Form 8938

Updated: Feb 22, 2019


You may recall from our FATCA video that the IRS verifies your income reported with W-2 or 1099 it receives from the payor. A similar concept applies to foreign financial assets, where you must report what you have offshore. he IRS compares this data to the data the foreign financial institutions (FFIs) provide them.


The IRS requires certain taxpayers with specified foreign financial asset beyond a certain limit to self-report those assets on form 8938, Statement of Specified Foreign Financial Assets. However, if you do not have to file a tax return, you also do not have to file form 8938. In addition to Form 8938, the IRS also requires other international tax forms depending on the type of foreign asset. This is in addition to any interest the taxpayer might have in foreign bank accounts, including mere signatory authority.


Definitions:


Certain taxpayers:


Certain taxpayers include: A U.S. citizen*, a resident alien of the United States for any part of the tax year, a nonresident alien who makes an election to be treated as resident alien for purposes of filing a joint income tax return, and a nonresident alien who is a bona fide resident of American Samoa or Puerto Rico (See Pub. 570 for definition of a bona fide resident).


Specified foreign financial assets:


Specified foreign financial assets are financial accounts maintained by a foreign financial institution that are  not:

  • financial accounts maintained by a U.S. payer (such as a U.S. domestic financial institution),

  • the foreign branch of a U.S. financial institution, or

  • the U.S. branch of a foreign financial institution.

“Financial accounts” include: savings, deposit, checking, and brokerage accounts held with a bank or broker-dealer. Additionally, to the extent assets are held for investment and not held in a financial account, taxpayers must report stock or securities that are issued by non-U.S. persons, any interest in a foreign entity, and any financial instruments or contracts held for investment with an issuer or counterpart that is not a U.S. person.  Examples of the assets that must be reported if not held in an account include:

  • Stock or securities issued by a foreign corporation;

  • A note, bond or debenture issued by a foreign person;

  • An interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap or similar agreement with a foreign counterpart;

  • An option or other derivative instrument with respect to any of these examples or with respect to any currency or commodity that is entered into with a foreign counterpart or issuer;

  • A partnership interest in a foreign partnership;

  • An interest in a foreign retirement plan or deferred compensation plan;

  • An interest in a foreign estate;

  • Any interest in a foreign-issued insurance contract or annuity with a cash-surrender value.

The examples listed above do not comprise an exclusive list of assets required to be reported. It is good to note that foreign financial assets could include foreign accounts reported on an FBAR (more on that in another post). In short, if you have any type of foreign interest, check with a qualified professional.


Thresholds:


A taxpayer’s threshold depends on where he or she resides and the amount the total of his or her specified foreign financial assets.  Form 8938 is required for:



  • Unmarried taxpayers living in the US, where the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

  • Married taxpayers filing a joint income tax return and living in the US, where the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.

  • Married taxpayers filing separate income tax returns and living in the US, where the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

  • Taxpayer living abroad, who:

  1. files a return other than a joint return, and the total value of your specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or

  2. files a joint return, and  the value of your specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

That's right, even if you live in a foreign country you still must file this form.


If you believe this form might apply to you or have questions regarding how to become compliant, please reach out to us.

These materials have been prepared by Le Tax Law, PLLC for informational purposes only. They are not intended to be and should not be considered legal advice.


Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel. Prior legal successes do not ensure future results.


The information contained in this website is provided only as general information which may or may not reflect the most current legal developments. This information is not intended to constitute legal advice or to substitute for obtaining legal advice from competent, independent, legal counsel in the relevant jurisdiction.

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