What the Form Is For

Form 8938 is an information reporting form that U.S. taxpayers attach to their annual income tax return to disclose specified foreign financial assets. Think of it as a detailed inventory of your offshore financial holdings—but only if those holdings exceed certain dollar thresholds.

Unlike many tax forms that calculate what you owe, Form 8938 doesn't directly affect your tax bill. Instead, it's designed to improve tax transparency and help the IRS combat tax evasion through offshore accounts. The form was enacted in 2010 and became effective for the 2011 tax year, making 2011 returns (filed in 2012) the first time taxpayers had to deal with this requirement.

The form covers two main categories of assets: foreign financial accounts maintained by foreign financial institutions (like bank accounts or brokerage accounts held overseas), and other foreign financial assets held for investment (such as foreign stocks, securities, interests in foreign entities, or contracts with non-U.S. persons).

Importantly, Form 8938 does not replace the long-standing FBAR (Report of Foreign Bank and Financial Accounts) requirement—you may need to file both forms, as they serve different purposes and are filed with different agencies. IRS

When You’d Use Form 8938

For the 2011 tax year, Form 8938 was due at the same time as your regular income tax return—April 15, 2012 (or October 15, 2012 with an extension). If you missed this deadline, you would file it late by attaching it to a late-filed return or by filing an amended return.

Late Filing

If you realized after the deadline that you should have filed Form 8938 with your 2011 return, you would need to file an amended return using Form 1040X and attach the completed Form 8938. The sooner you discovered and corrected the omission, the better, as penalties could accumulate.

Amended Filing

If you filed your 2011 return on time but later discovered you had unreported foreign assets that exceeded the thresholds, you would need to amend your return. This situation might arise if you initially miscalculated asset values, didn't realize certain assets qualified as "specified foreign financial assets," or simply weren't aware of the new reporting requirement.

Given that 2011 was the inaugural year for this form, the IRS showed some understanding that taxpayers might be confused. However, ignorance of the requirement didn't eliminate penalties—though it might establish "reasonable cause" to request penalty abatement. IRS

Key Rules or Details for 2011

The most critical aspect of Form 8938 is understanding who must file. You must file if you meet all three of these conditions:

1) You are a “specified person”

• U.S. citizens
• Resident aliens (for any part of the tax year)
• Nonresident aliens who elect to file jointly with a U.S. spouse
• Nonresident aliens who are bona fide residents of American Samoa or Puerto Rico

2) You have an interest in specified foreign financial assets

This includes:

• Financial accounts at foreign financial institutions (banks, brokers, investment firms)
• Foreign stocks and securities not held in a financial account
• Interests in foreign entities (corporations, partnerships, trusts)
• Financial instruments or contracts with non-U.S. counterparties

3) Your assets exceed the reporting thresholds

For taxpayers living in the United States in 2011:

• Unmarried/married filing separately: More than $50,000 on December 31, 2011, OR more than $75,000 at any time during 2011
• Married filing jointly: More than $100,000 on December 31, 2011, OR more than $150,000 at any time during 2011

For taxpayers living abroad in 2011:

• Unmarried/married filing separately: More than $200,000 on December 31, 2011, OR more than $300,000 at any time during 2011
• Married filing jointly: More than $400,000 on December 31, 2011, OR more than $600,000 at any time during 2011

Important Exemptions

You didn't need to file Form 8938 if you didn't have to file an income tax return for 2011. Also, accounts with U.S. financial institutions (including foreign branches of U.S. banks) were not reportable. IRS

Step-by-Step (High Level)

Step 1: Determine if you must file

First, confirm you're a specified person with a filing obligation. Then identify all your foreign financial assets and calculate whether their total value exceeds your applicable threshold.

Step 2: Gather documentation

Collect year-end and periodic account statements for all foreign financial accounts. For non-account assets (like directly-held foreign stocks), obtain valuation information from reliable sources. You needed both the maximum value during 2011 and the value on December 31, 2011.

Step 3: Convert foreign currency to U.S. dollars

Use the U.S. Treasury's Bureau of Fiscal Service exchange rates as of December 31, 2011, to convert all foreign currency values to U.S. dollars.

Step 4: Complete the form

Fill out Form 8938 by providing detailed information about each asset, including: type of asset, identifying information (account numbers, foreign entity names), maximum value during the year, and whether the asset generated any income reported elsewhere on your return.

Step 5: Check for duplicate reporting

If you reported certain assets on Forms 3520, 3520-A, 5471, 8621, 8865, or 8891, you didn't need to list those assets again on Form 8938—but you still needed to count their value toward the threshold and identify on Part IV of Form 8938 which forms reported them.

Step 6: Attach to your tax return

Form 8938 attached to your Form 1040, 1040-NR, or other applicable income tax return. It was not a standalone filing. IRS

Common Mistakes and How to Avoid Them

Mistake #1: Confusing Form 8938 with the FBAR

Many taxpayers thought filing one form satisfied both requirements. In reality, Form 8938 and FBAR (FinCEN Form 114) are separate obligations with different thresholds, due dates, and filing locations. The FBAR has a much lower threshold ($10,000) and is filed directly with FinCEN, not attached to your tax return.

How to avoid: Understand that you may need to file both forms. Review the IRS's comparison chart to determine which assets go on which form.

Mistake #2: Misunderstanding what counts as a “foreign” account

Some taxpayers didn't report accounts with foreign branches of U.S. financial institutions, thinking they were "foreign." Others failed to report accounts with U.S. branches of foreign banks, thinking those were foreign.

How to avoid: Remember that accounts with U.S. financial institutions (including their foreign branches) are not reportable on Form 8938. However, accounts with foreign institutions (even their U.S. branches, in most cases) are reportable.

Mistake #3: Incorrectly calculating the threshold

The "any time during the year" test tripped up many filers. Just because your account balance was below the threshold on December 31 doesn't mean you're off the hook—if it exceeded the higher threshold at any point during 2011, you must file.

How to avoid: Review all periodic statements throughout 2011, not just year-end statements. Track the highest balance for each account.

Mistake #4: Assuming penalties won't apply for an honest mistake

The 2011 filing year was new, and many taxpayers assumed the IRS would be lenient. While "reasonable cause" could eliminate penalties, failing to research new filing requirements wasn't automatically considered reasonable cause.

How to avoid: File correctly and on time. If you do make a mistake, amend as soon as you discover it and document why the error was made.

Mistake #5: Not reporting assets jointly owned with a non-U.S. spouse

Some taxpayers filing separately didn't report the full value of jointly-owned assets, thinking they only needed to report "their half."

How to avoid: If filing separately and you jointly own an asset with your spouse, include half the value for threshold calculation purposes, but report the entire value on Form 8938 if you must file. IRS

What Happens After You File

Immediate effect

Filing Form 8938 itself doesn't trigger an immediate audit or investigation. The IRS uses this information to verify that foreign-source income is properly reported on tax returns and to identify potential non-compliance.

Cross-checking

The IRS compares Form 8938 data with information received directly from foreign financial institutions (which also report under FATCA), FBAR filings, and other information returns. Discrepancies may trigger inquiries or examinations.

Statute of limitations extension

This is a critical consequence many taxpayers don't anticipate. Filing Form 8938 affects how long the IRS has to audit your return:

• If you fail to file Form 8938 or don't properly report an asset, the statute of limitations extends to three years after you provide the required information
• If you omit more than $5,000 of gross income attributable to foreign assets, the statute extends to six years from when you filed your return

Documentation retention

Keep all supporting documentation (account statements, valuation records, currency conversion calculations) for at least six years after filing—longer if the extended statute of limitations applies to your situation. IRS

FAQs

Q1: I filed an FBAR for 2011. Do I still need to file Form 8938?

A: Possibly. These are separate requirements with different thresholds and covered assets. Foreign bank accounts may need to be reported on both forms, but Form 8938 also covers non-account assets like directly-held foreign stocks that aren't reportable on FBAR. Review both sets of requirements independently.

Q2: What penalties apply if I didn't file Form 8938 for 2011?

A: The penalties are substantial: $10,000 for failure to file, plus an additional $10,000 for each 30 days of continued non-filing after IRS notification (up to a maximum additional $50,000). There's also a 40 percent penalty on any tax understatement attributable to non-disclosed assets. Criminal penalties may apply in cases of willful non-compliance. However, if you can show "reasonable cause," penalties may be waived. IRS

Q3: My foreign account had $55,000 on June 15, 2011, but only $45,000 on December 31, 2011. Do I need to file?

A: Yes, if you're unmarried and living in the U.S. The threshold is $50,000 on the last day of the year OR $75,000 at any time during the year. Since your account never exceeded $75,000, you don't meet the "any time" threshold. However, it did exceed $50,000 during the year, so you need to check the December 31 value. At $45,000 on December 31, you would not need to file (assuming this is your only foreign asset).

Q4: I own rental property in France. Do I need to report this on Form 8938?

A: No. Foreign real estate held directly is not a specified foreign financial asset and is not reportable on Form 8938. However, if you own the property through a foreign entity (like a French corporation), your interest in that entity would be reportable.

Q5: What's the difference between "specified foreign financial assets" and FBAR "foreign financial accounts"?

A: Form 8938 has a broader scope. FBAR covers only foreign bank and financial accounts. Form 8938 covers those accounts plus other investment assets like foreign stocks held outside accounts, interests in foreign entities, and foreign financial instruments. The thresholds also differ significantly ($10,000 for FBAR vs. $50,000+ for Form 8938). IRS

Q6: I'm a green card holder who moved to the U.S. in 2011. Do I need to report my foreign accounts from before I moved?

A: Yes, if you were a resident alien at any time during 2011 and your assets exceeded the applicable thresholds. As a resident alien, you're a specified person subject to Form 8938 requirements. Report all specified foreign financial assets you held during the entire year, not just after moving to the U.S.

Q7: Can I get help if I didn't know about Form 8938 for 2011 and want to come into compliance?

A: Yes. The IRS offers streamlined filing procedures for taxpayers who failed to file required forms but whose non-compliance was non-willful. These procedures may allow you to file delinquent returns with reduced penalties. Consult with a tax professional experienced in international tax compliance to determine the best path forward. IRS

Additional Resources

• Form 8938 and Instructions (IRS.gov)
• Comparison of Form 8938 and FBAR Requirements (IRS.gov)
• FATCA Information (IRS.gov)

This guide is for informational purposes only and does not constitute tax advice. Consult with a qualified tax professional regarding your specific situation.