Disclosing Foreign Financial Assets – Form 8938
The annual filing of BSA FinCEN Form 114a, that requires foreign bank accounts be disclosed, is only one of the two reporting requirements U.S. taxpayers frequently encounter. The second requirement is Form 8938 (Statement of Specified Foreign Financial Assets). This form is included with all the other forms and schedules needed for a comprehensive federal tax return (Form 1040). In general, Form 8938 includes some or all of the information BSA requires as well as the reporting of other financial assets and any income earned from these sources. Typically, income flows from Form 8938 to other areas of the tax return so any tax due can be calculated.
Although, the maximum value thresholds for bank accounts are higher with Form 8938 than FinCEN Form 114a, a growing number of U.S. taxpayers are actually exceeding these thresholds without even knowing it. For example, a U.S. citizen, who is unmarried and living in the United States, would be required to submit Form 8938 if on the last day of the year the value of a foreign bank account(s) exceeded $50,000 or $75,000 on any day during the tax year. For married taxpayers, this threshold increases to $100,000 and $150,000; respectively. Furthermore, Form 8938 includes other foreign assets, not just bank accounts, such as foreign stock and securities, foreign financial instruments, contracts with non-U.S. persons, and ownership in foreign entities.
Failure to file penalties imposed by the IRS generally start at $10,000. Depending on the circumstances, these civil penalties can increase significantly, including 40% on any understated tax and $50,000+ for habitual nonfliers. Given the complexities surrounding Form 8938, BSA FinCEN Form 114a, and the penalties imposed for not complying with one or both requirements, engaging the help of an experienced professional on these matters is a worthwhile investment for most anyone.