Form Instructions 8938, also known as the Statement of Specified Foreign Financial Assets, is an essential document required by the Internal Revenue Service (IRS) for individuals who have financial assets in foreign countries. This form helps the IRS track and identify potential tax evasion or unreported income. It must be completed accurately and submitted by those who fall under the following criteria:
1. U.S. Citizens or Resident Aliens: Any U.S. citizen or resident alien who has an interest in specified foreign financial assets and meets specific reporting thresholds during the tax year must complete Form Instructions 8938. This includes individuals living abroad or dual citizens.
2. Threshold Exceedance: The filing requirement depends on the value of the aggregated financial assets. For unmarried taxpayers living in the U.S., if the total value of specified foreign financial assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the year, they must file Form Instructions 8938. For married taxpayers filing jointly, these thresholds are doubled ($100,000 and $150,000), but if they live abroad, the thresholds increase further to $400,000 and $600,000, respectively.
3. Financial Asset Definitions: Specified foreign financial assets include various types of assets such as bank accounts, mutual funds, stocks, bonds, ownership interests in foreign entities, and certain foreign retirement plans. The instructions provide specific guidelines on what qualifies as a financial asset and how to calculate their value.
4. Reporting Requirements: The form requires detailed information about each specified foreign financial asset, including the financial institution's name and address, maximum value during the tax year, and the appropriate U.S. tax identification number associated with each asset.
5. Additional Form Requirements: Individuals who are required to file a U.S. federal income tax return must include Form Instructions 8938 with their annual tax return for the relevant tax year. If an individual fails to report their foreign assets, the IRS may impose significant penalties or initiate an audit.
6. Exceptions and Exemptions: Certain individuals may qualify for exceptions or exemptions from filing Form Instructions 8938. This includes U.S. citizens or residents who already report their foreign financial assets on other forms, like Form 5471 (for ownership in foreign corporations) or Form 3520 (for receiving gifts from foreign individuals).
7. Stringent Penalties for Non-Compliance: It is vital to follow the reporting requirements precisely and submit Form Instructions 8938 on time. Failure to file or incorrect reporting may lead to substantial penalties, including a $10,000 penalty for each non-willful violation and up to a $50,000 penalty for willful violations, along with potential criminal charges.
Always consult a certified tax professional or seek advice from the IRS to ensure accurate completion of Form Instructions 8938 and to understand the specific reporting requirements based on individual circumstances.