Basic Questions And Answers On Form 8938
On March 4, 2009 the IRS Commissioner Douglas Shulman testified before the Subcommittee that there is no credible estimate of lost tax revenue from offshore tax abuse. In his book The Hidden Wealth of Nations, economist Gabriel Zucman estimates that U.S. persons hold US$1.2 trillion in financial wealth offshore. According to Zucman's analysis, this sheltering of assets results in US$36 billion in lost tax revenue annually in the United States.
You’ll need to report the maximum value of financial accounts maintained by a financial institution that is located overseas. The amount of foreign assets for a tax year must be $50,000 on the last day of the tax year or reach $75,000 at any time during the tax year. Married filing jointly and individuals living abroad have a higher filing threshold. Having assets in a foreign bank account may sound very mysterious and exotic.
Refer to the Form 8938 instructions for more information on the definition of a specified foreign financial assets and when you have an interest in such an asset. Other foreign financial assets, which include any of the following assets that are held for investment and not held in an account maintained by a financial institution. You could be a Colombian drug lord with pallets of cash too large to count. Ownership of what could be billion of dollars in cash stored offshore is not reportable on a FATCA From 8938 or an FBAR .
FATCA may cause foreign bankers to deal differently with American clients if it goes through congress unchanged. It is in the best interest of international financial institutions that the initiative will be adjusted in such a way that foreign bankers can continue to work with American clients. Currently, the steep withholding taxes will force many international fund mangers to deny Americans or avoid all American assets, which puts both at a disadvantage.
Very literally, the person is voluntarily disclosing a failure to either file a timely Form 8938 by the deadline, or voluntarily disclosing that an earlier, timely-filed Form 8938 contained substantial errors or omissions. This statement is a legal argument with large IRS penalties at stake. For this reason, the person filing an amended Form 8938 should strongly consider consulting with and/or hiring a Form 8938 tax lawyer. This attorney will first consider the critical question of whether to file an amendment at all.
You may determine the fair market value of a specified foreign financial asset based on information publicly available from reliable financial information sources or from other verifiable sources. If no information from reliable financial information sources regarding the fair market value of a reported asset is available, a reasonable estimate of the fair market value will be sufficient for reporting purposes. Refer to the Form 8938 instructions for information on how to determine the total value of your specified foreign financial assets.
Even if you fill out Form 8938, you do still need to fill out an FBAR if your foreign accounts add up to $10,000 or more. If you don't file a complete and correct Form 8938, it is an automatic $10,000 penalty that can grow to a $50,000 penalty if not dealt with immediately.
Basically, what this means is, traditionally the IRS has always had three years to audit a tax return. Therefore, if you made it past three years the IRS could not go back and audit it, unless in very exceptional circumstances. Recently, there have been a number of administrative requirements for disclosing local and foreign financial assets. Many foreign financial institutions must report their U.S. citizen and resident clients’ accounts worth more than $50,000.
Please see a qualified tax professional to help you determine if you need to file form 8938. Remember, failure to file a correct and complete Form 8938 may result in $10,000 or more in penalties. The FBAR will still be filed directly with the Treasury Department. The 8938 will be attached to your U.S. tax return and filed with the IRS.
However, it can lead to lots of confusion practically when it comes to reporting overseas assets to the IRS. To complete Form 8938 completely and accurately, you will need to have monthly account statements for any qualifying foreign financial accounts and a fair market value assessment of any valuable foreign investments. You will also need to provide information on the type and location of each foreign asset and include information of any individual or company who has shared interest. Form 8938 is a relatively new form that is required to be filed in accordance with your tax return .
There are no restrictions in FATCA regulations as to what is not allowed to be used against U.S. persons. ('foreign') financial institutions are required to report asset and identify information related to suspected U.S. persons using their financial institutions. and a Master of Laws (LL.M.) in Taxation from Loyola Law School, Los Angeles, and was licensed that same year to practice law in California. Andrew limits his practice to international tax controversy, compliance, and planning, focusing in particular on IRS voluntary disclosure programs for resolving unreported and/or un-taxed foreign accounts. A Form 8938 voluntary disclosure is a filing of an amended or delinquent/late Form 8938 to the IRS.
It is one of the few international tax forms included as part of TurboTax and Tax Act software. We assist taxpayers who have undisclosed foreign financial assets.Schedule an appointmentto see how we can help. We hope that the above information provides a general understanding of the FATCA requirements and Form 8938. We understand that everyone’s situation is unique, and only a qualified tax professional can ensure that all requirements are met and the form is filled out correctly and filed on time. We have the experience and up-to-date knowledge of this area of the tax code to make sure your FATCA tax reporting is complete, accurate and filed in a timely manner.
Canada's former Finance Minister Jim Flaherty raised an issue with the "far reaching and extraterritorial implications" which would require Canadian banks to become extensions of the IRS and jeopardise Canadians' privacy rights. There are also reports of many foreign banks refusing to open accounts for Americans, making it harder for Americans to live and work abroad. FATCA is used to locate U.S. citizens (residing in the U.S. or not) and "U.S. persons for tax purposes" and to collect and store information including total asset value and Social Security number.
On the other hand, you always file Form 8938 with your income tax return. It used to be pretty easy for Americans to get around paying their fair share of taxes by hiding money in foreign banks. To prevent this, U.S. lawmakers passed the Foreign Account Tax Compliance Act which required foreign banks to share financial information with the U.S. Aggregate foreign financial account balance of $400K on the last day of the year or aggregate total of $600K or more at any time during the calendar year.
If you own foreign real estate directly and it does not generate any income, then there is no reporting for FATCA. Likewise, if you own foreign real estate directly – even if it is used to generate income – it does not need to be filed on form 8938. In 2011, and in accordance with FATCA, individuals were required to being reporting the surrender value of Foreign Life Insurance Policies on FATCA form 8938.
Russia, while not ruling out an agreement, requires full reciprocity and abandonment of US extraterritoriality before signing an IGA. Russian President Vladimir Putin signed a law on June 30, 2014 that allowed Russian banks to transfer FATCA data directly to US tax authorities—after first reporting the information to the Russian government. Russian banks are required to obtain client consent first but can deny service if that consent is not given. Bangladeshi banks, which have accounts of US taxpayers, may report to the IRS, However they need prior approval of their clients. Forcing 'foreign' financial institutions and governments to collect data on US persons at their own expense and transmit it to the IRS has been called divisive and imperialist.
And, if a person receives an extension to file their tax return, the time to complete Form 8938 is also on extension. When you leave the U.S. behind to live and work abroad you gain a whole new set of tax documents to add to your yearly filing requirements. If you apply for an extension to file your tax return, then you also receive an extension to submit form 8938.
If this is the best path, the attorney will also gather facts, apply the law to these facts, and ultimately write the necessary reasonable cause statement to avoid Form 8938 penalties. Under Internal Revenue Code Section 7203, the intentional failure to file a required Form 8938 can, if successfully prosecuted, result in a prison sentence of up to one year and a penalty of up to $25,000. Under IRC 7206, any person who filed a Form 5471 filing that was fraudulent or false may, if successfully prosecuted, be sentenced up to three years in prison and face a penalty up to $100,000. A Form 8938 filing may be audited by the IRS at any time within the statute of limitations.
Form 8938 is part of the Tax Return, and unlike the FBAR has different reporting thresholds depending on whether a person is a U.S. Resident or Foreign Resident, and whether the person is filing Single/Married Filing Separate, or Married Filing Jointly. One of the most confusing parts of filing taxes as an expat is knowing which forms you have to fill out and what income you need to report. Form 8938 is one of the more difficult forms you’ll encounter, so below we’ll guide you through what it is, who needs to file, how to file, and what may happen if you don’t.
Form 8938 is designed to be used by the IRS to curb international tax evasion. The form also requests information about various foreign assets, including foreign accounts that hold assets, while the FBAR requests information only about foreign accounts. Another key difference is that the FBAR is reported on Form 114 directly to the U.S. Treasury and is generally triggered by a much lower threshold (an aggregate balance of $10,000 in all foreign accounts).
Alternatively, in a non-IGA country, such as Russia, only the Russian bank will store the U.S.-person data and will send it directly to the IRS. However, the Form 8938 does expand the scope of foreign assets reported to the US. For example, an individual who holds stock in a ‘family corporation’ would be obligated to report that stock on a Form 8938, if the total value of his foreign financial assets exceeded the relevant threshold. This webinar will provide tax advisers with a practical guide to the Foreign Account Tax Compliance Act reporting for taxpayers holding foreign assets.
Another point to note is that, although, virtually all of FATCA enforcement has the intention to find all noncompliant US citizens and green card holders, nonresidents alien accounts might be subject to the FBAR form 114 and FATCA filing too. For example, a nonresident alien who files a joint return with an American spouse, must file FBAR form 114 and FATCA 8938 if the filing threshold of account balance has been met.
FBAR Form 114 must be filed with the Department of Treasury if the aggregate value of foreign financial accounts is $10,000 or more during the year. The financial account includes a bank account, investment account, mutual funds, trust accounts and other financial accounts. Unfortunately, the IRS website instructions for 8938 does not call this issue out clearly. However the common-sense literal meaning of the specified reporting threshold "total value of all assets more than $150K at any time during the year" will seem to validate your opinion . For instance, If I am married filing jointly and living the full year in the Philippines and I have $400,000 parked in some CD or something else and earning a 5% annual return.
In the law, financial institutions would report the information they gather to the U.S. As implemented by the intergovernmental agreements with many countries, each financial institution will send the U.S.-person's data to the local government first. For example, according to Ukraine's IGA, the U.S.-person data will be sent to U.S. via the Ukrainian government.
Form 8938 is used by certain U.S. taxpayers and businesses to report foreign-held assets in excess of certain amounts, depending on filing status. Beyond these qualifications, taxpayers must meet certain thresholds to be required to file Form 8938. The IRS has set different thresholds for different types of taxpayers. As you may have heard or seen in the media, the United States government has ramped up its efforts to combat tax evasion through a law known as FATCA.
The law has significantly influenced the information reporting relationships between the U.S. and foreign governments. The law also has practical tax compliance implications for U.S. expats, including the requirement to file FATCA Form 8938.
That is because form 8938 accompanies your tax return and is not filed independently. The threshold requirements as to whether you would have to file the form 8938 or not will vary based on whether you are considered a U.S. residents or not, and what your marital status is. Of course, in the U.S. it's 1/1 to 12/31, but that's not the case everywhere U.S. as well as foreign stock, interest in a foreign entity and any foreign financial instrument) the thresholds are lower.
In the meantime, beware that FATCA is the law and will be implemented over the next 1-2 years. Our law firm expects unabated aggressive enforcement of the US tax laws, including increased criminal prosecutions and civil audit examinations. We have been advising our clients to expect the unexpected in their tax treatment and disclosure of offshore assets. You can file FBAR electronically using the BSA E-Filing System. It’s important to know that you never file an FBAR with a tax return.
The filing threshold would be $24,000 if I and my spouse are both under 65. If my only income for the year is the $20,000 paid in interest on the 400k I would not have to file a tax return and that negates the requirement to file Form 8938.
There are generally two forms needed to report your offshore accounts. Most commonly, Form 8938 is required to be filed by any individual who has foreign/offshore accounts or other Specified Foreign Assets worth at least $50,000 on the last date of the year. Many jurisdictions are required to have their IGAs in effect and start exchange of information by 30 September 2015. FATCA has implemented reporting requirements that significantly overlap with FBAR reporting requirements already in place. National taxpayer advocate has recommended multiple times to eliminate this duplication.
You will be required to pay the regular tax that would have been due on these assets plus interest and incur an additional penalty of 40% of the tax due. Don't forget there may be criminal penalties for non-compliance. Directly held tangible assets, such as art, antiques, jewelry, cars and other collectibles, are not specified foreign financial assets. Therefore, for most (U.S. Resident) taxpayers, the form will be included as part of the 1040 submission in either April or October.
While extremely unlikely, a timely-filed Form 8938 could be found so incomplete or inaccurate that it could be treated as a failure to file and subject the US person to Form 8938 penalties. Critically, if the required Form 8938 was never filed, the statute of limitations will never expire, until three years after that Form 8938 is filed late or delinquent. Additionally, for all tax return years beginning from 2011 forward, the failure to file the Form 8938 has the effect of freezing the statute of limitations on the entire tax return. To determine whether a US person has a beneficial interest in a foreign financial asset, we would look to whether the person literally benefits from the asset. For FBAR purposes, such entanglements would almost certainly be reportable because joint title or signatory authority on a foreign financial account is reportable.
FATCA, on the other hand, is triggered for an individual only if you meet the criteria listed above and, if so, then the foreign account balances are reported on Form 8938 as part of your tax return. You have to report worldwide income no matter how little it is, with the exception being if your entire income falls below the filing threshold. But if you do have to file, then any amount of income must be reported. You'll have to check the box in part III of Schedule B on your 1040/1040A if you have a foreign bank account, regardless of how much money is in the account.
The panel will define reportable "specified foreign assets," discuss valuation issues, and offer thorough instruction on completing Form 8938, Statement of Specified Foreign Assets. The webinar will outline how the 2017 tax reform law and subsequent IRS guidance changed the thresholds for reporting requirements. It can go up to $50,000 if the failure continues after receiving formal notification from the IRS. However, one of the scariest penalties is the unlimited statute of limitations.
Aggregate foreign financial account balance of $200K on the last day of the year or aggregate total of $300K or more at any time during the calendar year. Aggregate foreign financial account balance of $100K on the last day of the year or aggregate total of $150K or more at any time during the calendar year. Aggregate foreign financial account balance of $50K on the last day of the year or aggregate total of $75K or more at any time during the calendar year. FATCA will build a database of US taxpayers with offshore accounts and holdings for the IRS. The IRS will then compare Forms 8938 filed by taxpayers with the database to make sure the details tally.
Taxpayers who are not required to file an income tax return are not required to file Form 8938. Foreign currency is not a specified foreign financial asset and is not reportable on Form 8938.
Interesting, the Form 8938 is very similar to the Foreign Bank Account Report . Unfortunately, the filing of one does not eliminate the obligation to file the other. Often, an individual with a mix of foreign bank accounts, foreign investment accounts and foreign retirement accounts will report the exact same set of accounts on both the FBAR and the Form 8938. It is primarily used to report foreign accounts, and not specifically hard assets.
If you’re an expat who hasn't been filing FATCA information, this could affect you. In addition, many times a person will have to file a form 5471 or 8865 in the year they acquired the asset or business ownership, but not have the file that form in subsequent years – and instead would file form 8938. Tax rules regarding Foreign real estate are more complex than they need to be. With that said, it is relatively simple when it comes to FATCA Reporting.
FATCA has minimum standards in its methodology of finding U.S. persons. For example, the accounts with minimum end balance of US$50,000 must be investigated with at least the U.S. indicia criteria specified. The FATCA rules do not require any FFI to not investigate or report or FATCA-process accounts as low as zero. The FFI's are not prohibited from using any indicia to identify U.S. persons.
If you have any questions about reporting overseas assets, contact us and one of our tax professionals can help you ensure a correct and compliant filing. For FBAR, you need to report if you have sufficient interest in a financial entity and/or have the authority to control the assets.
For example, the FBAR is used to report foreign stock accounts, but not directly owned shares of stock. It also includes foreign life insurance, pension and mutual or investment funds. Foreign Bank Account Reporting ("FBAR") was introduced by the Bank Secrecy Act of 1970 with the intention of discouraging and preventing tax evasion. While largely ignored for many years, FBAR has been in the forefront in recent years, with the US Government now placing a lot more emphasis on the importance of compliance. The threat of harsh penalties has prompted a massive increase in reporting lately, and many people taking advantage of the voluntary disclosure programs the IRS has in place once they realize they need to file FBAR.
If a person files for an extension of time to file their tax returns, the Form 8938 also automatically goes on extension. In other words, the filer does not need to file a separate extension for Form 8938. BUT, the bottom section, part 7 and 8 are also used to report whether a person has an ownership in or signatory authority over a foreign account. If so, the individual must complete that section of Schedule B. The Schedule B does not have any offshore penalties associated with it, but it may lead to FBAR and/or Form 8938 Penalties.
Many foreign banks are lobbying the US Congress to change FATCA or FATCA regulations. For FBAR, individuals need to report the maximum value of their foreign financial accounts.
In 2019, only Japan has signed a protocol to assist in collection of taxes to residents, including penalties for willful failure to file tax return. The reporting requirements and penalties apply to all US citizens, including accidental Americans, those who are unaware that they have US citizenship. Treasury loses as much as US$100 billion annually to "offshore tax non-compliance" without stating the source of the data.
A U.S. payor includes a U.S. branch of a foreign financial institution, a foreign branch of a U.S. financial institution and certain foreign subsidiaries of U.S. corporations. Therefore, financial accounts with such entities do not have to be reported. You are filing 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.
Four 5471 is a reporting form used for individuals who have a certain interest or ownership in a foreign corporation. In any year in which you are required to file a form 5471, you are not required to file a form 8938 as well. As enacted by Congress, FATCA was intended to form the basis for a relationship between the U.S. Some FFIs responded however, that it was not possible for them to follow their own countries' laws on privacy, confidentiality, discrimination, and so on and simultaneously comply with FATCA as enacted. ] with and among financial industry lobbyists resulted in the Intergovernmental Agreements (IGA's) between the Executive Branch of the United States government with foreign governments.