Everything You Need to Know About IRS Tax Form 8938 Before Filing Taxes

When it comes to reporting foreign financial assets, U.S. taxpayers often find themselves navigating complex tax regulations. One important reporting requirement is IRS tax form 8938, which helps the Internal Revenue Service (IRS) keep track of specified foreign assets. Understanding how this form works, who needs to file it, and the potential penalties for not filing can save individuals from costly mistakes.

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This blog explores the essentials of IRS tax form 8938, along with form 8938 filing requirements, so taxpayers are better prepared before filing taxes.

What Is IRS Tax Form 8938?

IRS tax form 8938—officially called the Statement of Specified Foreign Financial Assets—is a reporting form introduced as part of the Foreign Account Tax Compliance Act (FATCA). It requires certain taxpayers to disclose their foreign financial accounts and assets to the IRS if they exceed specific thresholds.

The purpose of this form is not to calculate tax but to ensure transparency of offshore assets. Many taxpayers confuse IRS tax form 8938 with the FBAR (Foreign Bank Account Report), but they are distinct forms with different requirements. While the FBAR is filed with the Financial Crimes Enforcement Network (FinCEN), Form 8938 is directly filed with the IRS along with the taxpayer’s annual return.

Who Must Meet the Form 8938 Filing Requirements?

The Form 8938 filing requirements depend on whether a person lives in the U.S. or abroad and whether they are filing taxes individually or jointly.

• Single filers in the U.S. must file if the total value of their 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 year.

• Married taxpayers filing jointly in the U.S. must file if the combined value of foreign assets exceeds $100,000 on the last day of the tax year or $150,000 at any time during the year.

• Taxpayers living abroad have higher thresholds. Single filers abroad must report if their assets exceed $200,000 on the last day of the year or $300,000 at any time. For married couples filing jointly abroad, the threshold increases to $400,000 and $600,000, respectively.

  
  

It is crucial to note that IRS tax form 8938 applies only to “specified foreign financial assets.” These include foreign bank accounts, stocks, bonds, partnership interests, and even certain foreign retirement accounts.

Common Mistakes When Filing IRS Tax Form 8938

Many taxpayers fail to properly complete the form, either because they are unaware of the rules or because they confuse it with other reporting requirements. Here are some of the most common mistakes:

1. Confusing IRS tax form 8938 with FBAR – Both forms require reporting foreign assets, but their thresholds, filing requirements, and agencies differ.

2. Not recognising certain assets – Some taxpayers mistakenly believe only bank accounts qualify. In reality, investments, foreign partnership interests, and even certain insurance policies can trigger the Form 8938 filing requirements.

3. Incorrect valuation – Taxpayers must report the maximum value of the foreign asset during the year, not just the year-end balance.

4. Omitting required details – The form requires details about the financial institution, account number, and maximum value. Missing information can lead to delays or penalties.

   
   

By carefully reviewing the instructions and understanding filing thresholds, taxpayers can avoid unnecessary issues.

Penalties for Failing to Meet Form 8938 Filing Requirements

The IRS imposes strict penalties for failing to comply with Form 8938 filing requirements.

• Failure-to-file penalty – Taxpayers who fail to file IRS tax form 8938 may face a penalty of $10,000.

• Additional penalties – If the IRS notifies a taxpayer of the failure and they still don’t file within 90 days, an additional $10,000 penalty may apply for every 30 days, up to a maximum of $50,000.

• Accuracy-related penalties – If a taxpayer underpays their tax due to undisclosed foreign assets, they may also face a penalty equal to 40% of the underpayment.

• Criminal penalties – In cases of willful noncompliance, criminal charges may also be pursued.

  
  

Clearly, the consequences of ignoring IRS tax form 8938 are severe. Taxpayers who are unsure whether they are required to file should consult a tax professional to ensure compliance.

How to Correct Mistakes with IRS Tax Form 8938

If a taxpayer realises they failed to include all required information, it’s better to act quickly. Filing an amended return with the corrected IRS tax form 8938 may reduce penalties or prevent further IRS scrutiny.

Additionally, if the taxpayer’s oversight was non-willful, voluntary disclosure options may be available. The IRS typically takes a stricter stance against willful violations compared to honest mistakes. This makes timely action critical.

Why Understanding IRS Tax Form 8938 Is Essential

IRS reporting of foreign assets continues to be a priority, and compliance is essential for anyone with overseas accounts or investments. By knowing the Form 8938 filing requirements, taxpayers can avoid unnecessary penalties and ensure their returns are accurate.

While IRS tax form 8938 does not itself impose taxes, failing to disclose assets can trigger significant financial consequences. The form essentially serves as a transparency measure, giving the IRS visibility into foreign assets that could affect tax liability.

Final Thoughts

Before filing taxes, taxpayers should carefully determine whether they meet the thresholds for reporting specified foreign financial assets. The IRS tax form 8938 is not just another piece of paperwork—it is a critical compliance tool with significant legal consequences.

Understanding the form 8938 filing requirements helps ensure accurate and timely reporting. Taxpayers with complex foreign investments should seek professional guidance to reduce the risk of costly errors. In the end, proper compliance with IRS tax form 8938 safeguards both financial security and peace of mind.