What Form 8938 (2017) Is For
IRS Form 8938 (2017), Statement of Specified Foreign Financial Assets, is used by U.S. taxpayers to report ownership of certain foreign financial assets when their total value exceeds specific thresholds. The form was created under the Foreign Account Tax Compliance Act (FATCA) to promote economic transparency and assist the IRS in identifying foreign financial accounts and related income.
The form covers a wide range of foreign financial assets, including accounts maintained by foreign financial institutions, foreign partnership interests, and securities issued by foreign entities. Its primary goal is to ensure taxpayers disclose all specified foreign financial assets that could impact their tax obligations. Completing this form is a crucial step in ensuring compliance with U.S. tax laws regarding foreign assets.
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 (2017).
When You’d Use Form 8938
Taxpayers must file Form 8938 when their specified foreign financial assets exceed the applicable reporting thresholds for the tax year. This includes foreign financial accounts, foreign bank accounts, and other foreign financial assets maintained outside the United States. The form applies to U.S. taxpayers, resident aliens, and certain domestic entities that own financial accounts or securities issued by foreign corporations.
Late or amended filing is required if the original income tax return did not include the statement of specified foreign financial assets. Individuals must attach Form 8938 to Form 1040-X and report all foreign assets exceeding the reporting threshold. Filing Form 8938 does not replace the FBAR; both may be required for complete compliance with foreign asset reporting requirements.
Key Rules or Details for 2017
For the 2017 tax year, Form 8938 applied to individuals and specified domestic entities with foreign financial assets exceeding threshold limits. These thresholds depend on filing status, residency, and the total value of foreign accounts or financial assets held during the year. Assets include foreign partnership interests, foreign mutual funds, foreign hedge funds, and annuity contracts with foreign financial institutions.
Specified foreign financial assets also include foreign stocks, brokerage accounts, and financial accounts maintained by foreign banks. Domestic entities, such as corporations or partnerships with passive income from foreign sources, must file if their aggregate value surpasses $50,000 on the last day of the tax year. All reporting must follow U.S. tax laws to maintain financial transparency and avoid penalties.
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 the Filing Requirement
Taxpayers must calculate the aggregate value of their foreign financial assets for the tax year. If the total value exceeds the applicable threshold, Form 8938 must be filed with the income tax return.
Step 2: Gather Documentation
Taxpayers should collect all statements, transaction summaries, and valuation documents for foreign bank accounts, brokerage accounts, and other foreign financial assets. Assets denominated in foreign currency must be converted to U.S. dollars using the Treasury’s official exchange rate for the last day of the tax year.
Step 3: Complete the Form
Form 8938 consists of several sections:
- Part I for foreign deposit and custodial accounts
- Part II for other foreign financial assets, such as stocks, partnerships, or interests in foreign entities
- Part III for summary totals of assets and income
- Part IV for assets already reported on other IRS forms, such as Forms 3520, 5471, or 8865
Step 4: Attach the Form to the Tax Return
The completed Form 8938 must be attached to the taxpayer’s income tax return or amended return. If additional space is needed, taxpayers may attach extra pages replicating the relevant sections.
Step 5: Submit by the Deadline
Form 8938 must be submitted by the due date of the income tax return, including any approved extensions. The IRS processes the form as part of the overall return.
Common Mistakes and How to Avoid Them
Many taxpayers make errors when filing Form 8938, which can lead to penalties. The following are the most common mistakes and their solutions.
- Reporting jointly owned assets incorrectly: When filing jointly, report the full value once; when filing separately, report half of each jointly owned asset.
- Excluding assets reported on other forms: Count all specified foreign assets when determining whether you meet the Form 8938 filing threshold.
- Using the wrong exchange rate: Convert foreign asset values using the U.S. Treasury Bureau of the Fiscal Service rate as of December 31.
- Confusing Form 8938 with the FBAR: File both forms when required—each has different thresholds and filing procedures under federal law.
- Reporting only year-end balances: Report the highest value of each asset during the year, not just the year-end balance.
Careful valuation, accurate reporting, and attention to filing thresholds help ensure compliance and prevent IRS penalties for errors on Form 8938.
What Happens After You File
After taxpayers file Form 8938 with their annual income tax return, the IRS reviews the information for accuracy and compliance. The data is cross-checked with reports from foreign financial institutions under FATCA to verify proper reporting of foreign assets. This process helps detect unreported foreign income and ensures adherence to U.S. tax obligations.
Failure to file Form 8938 or underreporting specified foreign financial assets can trigger penalties and extend the statute of limitations. The IRS may impose additional assessments for inaccurate reporting of financial accounts or unreported foreign income. Continued compliance each tax year ensures that all foreign bank and financial accounts meet required disclosure standards.
FAQs
Who must file Form 8938 for the 2017 tax year?
U.S. taxpayers must file Form 8938 if their specified foreign financial assets exceed reporting thresholds. This applies to individuals, certain domestic entities, and resident aliens with financial accounts or foreign financial assets maintained outside the United States.
What qualifies as specified foreign financial assets?
Specified foreign financial assets include foreign bank accounts, brokerage accounts, foreign partnership interests, and securities issued by foreign corporations. These assets must be reported when the aggregate value exceeds the applicable threshold for the tax year.
How are foreign financial accounts different from the FBAR?
Form 8938 focuses on specified foreign financial assets tied to an income tax return, while the FBAR is filed separately through the Financial Crimes Enforcement Network. Some taxpayers may be required to file both for complete foreign asset reporting.
Are domestic entities required to report foreign financial assets?
Yes, certain specified domestic entities, such as closely held corporations or partnerships with passive income from foreign financial institutions, are required to file Form 8938. Reporting is required when foreign financial assets exceed the stated threshold for that tax year.
Do foreign real estate and mutual funds need to be reported?
Foreign real estate held directly is not reportable, but mutual funds and private equity funds are considered specified foreign assets. If their total value exceeds the reporting threshold, they must be included on Form 8938 with the annual income tax return.
What are the penalties for not filing Form 8938?
Failure to file Form 8938 can result in an initial penalty of $10,000, plus additional penalties for continued noncompliance. The IRS may also impose criminal penalties for willful violations, especially in cases involving significant foreign income or tax evasion.
