Holding foreign financial assets as a U.S. taxpayer comes with serious reporting obligations, and Form 8938 is one of the most important—and most misunderstood—of all. While many investors are familiar with the FBAR, fewer realize that the IRS requires a separate, more detailed disclosure under the Foreign Account Tax Compliance Act (FATCA).
Form 8938 is more than just a tax form: it’s also a legal obligation under IRC Section 6038D with real consequences for non-compliance. Failing to file can trigger aggressive penalties and leave your entire tax return open to audit indefinitely.
At Gordon Law, our international tax attorneys help you understand exactly what’s required and protect you if something goes wrong. This article explores everything about Form 8938, including filing requirements, reporting thresholds, penalties, due dates, and how to file correctly.
What Is Form 8938 (Statement of Specified Foreign Financial Assets)?
Officially titled the “Statement of Specified Foreign Financial Assets,” Form 8938 is used to report specified foreign financial assets to the IRS when their aggregate value exceeds the applicable reporting threshold. It is filed as part of your annual income tax return, meaning it is attached directly to your Form 1040, 1040-NR, 1040-SR, Form 1041, Form 1065, or Form 1120.
It’s critical to understand that IRS Form 8938 is an information return. Filing it doesn’t create additional tax liability on the assets themselves. However, failing to file it creates significant legal exposure. Introduced as part of FATCA, this form is the IRS’s primary tool for increasing transparency regarding offshore holdings.
Note: You are only required to file Form 8938 if you are required to file a U.S. income tax return for the year. If you do not have to file a return, you do not need to file Form 8938, even if your assets exceed the threshold.
What Is the Difference Between Form 8938 and FBAR?
This is the most common source of confusion for U.S. taxpayers with international holdings. While both Form 8938 and FBAR deal with foreign assets, they are governed by different laws and filed with different agencies. Their most important differences include:
- Filing Authority: IRS Form 8938 is filed with the IRS as part of your annual tax return. On the other hand, you file the FBAR separately with FinCEN through the BSA E-Filing System—it’s NOT filed with the IRS.
- Thresholds: Form 8938 has significantly higher reporting thresholds (starting at $50,000 depending on residency) compared to the FBAR, which is triggered if the aggregate value of foreign financial accounts exceeds $10,000 at any time.
- Scope: Form 8938 covers a broader range of assets, including foreign stocks not held in an account, interests in foreign partnerships, and foreign hedge funds. The FBAR generally covers only foreign financial accounts.
Crucially, filing one doesn’t relieve you of the obligation to file the other. If you meet the requirements for both FBAR and Form 8938, you must file both.
Who Needs to File Form 8938?
You must file this form if you meet two conditions: you are a “specified person,” and the value of your assets exceeds Form 8938’s reporting threshold.
A specified individual includes U.S. citizens, resident aliens for any part of the tax year, nonresident aliens who elect to be treated as resident aliens for filing a joint return, and nonresident aliens who are bona fide residents of Puerto Rico or American Samoa.
Form 8938 Thresholds
The thresholds vary significantly based on where you live and your filing status. You must check the values against the following criteria:
- Unmarried U.S. residents: More than $50,000 on the last day of the tax year OR more than $75,000 at any time during the year.
- Married U.S. residents filing jointly: More than $100,000 on the last day OR more than $150,000 at any time.
- Unmarried taxpayers living abroad: More than $200,000 on the last day OR more than $300,000 at any time.
- Married taxpayers living abroad filing jointly: More than $400,000 on the last day OR more than $600,000 at any time.
- Specified domestic entities: More than $50,000 on the last day OR more than $75,000 at any time.
Note: To qualify for the “living abroad” threshold, you must satisfy the IRS presence abroad test (bona fide residence or physical presence).
Legal Risk Scenarios: When Do I Need to File Form 8938?
Below, you can find a few example scenarios to help you determine whether you are required to file Form 8938 with the IRS:
- A U.S. citizen living in Chicago holds a brokerage account in Germany valued at $60,000 at year-end. She must file Form 8938 because she exceeds the $50,000 year-end threshold, even if the account generated no taxable income.
- A green card holder has a pension from his home country worth $250,000. He likely must file both Form 8938 and the FBAR. Many taxpayers mistakenly believe foreign pensions are exempt; usually, they are not.
- A married couple living in France has joint foreign accounts totaling $420,000 at year-end. They must file Form 8938 with their joint return. Missing this exposes both spouses to penalties on a joint-and-several basis.
Why It’s Important to File Form 8938 Accurately
Reporting foreign assets accurately is about more than just compliance—it’s about protecting yourself from an IRS audit. Because Form 8938 is an information return, errors or omissions can trigger audits that extend to your entire tax return, not just the form itself.
Furthermore, failing to file this form freezes the statute of limitations for the entire tax year. This means the IRS can audit that year indefinitely until the form is filed.
Remember, under FATCA, the IRS receives data directly from foreign financial institutions. If they know about assets you haven’t reported, you’re already at a disadvantage. This is why working with an experienced international tax attorney is vital.
Form 8938 Penalties
The penalties for non-compliance are severe and can compound quickly:
- Failure-to-File Penalty: You face a $10,000 penalty per year for failing to file a complete and correct Form 8938 by the due date.
- Continuing Failure Penalty: If the IRS sends you a notice of failure to file and you do not comply within 90 days, an additional $10,000 penalty applies for each subsequent 30-day period of non-compliance. This can reach a maximum additional penalty of $50,000. This means the total penalties of Form 8938 can reach $60,000 per tax year.
- Accuracy-Related Penalty: If you underpay tax because of an undisclosed specified foreign financial asset, you may face a 40% penalty on the underpayment amount.
- Fraud Penalty: If the underpayment is due to fraud, the penalty increases to 75%.
- Criminal Penalties: In cases of willful failure to file, criminal penalties may apply under IRC Sections 7203, 7206, and 7207.
Pro Tip: Penalties apply per form, per year. If you’ve missed filings for multiple years, the financial exposure is massive. An experienced attorney can evaluate if you qualify for a “reasonable cause” exception or amnesty programs like the IRS’s Streamlined Domestic Offshore Procedures (SDOP).
Form 8938 Due Date
Because the 8938 tax form is attached to your annual income tax return, it shares the same due date. For most individual taxpayers, this is April 15, with the option to extend to October 15 by filing Form 4868.
U.S. citizens and residents living abroad receive an automatic two-month extension to June 15, with the option to extend further to October 15. Unlike the FBAR, which has an automatic extension, Form 8938 requires you to follow the standard tax extension process. It cannot be filed as a standalone document.
How to File Form 8938
Filing requires precision. Follow these steps to ensure accuracy:
- Calculate the aggregate maximum value of all specified foreign financial assets during the tax year. Do not rely on the year-end balance alone. You must convert foreign currency to U.S. dollars using the Treasury Bureau of the Fiscal Service exchange rate for the last day of the tax year.
- Collect account numbers, names, and addresses of foreign financial institutions, maximum values during the year, and details on any income generated (dividends, interest, royalties).
- Complete the form:
- Part I covers foreign deposit and custodial accounts.
- Part II covers other foreign assets (stock, pensions, interests in foreign entities).
- Part III summarizes tax items (income) from those assets.
- Part IV is used to identify assets reported on other forms (like Form 5471, Form 8865, or Form 3520), so you don’t have to duplicate the details, though their value still counts toward the threshold.
- Attach the completed Form 8938 to your Form 1040 and file by the applicable due date. If you file Form 8938 electronically (e-file), it is submitted as part of your tax return package.
- Retain your supporting documentation for at least three years, or longer if any tax years remain open under the statute of limitations.
Need Help Filing Form 8938?
Form 8938 sits at the dangerous intersection of tax law and legal compliance. A single missed filing can keep the statute of limitations open indefinitely, exposing your entire financial history to IRS scrutiny.
Gordon Law’s attorneys have over a decade of experience in international tax law, Form 8938, FBAR compliance, and IRS penalty defense. Unlike a general accountant, a Gordon Law attorney provides attorney-client privilege and can represent you if the IRS pushes back. We can help you evaluate penalty abatement options and guide you through amnesty programs if you are behind on filings.
Don’t wait for an IRS notice. Contact us today to schedule a confidential consultation and get peace of mind regarding your foreign assets.
