Let’s talk about the form that turns your foreign investments into a report card for the IRS. Form 8938 is not a tax form, it’s a disclosure form. It’s the IRS saying, “We want a detailed inventory of your significant foreign financial assets, and if you don’t give it to us, the fines are going to hurt.”
This comes from FATCA; the Foreign Account Tax Compliance Act. Think of it as the FBAR’s bigger, meaner cousin. The FBAR (FinCEN Form 114) reports foreign accounts to the Treasury’s Financial Crimes unit. Form 8938 reports a broader range of foreign assets directly to the IRS, with different (and higher) thresholds.
This isn’t just bank accounts. The net is cast wide.
You MUST report these if you meet the value thresholds:
- Foreign Financial Accounts: Bank accounts, brokerage accounts, mutual funds, securities accounts.
- Foreign-Held Assets NOT in an Account:
- Stocks or securities issued by a foreign corporation (e.g., shares of Nestlé or Samsung you hold as physical certificates or in a foreign safe deposit box).
- Financial instruments (like notes or bonds) issued by a foreign person.
- Interests in a Foreign Entity: Your ownership stake in a foreign partnership, a foreign corporation, or a foreign trust.
- Any financial contract with a foreign counterparty.
You do NOT report these:
- Direct ownership of real estate (but if you hold that real estate through a foreign entity, you report the entity interest).
- Personal property like art, cars, or jewelry, even if held abroad.
- Assets held in an IRA or other U.S.-based retirement account.
- Assets held by a foreign business that you actively manage (the business itself may have to file, but you don’t list its individual assets).
The Thresholds: Do You Even Need to File?
This is where people get tripped up. The thresholds are much higher than the FBAR’s $10,000, but they depend on where you live and your filing status. You compare the total fair market value of all your specified foreign financial assets.
If you live in the United States:
- Single or Married Filing Separately: File if your foreign assets were over $50,000 on the last day of the year, OR over $75,000 at any time during the year.
- Married Filing Jointly: File if your foreign assets were over $100,000 on the last day of the year, OR over $150,000 at any time during the year.
If you live abroad (Bona Fide Resident or meet Physical Presence Test):
- Single or Married Filing Separately: File if your foreign assets were over $200,000 on the last day of the year, OR over $300,000 at any time during the year.
- Married Filing Jointly: File if your foreign assets were over $400,000 on the last day of the year, OR over $600,000 at any time during the year.
You hit the threshold if the value exceeds the limit for even one day of the year. A temporary spike from a market rally can trigger the filing requirement.
The penalties are automatic and severe for non-willful violations:
- Failure to File: $10,000.
- Failure to File After IRS Notice: An additional $10,000 for each 30-day period you continue to fail to file, up to a maximum of $50,000.
- Criminal Penalties: For willful violations, you risk criminal prosecution, which can mean much larger fines and imprisonment.
The IRS can also impose a 40% penalty on any understatement of tax attributable to a non-disclosed asset.
Frequently Asked Questions (FAQ)
I file an FBAR. Do I still need Form 8938?
Probably, but check the thresholds. The FBAR requirement kicks in at $10,000. The Form 8938 thresholds start at $50,000 for U.S. residents. If your total foreign financial assets are significant, you likely need both. Never assume one covers the other.
How do I value an interest in a private foreign company?
This is the hardest part. You must make a good-faith, reasonable estimate of the fair market value. This might be based on the company’s net asset value, a recent share issuance price, or an appraisal. Document your method. For many, it’s the value of their capital account on the foreign company’s balance sheet.
My foreign mutual fund is worth $200,000. Is that one asset or many?
It’s one financial asset—the mutual fund interest itself. You report the total value of the fund holding, not the individual stocks inside it.
What if my assets are jointly owned with my non-U.S. spouse?
For Form 8938, if you file jointly, you report 100% of the jointly-owned asset’s value. If you file separately, you generally report 50% of the value. You must both sign the form if filing jointly. The rules differ from the FBAR, so pay close attention.
I have a foreign pension (like a UK ISA or Canadian RRSP). Does that go on Form 8938?
Yes. It is a specified foreign financial asset. Report its fair market value at year-end.
Can I get an extension to file Form 8938?
Yes, but it’s tied to your tax return. If you get a valid extension to file your Form 1040 (e.g., to October 15), your Form 8938 deadline is also extended. There is no separate extension form for 8938.
What if I discover I should have filed in prior years but didn’t?
You need to get into compliance. For Form 8938, you should file delinquent forms for the past years, attach them to amended tax returns (Form 1040-X), and include a reasonable cause statement explaining the failure. The IRS’s Delinquent International Information Return Submission Procedures may apply, but these require specific steps. Do not file them without a strategy, as it could automatically trigger penalties.
The Bottom Line: Form 8938 is a major compliance hurdle. The penalties are too high to ignore. If you have any substantial foreign holdings—whether in accounts or as direct investments—you must assess your filing requirement annually. The biggest mistake is assuming that because you reported something on your FBAR or on your Schedule B (for interest/dividends), you’re covered. You’re not. This is a separate, standalone disclosure with its own rules. When in doubt, the safe harbor is to report. And given the complexity of valuation and the high stakes, consulting a professional isn’t just advisable—it’s cheap insurance.