With the annual April 15 tax deadline rapidly approaching, millions of Americans are working diligently to complete their federal and California state income tax returns. However, filing a tax return may not be your only reporting obligation this season, particularly if you hold offshore bank accounts or foreign assets. Thousands of taxpayers are required to file IRS Form 8938, known as the Statement of Specified Foreign Financial Assets, alongside their standard federal income tax return. Additionally, certain taxpayers must submit FinCEN Form 114, better known as the Foreign Bank Account Report (FBAR), which is filed separately with the Financial Crimes Enforcement Network (FinCEN)—an independent bureau within the U.S. Department of the Treasury. Failing to meet either of these critical federal filing obligations can lead to severe civil and criminal tax penalties, including substantial fines, intrusive high-risk tax audits, or, exponentially worse, criminal tax investigations.
Adding urgency to this requirement are the strict provisions outlined in the Foreign Account Tax Compliance Act (FATCA), which compels taxpayers to report qualifying foreign financial assets on Form 8938 and imposes significant penalties on foreign financial institutions that fail to disclose the identities of their U.S. account holders. As a result, banks worldwide have potent incentives to cooperate fully with the IRS, significantly increasing the likelihood of detection and enforcement actions against unprepared taxpayers.
Beware of FATCA scammers and fraudulent tax preparers when seeking tax guidance this April. Make sure you work with reputable and experienced dual-licensed IRS Form 8938 attorneys & CPAs. At the Tax Law Offices of David W. Klasing, our international tax lawyers can prepare your tax forms, represent you in FBAR audits or criminal tax matters, and, if you have undisclosed foreign accounts, help you explore strategic paths back toward successful tax compliance. If you are worried about IRS Form 8939, contact the Tax Law Office of David W. Klasing online here, or call us at (888) 564-1409 for a reduced-rate initial consultation.
What is Form 8938, and Who Must File it?
IRS Form 8938 applies to U.S. taxpayers—including citizens, resident aliens, and certain domestic entities—that have an interest in specified foreign financial assets exceeding IRS-established reporting thresholds. These thresholds differ depending on filing status and residency:
U.S. Residents:
- Single or Married Filing Separately: File if your specified foreign financial assets exceed $50,000 on the last day of the tax year or exceed $75,000 at any time during the tax year.
- Married Filing Jointly: File if your assets exceed $100,000 on the last day of the tax year or surpass $150,000 at any point during the tax year.
Non-U.S. Residents:
- Single or Married Filing Separately: File if your foreign assets exceed $200,000 on the last day of the tax year or $300,000 at any point during the year.
- Married Filing Jointly: File if your assets exceed $400,000 on the last day of the tax year or $600,000 at any time during the tax year.
Form 8938 must accompany your annual U.S. tax return (Form 1040) when required. It is critical to note that Form 8938 does not replace the separate FBAR (FinCEN Form 114), which has its own filing requirements and lower reporting thresholds.
What Are Foreign Financial Assets?
Specified foreign financial assets generally include financial accounts and investments that are maintained or issued outside the United States. Examples include:
- Foreign Financial Accounts:
- Checking and savings accounts at foreign banks
- Brokerage and securities accounts
- Commodity futures or options accounts
- Insurance policies or annuities with cash surrender values
- Shares of foreign mutual funds
- Other Foreign Investment Assets:
- Stocks, bonds, or other securities issued by foreign corporations or governments
- Ownership interests in foreign partnerships, corporations, or trusts
- Financial instruments or contracts held with foreign counterparties
Exceptions and Special Considerations
Not all foreign assets require reporting on Form 8938. Exceptions include:
- Assets Reported on Other Forms: If a foreign asset is already disclosed on forms such as Form 3520 (for foreign trusts) or Form 5471 (for foreign corporations), it may not need to be reported again on Form 8938.
- Individual Thresholds: Certain filing statuses, such as married couples filing jointly, have higher thresholds (e.g., $100,000 on the last day or $150,000 at any time during the year).
- Excluded Foreign Non-Financial Assets: Non-financial assets like personal residences, art, or collectibles typically are not subject to Form 8938 reporting.
- Minimal Reporting Requirements: Assets with minimal value or activity—such as a small foreign savings account—may fall below the reporting threshold.
Additionally, while foreign real estate held directly as a personal residence is generally excluded, real estate owned through foreign entities or held for rental income may trigger reporting requirements.
Should You Report Cryptocurrency on FATCA Form 8938?
When it comes to cryptocurrency, the situation is less clear-cut. While FATCA applies to all foreign assets, there is still no explicit IRS guidance on whether personal accounts on foreign crypto exchanges or crypto wallets count as reportable assets. Many tax professionals advise erring on the side of caution and reporting these assets on Form 8938 to avoid potential penalties later. Importantly, if a foreign crypto account also holds fiat currency, it is more likely to trigger FBAR obligations; however, Form 8938 is broader and may include crypto holdings as part of your overall foreign asset pool. Given the evolving landscape of crypto regulations and the volatility in cryptocurrency valuations, it is critical to consult an experienced dual-licensed international tax attorney and CPA before finalizing your reporting.
Do I Have to File Form 8938 with the IRS? What Happens if I Don’t?
Failure to file IRS Form 8938 (Statement of Specified Foreign Financial Assets) in a timely manner carries substantial civil and potential criminal tax penalties. Initially, taxpayers face an automatic civil penalty of $10,000 upon notification by the IRS. If the taxpayer continues to neglect filing within the required 90-day window after IRS notice, this penalty escalates, accruing additional charges of $10,000 for each subsequent 30-day period, up to a maximum penalty of $50,000.
Moreover, noncompliance significantly impacts the IRS statute of limitations. Ordinarily, the IRS is limited to a three-year audit period following the filing of a tax return. However, when Form 8938 is not filed correctly, or assets are inaccurately reported, the statute of limitations remains indefinitely open. Consequently, the IRS retains the right to audit, investigate, and assess additional tax liabilities for the relevant tax year without any time limitations, leaving taxpayers continuously exposed to potential enforcement actions.
The risks associated with Form 8938 noncompliance do not end there. If an audit reveals that omissions or inaccuracies on Form 8938 led to the underreporting of foreign assets or income, the accuracy-related penalty on the underreported tax can significantly increase from the standard 20% up to 40%, compounding overall financial liability.
Additionally, because many CPAs, accountants, and tax preparers lack comprehensive expertise in Form 8938’s intricate requirements—particularly those involving cryptocurrency or complex foreign assets—there is a heightened risk of inadvertent errors. Such errors, even unintentional, substantially increase the taxpayer’s exposure to severe civil and potentially criminal tax penalties.
Critically, if noncompliance with Form 8938 is determined to be willful, taxpayers face potential criminal tax exposure. The IRS Criminal Investigation Division (IRS-CID) can launch clandestine criminal tax investigations in such scenarios, elevating the stakes beyond civil penalties and potentially resulting in criminal prosecution. Importantly, penalties related to Form 8938 are distinct from those associated with the Foreign Bank Account Report (FBAR, FinCEN Form 114). Taxpayers who fail to file or inaccurately report on both forms risk compounded penalties, underscoring the necessity for precise compliance with each separate reporting requirement.
Do I still have to file an FBAR (FinCEN Form 114) if I have already filed Form 8938?
Despite the overlapping subject matter, FBAR (FinCEN Form 114) and Form 8938 serve different purposes and are filed under separate regulatory frameworks. FBAR requirements, stemming from the Bank Secrecy Act, mandate that U.S. persons report foreign bank and financial accounts if the aggregate value exceeds $10,000 at any point during the year. Unlike Form 8938—which is attached to your income tax return and focuses on a broader array of specified foreign financial assets—the FBAR is filed electronically with FinCEN and is independent of your income tax return. Filing one does not relieve you of the requirement to file the other. Noncompliance with FBAR rules can result in severe civil and criminal tax penalties, underscoring the importance of adhering to both sets of reporting obligations when applicable.
Contact The Tax Law Offices of David W. Klasing If You are Worried About Internal Revenue Service Form 8938
At the Tax Law Offices of David W. Klasing, we specialize in resolving high-risk civil and criminal domestic and international federal tax controversies, particularly those involving complex international reporting obligations like IRS Form 8938. We thoroughly assess your foreign financial holdings, including global bank accounts, securities, cryptocurrencies, and interests in foreign trusts or entities, to determine your exact reporting requirements. Leveraging advanced tax software and proven methodologies, we carefully gather, verify, and accurately report all required information to ensure consistency across related disclosures, including FBAR, Form 3520, and Form 5471 filings.
Many clients first realize their Form 8938 obligations when their foreign financial institutions proactively reach out under FATCA reporting requirements. Because FATCA enables automatic exchange of your account information directly with the IRS, discrepancies or omissions in your filings can quickly trigger costly audits, substantial civil tax penalties, or even criminal tax investigations.
