Form 8938 – Foreign Reporting Trap for the Unwary

By Sebastien Chain and Tamara Woods

Beginning with the 2011 tax year (i.e., for returns filed April 17, 2012 or later), individual taxpayers will be required to file Form 8938 if he or she has an interest in a “specified foreign financial asset” (“SFFA”) (click for additional information on FATCA requirements) that has a value exceeding a certain threshold.  A Taxpayer has an interest in a SFFA if any income, gains, losses, deductions, credits, gross proceeds or distributions from the asset would be required to be reported on the income tax return.

The reporting thresholds differ depending on whether the taxpayer is married or single and whether the taxpayer is living inside or outside the United States.

Form 8938 Reporting Thresholds

STATUS

LIVING IN U.S.

LIVING ABROAD*

 Unmarried

OR

Married Filing Separately

>$50,000 at year end

OR

>$75,000 any time during year

>$200,000 at year end

OR

>$300,000 any time during year

Married Filing Jointly

>$100,000 at year end

OR

>$150,000 any time during year

>$400,000 at year end

OR

>$600,000 any time during year

There are certain exceptions and limitations to reporting.  Arguably, the most important limitation (other than the thresholds listed above) is whether the taxpayer reports the same assets on a separate foreign information return such as Forms 3520, 5471, 8621, 8865 or 8891 (but not Form T.D. F 90-22.1, Report of Foreign Bank Account (“FBAR”).  If so, the taxpayer is only relieved from fully completing the Form 8938.  The taxpayer is NOT relieved from filing Form 8938.

Form 8938 requires the following information:

  • Basic identification of the account/asset;
  • Name/address of financial institution where account is held (if applicable);
  • Name/address of issuer or counterparty of stock, securities or financial instruments (if applicable);
  • Information regarding whether the account/asset was acquired (opened) or disposed of (closed) during the year, the amount of income, gain, or other tax attributes recognized during the year and schedule, form or return on which reported to IRS, currency exchange rate (and source of rate, if not from Treasury’s Financial Management Service); and
  • If the SFFA is reported on another form (3520, 5471, etc.), the report type and number of such other form.

The minimum penalty for failing to file or report an asset on Form 8938 is $10,000 per year the Form 8938 is not filed.  The penalty can be increased up to a $50,000 maximum for noncompliance 90 days after receipt of an IRS notice.  It is important to note that the IRS has no discretion to reduce this penalty unless the Taxpayer “affirmatively shows the facts that support a reasonable cause claim.” It is unclear at this time what will constitute sufficient reasonable cause.  In addition to the above penalties, accuracy related penalties are increased from 20% to 40% for underpayments involving undisclosed SFFAs.

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2 Comments on “Form 8938 – Foreign Reporting Trap for the Unwary”


  1. [...] October if on extension) of 2012, Taxpayers with SFFAs must report these assets on new Form 8938 (click for additional information on Form 8938 ).  If a Taxpayer is required to file Form 8938, they must attach the Form to their 2011 tax [...]


  2. [...] if a taxpayer has a specified foreign financial asset in excess of various thresholds.  See Form 8938 – Foreign Reporting Trap for the Unwary.  Unlike Form T.D. 90-22.1, Report of Foreign Bank Account and Financial Accounts which is due by [...]


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