partnerships, and other foreign financial assets exceeding the reporting thresholds for your filing status and residency.
How does my filing status affect Form 8938 reporting thresholds?
Your residency and filing status determine the reporting thresholds. Married filing jointly taxpayers have higher thresholds than single or married filing separately filers, regardless of whether they live in the United States or abroad.
Do domestic entities also need to file Form 8938 for foreign assets held outside the United States?
Yes, specified domestic entities, such as certain corporations, partnerships, and trusts, are required to report foreign assets if the aggregate value exceeds $50,000 on the last day of the tax year.
What should I include in the 8938 statement of specified foreign financial assets?
Include all financial accounts, stock in foreign corporations, foreign partnership interests, and other foreign financial assets required by the Internal Revenue Service under current tax laws.
How do I file Form 8938 with my federal tax return?
You must attach the completed Form 8938 to your federal tax return. You can file electronically or by mail, ensuring all specified foreign financial assets are accurately listed and valued.
Are there penalties for not reporting foreign assets on Form 8938 (2023)?
Yes, the Internal Revenue Service may impose civil and criminal penalties for failing to disclose foreign financial accounts or other foreign assets exceeding the applicable reporting threshold.
Can foreign real estate or a foreign bank account trigger filing obligations?
Foreign real estate owned directly is not reportable. However, if owned through a foreign entity or held in a foreign bank account, the value counts toward the aggregate value threshold.
