Form 8938 Statement of Specified Foreign Financial Assets

If you have significant foreign financial assets you may have to file with your income tax return, form 8938, Statement of Specified Foreign Financial Assets. This is a new form starting with the 2011 tax year and is part of the United States Government’s continuing efforts to contain tax evasion and avoidance in respect of foreign assets owned by United States citizens and residents. If this form applies to you it would be advisable to obtain professional advice given the increasing complexities of reporting foreign transactions on United States income tax returns.

Whilst form 8938 needs to be filed by United States citizens and residents we are particularly focusing this article on Green Card holders. Green Card holders are quite likely to have some assets in and continuing income from their home country.

Before you decide to not read on any further be aware that there are serious penalties for failing to file a required form 8938. The basic penalty for failing to file the form is $10,000 going up to a maximum of $50,000 for continuing failure to file. Also if you fail to report income from the foreign financial assets the IRS will have up to six years to assess the tax rather than the normal three years.

So, on to the requirements for the form.

If you are living in the United States Form 8938 needs to be filed if the value of your foreign financial assets exceeds the following limits:-

• $50,000 at end of year or more than $75,000 in year (single and married filing separate)
• $100,000 at end of year or more than $150,000 in year (married filing joint)

There are higher limits if you do not live in the United States.

What are foreign financial assets?

These include:-

• Any financial account maintained by a foreign financial institution
• Stocks or securities issued by someone other than a US person
• Any interest in a foreign entity held for investment
• Any financial instrument or contract that has an issuer or counter party that is someone other than a US person.

The definition of a financial asset is wide ranging and catches all the obvious assets that you may hold overseas back in your home country such as:-

• Bank accounts
• Mutual funds such as unit trusts
• Stock holdings
• Pension funds

The big one for Green Card holders could well be the pension funds. A lot of Green Card holders will have left their pension funds in their home country and the value of these alone could take you over the filing limits for form 8938. Note that a state pension like the US social security is not included in the value.

If you are required to file form 8938 for your foreign financial assets the information you enter on the form includes the name of the asset, account or identifying number, address, maximum value in the year and how much income from the asset you have reported on your United States income tax return.

If you are already reporting any foreign financial assets on other income tax return forms you do not need to report the detailed information on form 8938 just note that you are filing another form. If the asset is reported on another form its value must still be included to determine if you need to file a form 8938.

There are other conditions and requirements that we have not covered in this article so make sure that you get advice from your tax preparer to see if you need to file form 8938.

One final point, filing form 8938 does not stop the requirement to file form TD F 90-22.1, otherwise known as the FBAR. This form still needs to be filed with the US Treasury by June 30 each year if you have certain financial accounts exceeding $10,000 in value.

The IRS has a useful comparison chart showing the differences between the two reporting requirements and which assets are covered by each form. This confirms that directly held foreign real estate is not reportable on the form 8938.

If you would like assistance with filing your form 8938, Statement of Specified Foreign Financial Assets, with your income tax return call us on (480) 363-4808 to book an appointment. If you live in Phoenix Metro area, AZ we will come to you to prepare your income tax return. If you live elsewhere we can prepare the tax return using information you upload to our secure client portal or mail to us. We look forward to helping you prepare your income tax return and helping you file form 8938.

Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.

Posted By Mark Smith

Mark Smith, EA is an Enrolled Agent and accountant with over 30 years tax and accounting experience. He is the owner of Cranmere Accounting and Tax Services LLC. He can be contacted on (480) 363-4808 or by email at info@cranmereaccountingandtax.com if you need assistance with any of the above.

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