This form may apply to certain taxpayers who hold foreign financial assets above specific thresholds. It is separate from the foreign bank account reporting requirement known as FBAR, and some taxpayers may need to file both.

From AIM Financial | Tax Preparation Services in Grand Rapids, Kentwood, Wyoming, and West Michigan

What Is IRS Form 8938?

If you are a U.S. taxpayer who owns foreign bank accounts, investments, or other financial assets overseas, you may have an additional federal tax reporting requirement. IRS Form 8938, Statement of Specified Foreign Financial Assets, is used by certain taxpayers to report qualifying foreign financial assets when their total value exceeds applicable reporting thresholds.

This requirement is part of the Foreign Account Tax Compliance Act (FATCA). It can affect U.S. citizens, resident aliens, and certain domestic entities that own or hold interests in foreign financial assets.

A common misconception is that foreign assets only need to be reported if they generate taxable income. In fact, a taxpayer who is required to file Form 8938 may need to report qualifying assets even if they did not produce interest, dividends, or other income during the year.

AIM Financial helps taxpayers understand federal tax forms and identify reporting requirements that may apply to their individual circumstances.

Who Must File Form 8938?

Whether you must file Form 8938 depends on your taxpayer status, where you live, your filing status, and the total value of your specified foreign financial assets.

For individuals living in the United States, the general thresholds are:

• Single taxpayers and married taxpayers filing separately: More than $50,000 in specified foreign financial assets on the last day of the tax year, or more than $75,000 at any time during the year.
• Married couples filing jointly: More than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

Higher thresholds generally apply to qualifying taxpayers living abroad. For example, an individual filing other than jointly generally has thresholds of more than $200,000 at year-end or more than $300,000 at any time during the year. Qualifying married couples filing jointly generally have thresholds of more than $400,000 at year-end or more than $600,000 at any time during the year.

These are general thresholds, and special rules may apply. You generally do not have to file Form 8938 if you are not otherwise required to file an annual income tax return.

What Foreign Financial Assets Must Be Reported?

Form 8938 can cover more than a traditional foreign savings account. Depending on the circumstances, reportable assets may include:

• Financial accounts maintained by foreign financial institutions.
• Foreign stocks or securities held outside a financial account.
• Certain interests in foreign corporations, partnerships, or other entities.
• Certain financial instruments or contracts involving a foreign issuer or counterparty.
• Other assets that meet the IRS definition of specified foreign financial assets.

For example, a Michigan resident who maintains a bank account in another country and also owns foreign company shares may need to consider both assets when determining whether the filing threshold is met.

Not every asset located outside the United States is automatically reportable. Directly owned foreign real estate, for example, generally is not itself a specified foreign financial asset for Form 8938 purposes, although an interest in a foreign entity that owns real estate may raise separate reporting questions.

The specific ownership arrangement matters, so taxpayers should not rely solely on the location of an asset to determine whether it must be reported.

How Do You Complete IRS Form 8938?

Completing Form 8938 starts with identifying the assets you own or have an interest in, determining their value, and applying the rules for the correct tax year.

Step 1: Identify your foreign financial assets

Gather statements and records for foreign bank accounts, investment accounts, foreign securities, and other potentially reportable assets. Consider ownership interests held directly and any relevant interests held through entities.

Step 2: Determine the maximum and year-end values

The filing test can depend on both the value of your assets on the last day of the tax year and their value at any point during the year. Review account statements and other records to establish the appropriate values.

Assets denominated in foreign currency generally need to be converted into U.S. dollars using the applicable IRS valuation and exchange-rate rules.

Step 3: Apply the correct reporting threshold

Determine your filing status and whether you meet the IRS definition of living abroad, if relevant. Compare your aggregate reportable asset values with the appropriate thresholds.

Do not assume that one account below the threshold means Form 8938 is unnecessary. The rules generally look at the combined value of the specified assets in which you have an interest.

Step 4: Complete the applicable sections

The form requests identifying information and details about reportable assets, including information about financial accounts and other specified assets. Additional parts or continuation pages may be needed when reporting multiple assets.

Use the official instructions for the tax year being filed. Requirements can vary depending on the asset type and ownership arrangement.

Step 5: Attach Form 8938 to your tax return

Form 8938 is generally attached to the applicable annual federal return and filed by that return’s due date, including extensions when properly applicable. It is not normally submitted as a standalone form.

Keep the supporting statements, valuation records, and other documentation with your tax records.

Form 8938 vs. FBAR: What Is the Difference?

One of the most important foreign asset reporting issues is the difference between Form 8938 and the Foreign Bank Account Report (FBAR), FinCEN Form 114.

These are separate reporting requirements administered through different processes.

Form 8938 is filed with an applicable federal tax return and can cover certain foreign financial assets beyond bank accounts. The FBAR is filed electronically with the Financial Crimes Enforcement Network (FinCEN) and generally applies when the aggregate value of foreign financial accounts in which a U.S. person has a financial interest or signature or other authority exceeds $10,000 at any time during the calendar year, subject to applicable rules and exceptions.

Some taxpayers must file both forms. Filing Form 8938 does not replace an FBAR filing obligation, and filing an FBAR does not automatically satisfy Form 8938 requirements.

What Happens If You Fail to File Form 8938?

Failure to comply with Form 8938 reporting requirements can result in significant penalties. The IRS may impose an initial penalty of up to $10,000 for failure to disclose required information, with additional penalties potentially applying when the failure continues after IRS notification. Other tax consequences may apply depending on the facts.

If you discover that you omitted foreign financial assets from a previous return, consider getting professional guidance promptly. The appropriate correction depends on the circumstances, the tax years involved, and whether other foreign reporting requirements were missed.

How AIM Financial Can Help With Foreign Asset Reporting

Foreign financial reporting can be complicated, particularly for taxpayers who have overseas investments, foreign bank accounts, inherited financial assets, or international family and business connections.

AIM Financial assists taxpayers in Grand Rapids, Kentwood, Wyoming, and throughout West Michigan with tax preparation and understanding federal reporting requirements. We can help review the information needed for your tax return and identify when a foreign asset reporting issue may require additional attention.

If you are unsure whether you need to file Form 8938, or whether you may also have an FBAR obligation, contact AIM Financial before submitting your return. Reviewing the details in advance can help you avoid common reporting mistakes.

Final Thoughts

IRS Form 8938 is an important part of foreign financial asset reporting for eligible taxpayers. The filing thresholds, asset definitions, and separate FBAR rules make it essential to review your full financial picture rather than looking at one account in isolation.

For help with IRS forms, foreign financial asset reporting, and tax preparation in the Grand Rapids area, contact AIM Financial to discuss your situation.

This article provides general educational information and is not individualized tax or legal advice. Reporting requirements depend on the facts, applicable law, and tax year. Consult the official IRS instructions for your filing year.