What Are Excepted Specified Foreign Financial Assets?
Understand how U.S. tax law prevents redundant filings for foreign assets and clarifies separate international reporting duties for taxpayers.
U.S. tax law requires the disclosure of certain foreign assets to the Internal Revenue Service (IRS). A “specified foreign financial asset” (SFFA) includes holdings like foreign bank accounts or stock in a foreign company. U.S. persons must report these assets on Form 8938, Statement of Specified Foreign Financial Assets, if their total value exceeds certain thresholds. However, some assets are specifically excepted from this reporting obligation to prevent duplicative or unnecessary disclosures.
Understanding Form 8938 Reporting Thresholds
A taxpayer must first determine if they meet the filing thresholds for Form 8938. The filing obligation depends on the total value of all specified foreign financial assets, with amounts varying by filing status and residency. Even if an asset qualifies for an exception, its value is still included when calculating whether the reporting threshold is met.
For unmarried taxpayers living in the U.S., the filing requirement is triggered if the total value of SFFAs is more than $50,000 on the last day of the tax year or more than $75,000 at any point during the year. For married couples filing a joint return, these thresholds are $100,000 on the last day of the year or $150,000 at any time. If a married couple files separately, the thresholds for unmarried individuals apply to each spouse.
The thresholds are higher for taxpayers living abroad. An unmarried individual or someone married filing separately must file if their SFFAs are valued at more than $200,000 on the last day of the tax year or more than $300,000 at any time. For married couples filing jointly while living abroad, the thresholds increase to $400,000 on the last day of the year or $600,000 at any point.
Assets Reported on Other International Information Returns
To prevent redundant disclosures, the IRS excepts assets from Form 8938 reporting if they are already reported on another international information return for the same tax year. If a taxpayer meets the Form 8938 filing threshold, they must still file the form. However, they only need to indicate in Part IV which other forms are being filed and the number of each, rather than re-listing the asset details.
This exception for duplicative reporting applies to assets detailed on several forms, including:
- An interest in a foreign trust reported on Form 3520 or assets held by a trust that files Form 3520-A.
- Stock or other interests in foreign corporations disclosed on Form 5471.
- Interests in foreign partnerships reported on Form 8865.
- An interest in a passive foreign investment company (PFIC) reported on Form 8621.
Other Categories of Excepted Assets
The IRS also exempts other categories of assets that are not considered specified foreign financial assets. These exceptions cover assets with a close connection to the U.S. financial system or those managed by foreign governments.
A significant exception is for financial accounts maintained by a U.S. payer, such as an account at a U.S. branch of a foreign bank or with a U.S. broker. This also applies to financial accounts held at institutions in U.S. possessions like American Samoa, Guam, or Puerto Rico. Additionally, benefits from a social security, social insurance, or similar program run by a foreign government are excepted from reporting.
Distinguishing Form 8938 and FBAR Requirements
An asset excepted from Form 8938 reporting is not automatically excepted from other obligations, like the Report of Foreign Bank and Financial Accounts (FBAR), or FinCEN Form 114. The two forms originate from different laws, are filed with different agencies, and have separate rules and thresholds.
Form 8938 is an IRS tax form under the Foreign Account Tax Compliance Act (FATCA) focused on tax compliance. In contrast, the FBAR is filed with the Financial Crimes Enforcement Network (FinCEN) under the Bank Secrecy Act to help prevent financial crimes like money laundering.
The FBAR has a lower reporting threshold, requiring a filing if the total value of foreign financial accounts exceeds $10,000 at any time during the year. Because the Form 8938 thresholds are higher and more complex, a taxpayer might need to file an FBAR but not Form 8938. In many cases, a taxpayer must file both forms, reporting some of the same accounts on each.