1) You have a “Specified Foreign Financial Asset” which exceeds the filing requirements
Financial Assets that are subject to this form are: A Financial Account maintained by a foreign institution and the following assets not held in an account with a foreign institution:
* Stock or security issued by a foreign person
* Financial instrument where the issuer is not a U.S. Person
* And any interest in a foreign entity
The filing requirements are married taxpayers filing jointly living in the United States if the value of the foreign assets was more than $100,000 on the last day of the year or more than $150,000 anytime during the year. The filing requirements for unmarried taxpayers are half of this amount, $50,000 and $75,000 respectively. The Form 8938 must be filed with your individual income tax return, Form 1040.
2) You don’t like paying IRS Penalties
The penalty for failure to file this form starts at $10,000 and is a maximum of $50,000. Either way, this is a lot of money.
3) The Filing of Form TD F 90-22.1, Report of Foreign Bank and Financial Account (“FBAR”) does not satisfy this new filing requirement
Certain taxpayers have a responsibility to file the so-called FBAR. This is required if there are foreign accounts in excess of $10,000. This form is filed with the Treasury Department and is due by June 30. It is not filed with the IRS. The filing of this form does not relieve taxpayers that are required to file the 8938 from filing. Note the requirement for the FBAR is in excess of $10,000 and the requirement for the 8938 is $50,000. Some foreign assets may be difficult to value. If additional time is needed to determine the correct fair market value, taxpayers should file an extension on Form 4868. A properly completed extension will allow an additional 6 months, until October 15 to file the return.
Is it possible they will do away with the filing of the FBAR in the future? Perhaps, it would certainly make sense. Much of information required on the FBAR is very similar to the information on the Form 8938. Just because it makes sense however, doesn’t mean they will do it.
ACTION ITEM: Taxpayers need to be aware of the new, expanded reporting requirements for foreign assets. Failure to comply with the additional disclosure requirements can be very expensive.
Thomas F. Scanlon, CPA, CFP®