Instructions for Form 8938: How to Accurately Report Foreign Assets

The IRS requires certain taxpayers to disclose foreign financial assets using Form 8938. This ensures compliance with tax laws, particularly for those with overseas investments or bank accounts. Failing to file when required can lead to significant penalties.

Understanding who must file, what assets need reporting, and how to complete the form correctly helps taxpayers avoid IRS issues and costly mistakes.

Eligibility to File

Filing Form 8938 depends on residency and filing status. U.S. citizens, resident aliens, and certain non-resident aliens must determine if they need to report foreign financial assets. The IRS sets different criteria based on whether a filer resides in the U.S. or abroad.

For U.S. residents, reporting is required if total foreign assets exceed specific thresholds. Those qualifying as bona fide residents of a foreign country or meeting the physical presence test under the Foreign Earned Income Exclusion rules may have different requirements. Non-resident aliens electing to be treated as U.S. residents for tax purposes, such as those filing jointly with a U.S. citizen spouse, may also need to file.

Entities, including certain domestic corporations, partnerships, and trusts, may also be subject to reporting if they hold foreign financial assets under IRS criteria. The IRS examines whether an entity is closely held by U.S. persons or primarily exists to hold foreign assets, preventing individuals from avoiding disclosure by shifting ownership to a controlled entity.

Which Assets to Report

Reportable foreign financial assets include more than bank accounts. Interests in foreign stocks, mutual funds, partnerships, bonds, annuities, and life insurance policies with cash value must be disclosed. Even if assets are held through a foreign financial institution, they must be reported.

Ownership in a foreign business entity or trust can also trigger reporting. Equity interests in foreign corporations or partnerships, even if not publicly traded, must be disclosed. Beneficiaries of foreign trusts or estates holding financial assets must report their interests. The IRS also requires disclosure of financial instruments issued by non-U.S. persons, such as foreign derivatives or options.

Real estate is not reportable unless held through a foreign entity. If owned through a corporation, partnership, or trust, the entity’s value—not the property itself—must be reported. This distinction is important for those structuring foreign investments through legal entities.

Threshold Guidelines

Filing requirements depend on the total value of foreign financial assets and a taxpayer’s filing status. The IRS sets different thresholds for single, joint, and other filers, with higher limits for those living abroad.

Single Filers

Single or head-of-household filers must report foreign financial assets if they exceed $50,000 at year-end or $75,000 at any time during the year. For those residing abroad, the limits increase to $200,000 at year-end or $300,000 at any point during the year.

A taxpayer with a foreign bank account holding $40,000 at year-end but reaching $80,000 during the year must file since the highest balance exceeded the threshold. The IRS defines a taxpayer as living abroad if they qualify as a bona fide resident of a foreign country or meet the physical presence test by spending at least 330 full days outside the U.S. in a 12-month period.

Joint Filers

Married couples filing jointly have higher thresholds. U.S. residents must file if combined foreign financial assets exceed $100,000 at year-end or $150,000 during the year. Even if only one spouse owns the assets, the total value is considered.

For joint filers living abroad, the limits increase to $400,000 at year-end or $600,000 at any time during the year. If only one spouse is required to file a U.S. tax return, the single filer threshold applies.

Other Filers

Married individuals filing separately have the same thresholds as single filers: $50,000 at year-end or $75,000 during the year for U.S. residents, and $200,000 at year-end or $300,000 at any time for those abroad.

Certain non-resident aliens electing to be treated as U.S. residents may also need to file, often applying to individuals married to U.S. citizens who choose to file jointly. Trusts, estates, and domestic entities holding foreign financial assets may have separate reporting obligations.

Completing the Form

Accurately completing Form 8938 requires listing each reportable asset, ensuring valuations are precise, and categorizing holdings correctly. The form includes sections for financial accounts, other foreign assets, and joint ownership details. Taxpayers must provide identifying information, such as financial institution names, account numbers, and asset locations.

Determining the maximum asset value during the tax year is critical. The IRS requires fair market value in U.S. dollars, using the year-end exchange rate published by the Treasury Department. If exact values are unavailable, reasonable estimates based on financial statements or transaction records are acceptable. Certain assets, like foreign stock not traded on an exchange, may require professional appraisals or valuation based on comparable securities.

Submission Procedures

Form 8938 is filed with the taxpayer’s annual federal income tax return. Unlike the Foreign Bank Account Report (FBAR), which is submitted separately to the Financial Crimes Enforcement Network (FinCEN), Form 8938 is attached to IRS Form 1040, 1040-SR, or 1040-NR.

For paper filers, the form must be included with other tax documents and mailed to the appropriate IRS processing center. The submission deadline aligns with the standard tax filing due date, typically April 15. Taxpayers living abroad qualify for an automatic two-month extension until June 15, while additional extensions can be requested until October 15. However, an extension to file does not extend the deadline for tax payments, and interest may accrue on unpaid balances.

Potential Penalties

Failing to file Form 8938 when required can lead to severe financial penalties. The IRS imposes a $10,000 penalty for noncompliance. If a taxpayer does not file after receiving an IRS notice, additional penalties of up to $50,000 may apply. These fines are separate from any tax liabilities on unreported foreign income, which could result in further penalties and interest charges.

For intentional noncompliance, the IRS may impose fraud penalties of 75% of unpaid tax attributable to undisclosed assets. In extreme cases, criminal charges may follow.

Correcting Errors

Taxpayers who discover errors or omissions on Form 8938 should correct them promptly. The IRS allows amendments through Form 1040-X.

If the omission was unintentional, voluntarily correcting mistakes may reduce penalties. Those who failed to file in prior years may consider the Streamlined Filing Compliance Procedures, which allow eligible individuals to correct past noncompliance with reduced or waived penalties.