Late Filing of Form 8938

The requirements of U.S. tax laws can be complex, especially for those with international financial interests. Among these requirements, Form 8938 is specifically designed for U.S. taxpayers holding certain foreign financial assets. Whether you are an individual, a corporation or part of a trust, if your foreign financial holdings exceed specific thresholds, this form must be filed. However, complexities sometimes may lead to delays and late filing might become necessary. 

Form 8938

Form 8938 “Statement of Specified Foreign Financial Assets” is a critical document legislated by the IRS under the Foreign Account Tax Compliance Act (FATCA). This form is used to report specified foreign financial assets if the total value exceeds certain thresholds. The purpose of Form 8938 is to ensure that U.S. taxpayers with foreign financial assets are disclosing their holdings to the IRS, thereby promoting transparency and reducing tax evasion.

The regulation of Form 8938 is governed by Section 6038D of the Internal Revenue Code (IRC). This section requires U.S. taxpayers to report their interests in specified foreign financial assets when the total value of those assets exceeds the appropriate reporting threshold. Notably, this obligation is in addition to any reporting required for foreign financial accounts under the Bank Secrecy Act on FinCEN Form 114 (FBAR).

Penalties for Late Filing

The IRS imposes stringent penalties for failing to file Form 8938 on time. A base penalty of \$10,000 is levied for failing to file a complete and correct Form 8938 by the due date. If the form is not filed within 90 days after the IRS mails a notice of failure to file, additional penalties apply. Specifically, there is an additional penalty of $10,000 for each 30 day period (or part of a period) during which the failure to file continues after the 90 day period has expired, with the maximum additional penalty reaching $50,000.

Obligation

Not every taxpayer is required to file Form 8938. The filing requirements depend on the total value of specified foreign financial assets and the taxpayer’s filing status and residency. Here are the general thresholds:

• Unmarried taxpayers living in the U.S.: Must file if the total value of 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 tax year.
• Married taxpayers filing jointly living in the U.S.: Must file if the total value of specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
• Taxpayers living abroad: Higher thresholds apply. For unmarried taxpayers, the threshold is $200,000 on the last day of the tax year or $300,000 at any time during the year. For married taxpayers filing jointly, the threshold is $400,000 on the last day of the tax year or $600,000 at any time during the year.

Taxpayers may be unaware of their obligation to file, particularly if they are newly subject to the requirements or if their financial circumstances have changed. Complexities in gathering the necessary information from foreign financial institutions can also cause delays. Additionally, misunderstandings about the thresholds or the nature of reportable assets might contribute to missed deadlines.

Late Filing

If Form 8938 was not filed on time, specific steps should be followed to minimize penalties and ensure compliance. These steps might be listed as below:

• Gathering Financial Information: Comprehensive details about all specified foreign financial assets, including account numbers, financial institutions, maximum values during the year and any related income must be collected.
  

• Complete Form 8938 Accurately: It should be ensured that the form is filled out correctly and all specified foreign financial assets should be reported. The information should be double checked to avoid any errors or omissions that could lead to further penalties.
  

• Annual Tax Return: Form 8938 must be attached to the annual tax return (Form 1040, Form 1040-NR, etc.) and filed with the IRS. If the original return has already been filed, an amended return should be submitted with the Form 8938 attached.
  

1. 1. IRS Notices: If the IRS has issued a notice regarding the failure to file, it is crucial to respond promptly.
      

• Reasonable Cause for Delay: To potentially mitigate penalties, the taxpayer should provide a reasonable cause explanation. This involves affirmatively showing that the failure to file was due to reasonable cause and not willful neglect. Factors considered by the IRS include the taxpayer’s compliance history, the nature of the foreign financial assets, efforts made to comply with the reporting requirements and the circumstances leading to the late filing.
  

• Accrued Penalties: Any penalties that have accrued due to late filing should be paid. It is also advisable to check for any potential interest that may have accrued on unpaid penalties.
  

• Seek Professional Assistance: Engaging a tax professional can be highly beneficial in navigating the complexities of late filing and penalty mitigation. Dimov Tax & CPA Services is ready to provide guidance on completing the form, responding to IRS notices and preparing a reasonable cause statement if applicable.

Penalty Relief for Late Filing

The IRS does provide for penalty relief if the taxpayer can demonstrate that the failure to file was due to reasonable cause and not due to willful neglect. Key considerations for reasonable cause include:

• Compliance History: Demonstrating a history of compliance with tax obligations can support a reasonable cause claim.
  
• Efforts to Comply: Evidence that reasonable efforts were made to comply with the filing requirements, even if ultimately unsuccessful.
  
• Circumstances Beyond Control: Situations such as natural disasters, serious illness or other significant hardships that made timely filing impractical.

Detailed documentation supporting the claim must be provided to claim reasonable cause and each case is evaluated on its own merits .

Conclusion

The timely and accurate filing of Form 8938 is essential for U.S. taxpayers with foreign financial assets. The penalties for late filing can be severe, but understanding the requirements and seeking professional assistance can mitigate these risks. Dimov Tax & CPA Services is dedicated to helping clients navigate these complexities and ensure full compliance with IRS regulations, ultimately safeguarding them from unnecessary penalties and stress.

Our services include:

• Consultation and Assessment: Evaluating your specific situation to determine the best course of action and the likelihood of penalty relief.
• Accurate Form Preparation: Ensuring Form 8938 is completed accurately and thoroughly, with all specified foreign financial assets reported.
• Filing and Representation: Submitting the form along with your annual tax return and representing you before the IRS if any issues or notices arise.
• Penalty Mitigation: Assisting in the preparation of reasonable cause statements and negotiating with the IRS to reduce or eliminate penalties.

Ongoing Compliance: Providing ongoing support to ensure compliance with all future reporting requirements, thereby avoiding similar issues in subsequent years.