What Form 8938 Is For

Form 8938 is the IRS's way of ensuring U.S. taxpayers report their financial assets held outside the United States. Think of it as a disclosure form that tells the IRS, "Here are my foreign investments and accounts." This form was created under the Foreign Account Tax Compliance Act (FATCA) to improve tax transparency and combat offshore tax evasion.

You'll use Form 8938 to report "specified foreign financial assets"—basically foreign bank accounts, foreign stocks and securities held outside accounts, interests in foreign partnerships, foreign pension plans, and certain financial instruments with foreign counterparties. The key distinction is that these are assets where you have a financial interest, and their total value exceeds specific dollar thresholds (more on that below).

It's important to understand that Form 8938 is different from FinCEN Form 114 (the FBAR). While there's some overlap, they're separate requirements with different thresholds and purposes. Filing one doesn't excuse you from filing the other if you meet both sets of requirements. IRS.gov

When You’d Use Form 8938

Regular Filing

You attach Form 8938 to your annual income tax return (Forms 1040, 1040-NR, 1040-SR, or business returns like 1120 or 1065) and file it by the same due date, including extensions. For 2021 tax returns, this typically meant an April 2022 deadline, with extensions potentially pushing it to October 2022.

Late Filing

If you missed filing Form 8938 with your original return, don't panic—but don't delay either. You should file an amended return (Form 1040-X for individuals) with Form 8938 attached as soon as you realize the omission. The IRS takes late filing seriously, but taking corrective action shows good faith. IRS.gov

Amended Filing

Similarly, if you filed Form 8938 but later discovered errors or omitted assets, file an amended return with a corrected Form 8938. Remember: accuracy matters as much as timeliness.

Important note: If you're not required to file an income tax return for the year, you don't need to file Form 8938, even if your foreign assets exceed the reporting thresholds.

Key Rules or Details for 2021

The 2021 version of Form 8938 follows established FATCA reporting rules with these critical thresholds and requirements:

Who Must File

You must file if you're a "specified person"—which includes U.S. citizens, resident aliens, and certain domestic entities—with foreign financial assets exceeding the applicable threshold.

Reporting Thresholds for Individuals Living in the United States

• Unmarried or married filing separately: Assets worth more than $50,000 on the last day of the tax year OR more than $75,000 at any time during the year
• Married filing jointly: Assets worth more than $100,000 on the last day of the tax year OR more than $150,000 at any time during the year

Reporting Thresholds for Individuals Living Abroad (with tax home in a foreign country)

• Unmarried or married filing separately: Assets worth more than $200,000 on the last day of the tax year OR more than $300,000 at any time during the year
• Married filing jointly: Assets worth more than $400,000 on the last day of the tax year OR more than $600,000 at any time during the year

Domestic Entities

Specified domestic entities (certain closely-held corporations, partnerships, and trusts) must file if their specified foreign assets exceed $50,000 on the last day of the tax year or $75,000 at any time during the year. IRS.gov

What You Must Report

Foreign deposit and custodial accounts; foreign stocks and securities not held in financial accounts; interests in foreign partnerships, trusts, and estates; foreign pension and deferred compensation plans; and certain financial instruments or contracts with foreign counterparties.

What You Don't Report

U.S. bank accounts (even if they hold foreign stocks), directly held foreign real estate, precious metals, art, or foreign currency held directly (not in an account).

Step-by-Step (High Level)

Step 1: Determine if You Must File

Calculate the total value of your specified foreign financial assets on the last day of the tax year and their maximum value at any point during the year. Compare these to your applicable threshold based on your filing status and residence.

Step 2: Gather Documentation

Collect year-end account statements from foreign financial institutions, valuation information for assets not held in accounts (like foreign stocks you hold directly), and documentation for any interests in foreign entities, trusts, or pension plans.

Step 3: Convert Foreign Currency to U.S. Dollars

Use the Treasury's Financial Management Service exchange rates as of the last day of the tax year. For financial accounts, you may use the exchange rate from your account statements unless you have reason to believe it's inaccurate.

Step 4: Complete the Form

• Parts I & II: Provide summary information about foreign deposit/custodial accounts and other foreign assets, including maximum values during the year
• Part III: Report tax items (income, gains, losses, deductions) attributable to the assets
• Part IV: List any excepted assets (those reported on other forms like Form 5471 or 8865)
• Parts V & VI: Provide detailed information for each account and asset, including identifying information for foreign institutions and issuers

Step 5: Attach to Your Tax Return

Attach the completed Form 8938 to your income tax return and file by your return's due date, including extensions. IRS.gov

Common Mistakes and How to Avoid Them

Mistake #1: Confusing Form 8938 with the FBAR

These are separate requirements with different filing deadlines, thresholds, and filing locations. The FBAR goes to FinCEN (filed separately by April 15), while Form 8938 attaches to your IRS tax return. Many taxpayers must file both.

How to avoid it: Review the IRS comparison chart and treat them as independent obligations. Mark both deadlines on your calendar.

Mistake #2: Misunderstanding What Counts as a "Specified Foreign Financial Asset"

Many people incorrectly report (or fail to report) assets. Foreign real estate owned directly doesn't count, but your interest in a foreign corporation that owns real estate does. U.S.-based accounts don't count even if they contain foreign investments.

How to avoid it: Use the IRS's detailed examples and FAQs to classify each asset correctly. When in doubt, consult the Form 8938 instructions.

Mistake #3: Using Incorrect Valuation Methods

Some taxpayers use year-end values when the maximum value during the year was higher, failing to meet the reporting threshold calculation properly, or vice versa.

How to avoid it: Track both values—the year-end value and the highest value at any point during the year. Use periodic account statements to determine maximum values.

Mistake #4: Overlooking Joint Ownership Rules

Joint accounts with spouses filing separately require each spouse to report half the value, but the valuation rules differ if filing jointly or if the joint owner isn't a spouse.

How to avoid it: Carefully review the joint ownership valuation rules in the instructions based on your specific situation. IRS.gov

Mistake #5: Missing the Filing Entirely

Some taxpayers simply don't know they need to file, especially if they inherited foreign accounts or assets.

How to avoid it: If you received an inheritance, sold foreign property, or opened any foreign financial account, research your reporting obligations immediately.

What Happens After You File

Standard Processing

The IRS processes your Form 8938 as part of your overall tax return. The form itself doesn't generate a tax liability—it's informational. However, the income from these assets should already be reported elsewhere on your tax return (Form 1040, Schedule B, Schedule D, etc.). Form 8938 helps the IRS verify that you've properly reported all foreign-source income.

Cross-Referencing

The IRS uses Form 8938 data to cross-check information received from foreign financial institutions under FATCA. Foreign banks report account information directly to the IRS, which compares it against filed Forms 8938.

Compliance Review

If discrepancies arise—for instance, if a foreign bank reports an account you didn't disclose—the IRS may send an inquiry letter or notice asking for clarification.

If You Don't File

The consequences can be severe. The initial penalty for failing to file Form 8938 is $10,000. If you don't file after the IRS sends a notice, you could face an additional $10,000 penalty for each 30-day period of continued failure, up to a maximum of $50,000. Beyond civil penalties, there are accuracy-related penalties (40% of any tax understatement related to undisclosed foreign assets) and potential criminal penalties for willful violations. IRS.gov

Extended Statute of Limitations

If you fail to file Form 8938 or substantially understate foreign asset income, the IRS has six years (instead of the usual three) to assess additional taxes.

FAQs

Q1: I have a foreign bank account with $8,000. Do I need to file Form 8938?

Not necessarily. For unmarried individuals 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. However, you might still need to file the FBAR if your account exceeds $10,000 at any point during the year—that's a separate requirement with a much lower threshold.

Q2: I own a vacation home in France. Do I report this on Form 8938?

No. Directly held foreign real estate isn't a specified foreign financial asset. However, if you hold that property through a foreign corporation or partnership, your interest in that entity is reportable if you meet the thresholds.

Q3: My employer set up a pension plan for me in the UK. Is that reportable?

Yes. An interest in a foreign pension or deferred compensation plan is a specified foreign financial asset. If you meet the reporting thresholds, you must disclose it on Form 8938. Note that the "foreign Social Security" equivalent is generally not reportable.

Q4: I have stocks in a foreign company, but they're held in my U.S. brokerage account. Do I report them?

No. Financial accounts maintained by U.S. financial institutions—including their contents—don't need to be reported on Form 8938, even if those contents are foreign investments. The U.S. brokerage account exempts you from Form 8938 reporting for those assets.

Q5: What's the difference between Form 8938 and the FBAR?

While both deal with foreign financial assets, they're distinct requirements. The FBAR (FinCEN Form 114) focuses on foreign bank and financial accounts with a $10,000 aggregate balance threshold, files separately with FinCEN by April 15, and has a straightforward civil penalty structure. Form 8938 has higher thresholds (starting at $50,000), covers broader asset types beyond just accounts, attaches to your tax return, and includes tax-related penalties. Many people must file both. IRS.gov

Q6: How do I value assets when they're denominated in foreign currency?

Value assets in their original foreign currency first, then convert to U.S. dollars using the Treasury Department's Financial Management Service exchange rate for the last day of the tax year. For financial accounts, you can use the rate from periodic account statements unless you know they're unreasonable.

Q7: Can I avoid penalties if I have a reasonable explanation for not filing?

Yes. The IRS may waive penalties if you can demonstrate "reasonable cause" for failing to file or failing to report an asset. Reasonable cause means you exercised ordinary business care and prudence but still couldn't comply. Simply not knowing about the requirement typically isn't considered reasonable cause, but situations like relying on incorrect professional advice or legal obstacles in a foreign jurisdiction might qualify.

For More Information: Visit IRS.gov/Form8938 for the most current form, instructions, and guidance. Consider consulting a tax professional experienced in international tax matters if your situation is complex.