Understand the Difference Between Form 8938 and FBAR
Individuals must check the requirements and relevant reporting thresholds of each form and determine if they should file Form 8938 or FinCEN Form 114, or both. Form 8938 and Instructions can be found at About Form 8938. FinCEN Form 114 and Instructions can be found through FinCEN’s BSA E-Filing System.
IRS Comparison Table for Form 8938 and FBAR
The IRS has a table comparing Form 8938 and FBAR requirements available here.
Form 8938 – Statement of Specified Foreign Financial Assets
Any U.S. individual (citizen, green card holder, resident) that holds more than the specified threshold in reportable foreign assets is required to report information about the accounts and/or assets on the individual’s annual U.S. tax return using Form 8938. Penalties may apply for failing to comply when required. See the end of this discussion for further information on penalties.
What Are Reportable Foreign Assets?
Reportable foreign assets include foreign financial accounts (bank, brokerage, etc.), interests such as stock in any foreign entity not held through a foreign financial account, or any financial instrument or contract held for investment and issued by a foreign person. Reportable financial assets include interests in foreign employer pension plans, foreign estates, foreign trusts, and foreign deferred compensation plans.
Who Needs to File Form 8938?
If you satisfy the reporting threshold below that applies to you and no exception applies, you will need to file Form 8938 with your income tax return.
Filing Thresholds for Form 8938
Unmarried Taxpayer Living in the United States
If you are not married and not living abroad, you satisfy the reporting threshold only if 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 United States
If you are married and you and your spouse file a joint income tax return and do not live abroad, you satisfy the reporting threshold only if 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 United States
If you are married, file a separate income tax return from your spouse, and do not live abroad, you satisfy the reporting threshold only if 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. Jointly held accounts are 100% included in each spouse’s assets for determining if the reporting threshold has been satisfied.
Taxpayers Living Abroad
If your tax home is in a foreign country and you meet one of the presence abroad tests described in the instructions, you satisfy the reporting threshold if you are not filing a joint return and the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year. If you are married and file a joint income tax return, you satisfy the reporting threshold only if the total value of all specified foreign financial assets you or your spouse owns is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.
How to Report Foreign Assets on Form 8938
If you meet the filing threshold and you are required to file Form 8938, the maximum value in USDs during the year must be reported for each account and asset. Accounts and assets denominated in a foreign currency must be converted into USDs using Treasury’s December 31 exchange rates. These are the same exchange rates used for FBAR (FinCEN 114) reporting. These rates apply even if the asset was sold or an account was closed during the year. 💡View the Treasury reporting rates for 2023 here
Penalties for Failing to File Form 8938
You may be subject to penalties if you fail to timely file a correct Form 8938 or if you have an understatement of tax relating to an undisclosed specified foreign financial asset.
Penalties for Non-Compliance:
- If you are required to file Form 8938, but do not file a complete and correct Form 8938 by the due date (including extensions), you may be subject to a penalty of $10,000.
- If you underpay your tax as a result of a transaction involving an undisclosed specified foreign financial asset, you may have to pay a penalty equal to 40% of that underpayment.
- If you underpay your tax due to fraud, you must pay a penalty of 75% of the underpayment due to fraud.
In addition to the penalties already discussed, if you fail to file Form 8938, fail to report an asset, or have an underpayment of tax, you may be subject to criminal penalties.