US Expat Taxes Explained: Filing IRS Form 8938
How to File IRS Form 8938 for Your US Expat Taxes
Just when you thought dealing with US expat taxes couldn’t get more complex, along comes another form that some US citizens living abroad must file: IRS Form 8938, Statement of Specified Foreign Financial Assets. New for 2011, the 8938 is another way for the US government to gather information about the financial activities of US citizens around the world. Not every expat is required to file the 8938, but all taxpayers living outside of the United States should review the instructions and disclosure thresholds for Form 8938 and understand their individual obligations.
What is IRS Form 8938?
Form 8938 requires US citizens who have foreign financial assets over a certain value to report this information to the IRS. These financial assets include bank accounts as well as brokerage accounts, the stock or securities of foreign issuers, and foreign financial instruments. Also on the list are foreign-issued life insurance or annuity contracts with a cash value, and shares in foreign hedge funds and private equity funds.
How do I know if I need to file Form 8938?
US taxpayers living abroad must file the 8938 if they are required to file a tax return for the year in question, and if the value of their aggregate foreign financial assets meets the following thresholds:
Specifically, expatriates must file if they are:
- Single, or Married Filing Separately: The total value of your specified foreign assets is more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.
- Married Filing jointly: You must file 8938 if the total value of the foreign financial assets owned by you and your spouse is more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the tax year.
How do I file the 8938?
File IRS Form 8938 with your US expat taxes. The 8938 is subject to the same deadlines and extensions as the rest of your return.
What’s the difference between Form 8938 and the FBAR?
Many expats are justifiably confused about the differences between the 8938 and the TD F 90-22.1 Report of Foreign Bank and Financial Accounts, or FBAR form. Technically, Form 8938 is meant to ensure that citizens abroad are in full compliance with their US expat taxes and fiscal obligations, whereas the FBAR is a law-enforcement tool designed to detect financial crimes and illicit international money flows. Some other differences include:
- Form 8938 is filed with your annual US expat taxes, whereas the FBAR must be submitted directly to the Treasury department no later than June 30th following the year being reported. (Note: unlike standard tax forms, which are considered on time if they are postmarked by the appropriate deadline, the FBAR must be received by June 30th to be considered on time).
- The disclosure thresholds for the 8938 are higher than those of the FBAR, which is triggered if the value of all of your foreign accounts exceeds $10,000 on any day of the reporting year.
- The 8938 requires the reporting of a broader class of assets than does the FBAR, which does not ask for information on hedge funds or private equity.
- The 8938 requirement is based on having a financial interest in the asset, whereas the FBAR also tests for signature authority over the account or assets in question.
- The 8938 is a new requirement for 2011; individuals with delinquent FBAR filings may be liable for penalties in any of the previous years they were required to file but did not. Please note however that this has not been enforced when it comes to US citizens living abroad who did not know about the requirement to file.
Still have questions?
If you’re confused or unsure about your US expat taxes or obligations with respect to either the 8938 or the FBAR, consult an Expat CPA for professional advice. While ignoring your obligation is unlikely to result in steep penalties (unless you owe money) or criminal prosecution it is still a better idea to become compliant now, while US Expats are receiving considerable leeway. The Foreign Account Tax Compliance Act (FATCA), the law which gave rise to the 8938, also compels foreign financial institutions to report information on clients who are US citizens, so assuming that the IRS can’t find you just because you’re living abroad is a thing of the past.