Are You Making These Mistakes While Filing IRS Form 8938?

Filing IRS Form 8938 correctly is critical for taxpayers with foreign financial assets. While many U.S. taxpayers are aware of reporting obligations, mistakes are common, leading to penalties and additional scrutiny from the Internal Revenue Service (IRS). Understanding the nuances of form 8938 who must file, form 8938 filing requirements, and common errors can help taxpayers stay compliant and avoid unnecessary complications.

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This blog highlights the most frequent mistakes, the requirements for filing, and why consulting an attorney can sometimes be the safest route.

Understanding Form 8938: Who Must File?

The IRS requires certain taxpayers to report specified foreign financial assets using IRS Form 8938. A common mistake is not knowing form 8938 who must file, leading to missed filing obligations. In general, U.S. citizens, resident aliens, and certain non-residents with foreign financial assets exceeding the reporting thresholds must file the form.

These thresholds vary based on filing status and whether the taxpayer lives in the United States or abroad.

Not understanding form 8938 who must file is one of the top mistakes taxpayers make, and failure to file when required can result in substantial penalties.

Common Mistakes in IRS Form 8938 Filing Requirements

Even taxpayers who know they must file often make errors related to form 8938 filing requirements. Some of the most common mistakes include:

1. Incomplete Reporting of Assets – Taxpayers sometimes fail to report all required foreign financial assets. This includes foreign bank accounts, investment accounts, stocks, bonds, and ownership in foreign entities. Each of these should be carefully reported to avoid penalties.

   
   

2. Incorrect Valuation of Assets – Another frequent mistake involves incorrectly valuing foreign assets. The IRS requires taxpayers to report the maximum value of each foreign asset during the tax year. Using incorrect exchange rates or miscalculating values can lead to underreporting.

   
   

3. Filing Late or Not Filing – Some taxpayers assume that filing their regular tax return automatically fulfills the obligation. However, form 8938 filing requirements specify separate deadlines. Missing the deadline can result in fines starting at $10,000, with additional penalties for continued noncompliance.

   
   

4. Overlooking Certain Accounts – Certain types of foreign assets, such as retirement accounts, pensions, or foreign life insurance policies, are sometimes overlooked. Reviewing all accounts and consulting guidelines is essential to comply fully with IRS Form 8938.

   
   

Being meticulous about form 8938 filing requirements ensures accurate reporting and reduces the risk of costly mistakes.

Reporting Thresholds and Valuation Mistakes

One of the most misunderstood aspects of IRS Form 8938 is the reporting thresholds. Taxpayers often underestimate the value of foreign assets, especially when holding multiple accounts in different currencies.

• Exchange Rate Errors: Assets must be reported in U.S. dollars. Using the wrong exchange rate, or failing to use the IRS-specified rate, can result in underreporting.

• Threshold Misinterpretation: Some taxpayers misinterpret thresholds for married filing separately versus jointly, or for residents living abroad. Misunderstanding these distinctions can trigger unnecessary penalties.

  
  

Accurate calculation and understanding of thresholds are essential to avoid common reporting mistakes.

Consequences of Mistakes and the Role of an Attorney

Failing to comply with IRS Form 8938 obligations can carry significant consequences. Penalties include fines starting at $10,000, with additional charges for continued noncompliance. The IRS may also assess interest and pursue audits if discrepancies are discovered.

Given the complexity, hiring an attorney experienced in international tax law can be beneficial. A tax attorney can help identify which assets must be reported, ensure the correct valuation, and assist in preparing the form correctly.

Consulting an attorney is especially useful for taxpayers with extensive or complicated foreign holdings, or for those who have previously missed filings.

An attorney can also guide taxpayers in cases where voluntary disclosure or amended filings are necessary, reducing potential penalties and mitigating risks.

Tips to Avoid Common IRS Form 8938 Mistakes

To comply with IRS Form 8938, taxpayers should consider the following steps:

1. Keep Detailed Records – Maintain accurate records of all foreign assets, including bank statements, account numbers, ownership percentages, and valuations.

2. Understand Filing Obligations – Review IRS guidelines carefully to understand form 8938 who must file and which assets are reportable.

3. Use Correct Valuation Methods – Always convert foreign assets to U.S. dollars using IRS-approved exchange rates, and report the maximum value for the year.

4. Review Deadlines – Filing should coincide with the regular income tax return deadlines, but check for any additional requirements for late or amended filings.

5. Seek Professional Guidance – If unsure about compliance, consider hiring a tax attorney or qualified tax professional experienced with international asset reporting.

   
   

Being proactive and thorough reduces the likelihood of errors, penalties, and audits.

Final Thoughts

Filing IRS Form 8938 accurately is crucial for taxpayers with foreign financial assets. Common mistakes, such as misunderstanding form 8938 who must file, failing to meet form 8938 filing requirements, or misreporting asset values, can lead to severe penalties. Understanding reporting thresholds, keeping detailed records, and reviewing the IRS instructions carefully are key steps toward compliance.

For complex cases or uncertainties, consulting a tax attorney can provide invaluable guidance, helping taxpayers navigate international reporting requirements and protect their financial interests. By avoiding common errors and staying informed, taxpayers can fulfill their obligations confidently and avoid unnecessary complications with the IRS.