What Is a Specified U.S. Person? FATCA Rules and Form 8938 Filing

A specified U.S. person, under the Foreign Account Tax Compliance Act (FATCA), is any U.S. citizen, resident alien, or U.S.-organized entity that doesn’t fall into a short list of exempt categories such as publicly traded corporations, banks, retirement plans, and government bodies. The classification matters because it’s the trigger foreign financial institutions use to decide whose account information gets reported to the IRS, and it’s the same status that can require you to file Form 8938 with your own tax return. For individuals, the practical answer is almost always yes: if you’re a U.S. citizen or resident alien, you are a specified U.S. person, and there is no exemption you can claim.

Who Counts as a U.S. Person in the First Place

FATCA builds on the general federal tax definition at 26 U.S.C. § 7701(a)(30), which sets out five categories of “United States person.”1Office of the Law Revision Counsel. 26 U.S.C. 7701 – Definitions You fall inside the definition if you are:

  • A U.S. citizen, regardless of where you live. Decades abroad and no U.S. bank account do not change this.
  • A resident alien. Green Card holders qualify automatically; others may qualify by meeting the Substantial Presence Test based on days physically present in the United States.2Internal Revenue Service. Substantial Presence Test
  • A partnership or corporation organized under the laws of a U.S. state or the federal government.
  • An estate that is not a foreign estate under § 7701(a)(31).
  • A trust that a U.S. court can primarily supervise and over which one or more U.S. persons control all substantial decisions.3eCFR. 26 CFR 301.7701-7 – Trusts, Domestic and Foreign

Everyone and every entity in one of those five buckets is a U.S. person. FATCA then applies a filter to decide which of them are “specified.”

What Makes a U.S. Person “Specified”

The regulation at 26 CFR § 1.1473-1(c) defines a specified United States person as any U.S. person except those on a listed exemption schedule.4eCFR. 26 CFR 1.1473-1 – Section 1473 Definitions The exclusions cover entities that already sit under substantial regulatory oversight or that Congress judged unlikely to be used to hide offshore income:

  • Corporations whose stock is regularly traded on an established securities market, plus other corporations in the same expanded affiliated group.
  • Organizations exempt under section 501(a), including charities, religious organizations, and educational institutions.
  • Individual retirement plans, including traditional IRAs, Roth IRAs, and retirement trusts under sections 403(b) and 457(g).
  • Banks as defined in section 581, along with registered securities dealers and brokers.
  • Regulated investment companies, including mutual funds registered under the Investment Company Act of 1940.
  • Real estate investment trusts and common trust funds under section 584(a).
  • Charitable remainder trusts under section 664(c) and trusts described in section 4947(a)(1).
  • The United States, any state, the District of Columbia, U.S. territories, political subdivisions, and their wholly owned agencies.

Read the list carefully and one point stands out. Every exemption is for an entity. There is no carve-out for individuals. A U.S. citizen or resident alien is a specified U.S. person, full stop. A privately held LLC, a family trust that doesn’t fit one of the exempt trust categories, or a closely held corporation is also a specified U.S. person and stays inside FATCA’s scope.

Does Being a Specified U.S. Person Mean You Have to File Form 8938?

Not automatically. Being specified is what makes you eligible for FATCA reporting obligations, but the individual filing requirement only kicks in when your foreign financial assets exceed dollar thresholds that vary by filing status and where you live.5Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets?

For taxpayers living in the United States:

  • Single or married filing separately: assets exceed $50,000 on the last day of the tax year, or $75,000 at any point during the year.
  • Married filing jointly: assets exceed $100,000 on the last day of the year, or $150,000 at any point.

For taxpayers living abroad (bona fide foreign residents or those meeting the 330-day physical presence test):

  • Single or married filing separately: assets exceed $200,000 on the last day of the year, or $300,000 at any point.
  • Married filing jointly: assets exceed $400,000 on the last day of the year, or $600,000 at any point.

The reporting scope is broader than the FBAR’s. Foreign bank and brokerage accounts count, and so do foreign stocks and securities held outside an account, foreign partnership interests, foreign mutual funds, and interests in foreign trusts or estates. Form 8938 is attached to your income tax return and follows the same due date, including extensions; you cannot file it on its own.6Internal Revenue Service. Instructions for Form 8938

When a Closely Held Business Also Has to File

FATCA adds a separate category for domestic corporations and partnerships called a “specified domestic entity.” An entity in this category must file Form 8938 for its own foreign financial assets, using a lower threshold of $50,000 on the last day of the tax year or $75,000 at any point during the year.7Internal Revenue Service. Comparison of Form 8938 and FBAR Requirements

Two conditions have to be met.8Internal Revenue Service. Instructions for Form 8938 First, the entity has to be closely held. A specified individual must directly, indirectly, or constructively own at least 80% of the voting power or stock value of a corporation, or 80% of the capital or profits interest of a partnership, on the last day of the tax year. Second, the entity has to be substantially passive. Either 50% or more of its gross income comes from passive sources, or 50% or more of its assets (measured as a quarterly weighted average) produce or are held to produce passive income.

An operating business fully owned by one person but earning almost all its revenue from active operations is a specified U.S. person, but it isn’t a specified domestic entity and doesn’t file Form 8938 on that basis. A holding company parked around a foreign investment portfolio is a different story.

How Foreign Banks Identify You

FATCA imposes a 30% withholding tax on certain U.S.-source payments to foreign financial institutions that don’t cooperate with the reporting rules.9Office of the Law Revision Counsel. 26 U.S.C. 1471 – Withholdable Payments to Foreign Financial Institutions That penalty is what gives foreign banks a reason to identify their U.S. customers in the first place.

The identification runs on two tracks. The United States has entered into intergovernmental agreements with foreign governments so that foreign banks can share account information without violating local privacy laws. Under a Model 1 IGA the foreign institution reports to its own government, which forwards the data to the IRS; under a Model 2 IGA the institution reports directly.10Internal Revenue Service. FATCA Governments At the account level, foreign banks ask account holders to certify their status. If you’re a U.S. person, you’ll be asked for a Form W-9 with your taxpayer identification number.11Internal Revenue Service. Form W-9 – Request for Taxpayer Identification Number and Certification If you’re not, you’ll be asked for a Form W-8BEN.12Internal Revenue Service. About Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner Refuse to document, and the bank generally must presume you a foreign person subject to 30% withholding on U.S.-source payments, or it may simply close the account rather than carry the compliance risk.

How This Differs From the FBAR

Being a specified U.S. person and having foreign accounts often means two filings, not one. Form 8938 and the FBAR (FinCEN Form 114) are separate obligations at different agencies.7Internal Revenue Service. Comparison of Form 8938 and FBAR Requirements

  • Form 8938 goes to the IRS with your tax return. The FBAR goes to the Financial Crimes Enforcement Network (FinCEN).
  • The FBAR triggers at $10,000 in aggregate foreign account value at any point during the year, well below the Form 8938 thresholds.
  • The FBAR covers foreign financial accounts. Form 8938 covers those plus foreign stocks and securities held outside an account, foreign partnership interests, foreign mutual funds, and interests in foreign trusts or estates.
  • The FBAR is due April 15 with an automatic six-month extension to October 15. Form 8938 follows your income tax return deadline, including any extension you file.

Filing one does not satisfy the other. A single U.S. resident with $60,000 in a foreign bank account files both.

Penalties and How to Fix Past Failures

Missing a Form 8938 filing starts at a $10,000 penalty. If the return is still unfiled 90 days after the IRS mails a notice, an additional $10,000 penalty accrues for every 30-day period the failure continues, up to a maximum of $50,000 in continuation penalties, for a potential $60,000 total.13Office of the Law Revision Counsel. 26 U.S.C. 6038D – Information With Respect to Foreign Financial Assets If the IRS finds you underpaid tax because of undisclosed foreign assets, a 40% accuracy-related penalty applies to that portion of the underpayment.14Internal Revenue Service. Summary of FATCA Reporting for U.S. Taxpayers FBAR penalties run on a separate track: non-willful violations currently reach up to $16,536 per account per year, and willful violations up to $165,353 or 50% of the account balance, whichever is greater, with the amounts adjusted annually for inflation.

Two IRS programs help taxpayers who have already fallen behind. The Streamlined Foreign Offshore Procedures are open to individuals living outside the United States who can certify their failure was non-willful, meaning negligence, mistake, or a good-faith misunderstanding of the law.15Internal Revenue Service. Streamlined Filing Compliance Procedures You’re not eligible if the IRS has already opened a civil examination of any of the years involved or if you’re under criminal investigation. For those who qualify, the program generally eliminates or reduces the penalties that would otherwise apply. The Delinquent International Information Return Submission Procedures cover cases where you owe no additional tax and simply need to file late information returns without being contacted first by the IRS; you attach the delinquent forms to an amended return and can include a reasonable cause statement.16Internal Revenue Service. Delinquent International Information Return Submission Procedures Penalties may still be assessed during processing even where a reasonable cause statement is attached, and you may need to argue the position in follow-up correspondence.

With over 100 countries now exchanging financial account data under FATCA’s intergovernmental agreements, the odds that a foreign account stays invisible to the IRS have dropped sharply. Coming forward through one of these programs, however uncomfortable, almost always ends better than waiting for a notice.