How to Report Specified Foreign Financial Assets (Form 8938)

Form 8938, the Statement of Specified Foreign Financial Assets, is the IRS form you attach to your tax return to report foreign accounts and certain foreign investments once their total value crosses a threshold set by where you live and how you file. For a single taxpayer living in the United States, that threshold is more than $50,000 in total foreign asset value on the last day of the tax year, or more than $75,000 at any point during the year. Missing the filing can cost $10,000 to start and climb from there, and it leaves the door open on your return for the IRS indefinitely.

Who Has to File

Two groups file Form 8938: specified individuals and specified domestic entities.

Specified individuals are U.S. citizens and resident aliens whose foreign financial assets exceed the applicable threshold. A nonresident alien who elects to be treated as a resident to file a joint return also qualifies.¹

Specified domestic entities are U.S. corporations, partnerships, or trusts formed or used to hold foreign financial assets. Not every domestic entity is caught. A corporation or partnership is treated as a specified domestic entity only when a specified individual owns at least 80 percent of the voting power or total stock value and the entity meets a passive-income test: at least 50 percent of its gross income is passive, or at least 50 percent of its assets produce or are held to produce passive income.² The point is to stop people from parking foreign assets inside a shell to sidestep personal reporting.

The Reporting Thresholds

Two value tests apply: the balance on the last day of the tax year, and the highest value at any point during the year. Cross either one and you file.

Living in the United States

Single or married filing separately: more than $50,000 at year-end, or more than $75,000 at any time during the year.
Married filing jointly: more than $100,000 at year-end, or more than $150,000 at any time during the year.

Living Outside the United States

Single or married filing separately: more than $200,000 at year-end, or more than $300,000 at any time during the year.
Married filing jointly: more than $400,000 at year-end, or more than $600,000 at any time during the year.³

Specified domestic entities use the single-resident threshold: $50,000 at year-end or $75,000 at any point during the year.⁴

Married couples filing separately need to watch a quirk. When you test whether you exceed the threshold, you count only half the value of any jointly owned foreign asset. If you do have to file, though, each spouse reports the full maximum value of the entire jointly owned asset on their own Form 8938. The half-value rule is only for the threshold test.⁵

What Counts as a Specified Foreign Financial Asset

The category has two halves. The first is foreign financial accounts: checking, savings, and custodial accounts held at foreign banks and financial institutions. The second is foreign investments held outside any account: stocks or securities issued by a non-U.S. person, financial instruments or contracts with a foreign issuer or counterparty, and interests in foreign partnerships, corporations, trusts, or estates.⁶ Foreign hedge funds, private equity funds, and foreign-issued life insurance or annuity contracts with cash value are also in scope.⁴

Foreign Pensions

An interest in a foreign employer’s pension plan or a foreign deferred compensation arrangement is a specified foreign financial asset. You report your interest in the plan itself, not the individual investments the plan holds. If you can’t reasonably determine the fair market value of your interest, report the value of any distributions you received during the year. If there were no distributions and the value is genuinely unknown, report zero.¹

Foreign social security or equivalent government social insurance benefits are not specified foreign financial assets and are not reported on Form 8938.¹

Foreign Real Estate

A house or rental property you own directly overseas is not itself reportable. If you hold that property through a foreign corporation, partnership, or trust, your interest in the entity is reportable, and the property’s value gets absorbed into the value of that interest.⁷

What You Don’t Report

Several things sit outside Form 8938 entirely: foreign currency held directly, precious metals held directly, and personal property such as art, antiques, jewelry, and cars. A financial account at a foreign branch of a U.S. financial institution is also excluded, although it may still need to be reported on the FBAR.⁴

How to Value Your Assets

For each reportable asset, report the maximum value the asset reached during the tax year. You also need the account number, where applicable, and the name and address of the foreign financial institution that holds it.¹

All values go on the form in U.S. dollars. Use the Treasury Department’s Bureau of the Fiscal Service exchange rate for the last day of the tax year. If no Treasury rate is published for a particular currency, use another publicly available rate and disclose the source.¹

For assets held outside a financial account, such as directly held foreign stock, you can set fair market value using publicly available information from reliable financial sources. A professional appraisal is not required even when there is no published market data.⁷

How and When to File

Form 8938 is attached to your annual income tax return. For individuals that means Form 1040. Trusts file with Form 1041, partnerships with Form 1065, and corporations with Form 1120. The deadline is your return’s due date, including extensions.¹ You can submit through tax preparation software or on paper. Form 8938 has no separate filing channel or deadline of its own. If you’re not required to file a tax return for a given year, you generally don’t file Form 8938 for that year either, because there is no standalone way to submit it.

Form 8938 Is Not the FBAR

Form 8938 and the FBAR (FinCEN Form 114) are separate requirements run by different agencies with different rules. Filing one does not satisfy the other, and many taxpayers have to file both.

The FBAR goes to the Financial Crimes Enforcement Network, not the IRS. It covers foreign financial accounts whose aggregate value exceeds $10,000 at any point during the year. It is due April 15 with an automatic extension to October 15, and it is filed electronically through FinCEN’s BSA E-Filing system rather than attached to your tax return.⁸

The two forms cover the same ground for foreign deposit and custodial accounts, foreign mutual funds, and foreign-issued life insurance or annuity contracts with cash value. They part ways elsewhere:

FBAR only: accounts at a foreign branch of a U.S. financial institution, and accounts where you have signature authority but no ownership interest.
Form 8938 only: foreign stock or securities held outside an account, foreign partnership interests, and foreign hedge funds or private equity funds.
Neither form: directly held foreign real estate, foreign currency not in an account, precious metals, and personal property.⁴

Penalties for Not Filing

The starting penalty for failing to file a complete and correct Form 8938 by the due date, including extensions, is $10,000. If you still haven’t filed 90 days after the IRS mails you a notice of the failure, another $10,000 accrues for each 30-day period (or fraction of one) that the failure continues, up to an additional $50,000. Total failure-to-file penalties can reach $60,000 for a single tax year.⁶

On top of that, the standard 20 percent accuracy-related penalty for underpaying tax doubles to 40 percent when the underpayment is attributable to a transaction involving an asset that should have been reported on Form 8938 but wasn’t.⁹ Criminal prosecution is also possible for a failure to file, a failure to report an asset, or an underpayment of tax related to foreign assets.⁵

No penalty applies if the failure was due to reasonable cause and not willful neglect. That determination is case by case, and you carry the burden of showing the facts that support it. One argument the regulations rule out: you cannot claim reasonable cause on the ground that a foreign country would penalize you for disclosing the information.¹⁰

The Statute of Limitations Never Starts

This is the piece most taxpayers miss. The IRS normally has three years from the date you file a return to assess additional tax. That three-year clock does not begin until you furnish the required foreign asset information. Skip Form 8938 and the IRS can go back and audit any part of that return, without a time limit, until you file it.¹¹

If the failure was due to reasonable cause rather than willful neglect, the open exposure narrows: the statute stays open only for items connected to the unreported foreign assets, not for the whole return.¹²

Catching Up on Missed Filings

If you have missed Form 8938 filings and the failure wasn’t willful, the IRS offers streamlined filing compliance procedures. To use them, you must certify that your failure to report foreign financial assets and pay any related tax was the result of negligence, inadvertence, mistake, or a good faith misunderstanding of the law. You cannot use the streamlined procedures if you are already under civil examination or criminal investigation.¹³

Streamlined submissions are not automatically audited, but they stay subject to the IRS’s normal selection processes and can still lead to examination, civil penalties, or criminal referral. It is not amnesty. For a genuinely non-willful taxpayer, though, coming in through the streamlined door is a far better position than waiting to be found.

1
Internal Revenue Service. Instructions for Form 8938
2
eCFR. 26 CFR 1.6038D-6 – Specified Domestic Entities
3
Internal Revenue Service. Do I Need to File Form 8938
4
Internal Revenue Service. Comparison of Form 8938 and FBAR Requirements
5
Internal Revenue Service. Instructions for Form 8938
6
Office of the Law Revision Counsel. 26 USC 6038D
7
Internal Revenue Service. Basic Questions and Answers on Form 8938
8
Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
9
Office of the Law Revision Counsel. 26 USC 6662
10
eCFR. 26 CFR 1.6038D-8
11
Office of the Law Revision Counsel. 26 USC 6501
12
Internal Revenue Service. Overview of Statute of Limitations on the Assessment of Tax
13
Internal Revenue Service. Streamlined Filing Compliance Procedures