Understanding Form 8938 – Statement of Specified Foreign Financial Assets

Do you have foreign financial assets valued at over $50,000? If so, you may need to include an additional form with your individual tax return this year. Along with Form 1040, individuals who meet these criteria should submit Form 8938, the Statement of Specified Foreign Financial Assets.

Since 2011, certain individual taxpayers have been required to attach Form 8938 to their individual U.S. income tax return on a yearly basis.

Not sure if this requirement applies to you? The following are some examples of specified foreign financial assets:

• An account maintained at a foreign financial institution
• Stock or security issued by a foreign person
• Interest in any foreign entity, including Passive Foreign Investment Companies (PFIC)
• A financial instrument or contract held for foreign investment that has a foreign issuer or counterpart who is not a U.S. resident
• A financial instrument or contract, including interest and currency swaps, other swap contracts, options and other derivative contracts;
• An interest in a foreign pension.

The filing threshold for taxpayers begins at $50,000, but different thresholds apply to taxpayers depending on their filing status and country of residence.

Many taxpayers incorrectly assume that filing Form 8938 will satisfy their obligation to file the  Report of Foreign Bank and Financial Accounts (FBAR) FinCEN Form 114 with the U.S. Department of the Treasury, but Form 8938 does not replace the FBAR reporting requirements.

Taxpayers who are subject to the Form 8938 reporting requirements and fail to comply face significant penalties including criminal charges and fines between $10,000 and $50,000 per year.  It’s important for individuals to determine whether they are subject to this requirement before filing.

The new requirement is currently applicable to individuals subject to U.S. taxation; however, the U.S. Treasury has indicated that the provisions will soon be extended to U.S. entities as well.

If you would like to find out how international tax changes affect you, please contact me or another member of Kaufman Rossin’s international tax practice.