Who must file new Form 8938?

For tax years beginning after March 18, 2010, certain individuals must file new Form 8938 to report the ownership of specified foreign financial assets if the total value of those assets exceeds the reporting threshold amount.

Who Must File?

Unless an exception applies, you must file Form 8938 if you are a specified person that has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold.

Exception

If you do not have to file an income tax return for the tax year, you do not have to file Form 8938, even if the value of your specified foreign financial assets is more than the appropriate reporting threshold.

Specified individual: 

You are a specified individual if you are one of the following:

1. A U.S. citizen

2. A resident alien of the United States for any part of the tax year

3. A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return

Specified foreign financial assets: 

Generally include the following assets:

1. Any financial account maintained by a foreign financial institution.

2. To the extent held for investment and not held in a financial account, any stock or securities issued by someone that is not a U.S. person, any interest in a foreign entity, and any financial instrument or contract with an issuer or counterparty that is not a U.S. person.

Reporting threshold: 

If the total value of your specified financial assets is more than the following:

	Taxpayer living in United States		Taxpayer living abroad
	On the last day of the tax year	Anytime during the tax year	On the last day of the tax year	Anytime during the tax year
Unmarried	$50,000	$75,000	$200,000	$300,000
Married filing jointly	$100,000	$150,000	$400,000	$600,000
Married filing separately	$50,000	$75,000	$200,000	$300,000

Form 8938 does not relieve you of the requirement to file FBAR form TD F 90-22.1

IRS penalties on submission of tax returns & FBAR forms

If you are a US Citizen residing abroad, you should prioritize prompt filing of  both US income tax returns and also FBAR forms every year (reporting non-US bank and financial accounts). US government numbers indicate that several million honest folks around the world have simply not been doing this.

After many years of requests, the IRS have at long last relented and agreed publicly not to charge penalties if there is “reasonable cause” for not sending in all of the forms on time. As with so much of the tax law, reasonable cause is a complicated concept which can only be decided based on the specific facts in each case.

The new IRS rule does mean that every time an FBAR is sent late the IRS is expecting a letter explaining why penalties should not be charged. This letter is a document that needs extremely detailed and careful drafting. Getting just a few words wrong could truly lead to huge penalties - in some cases even running into the millions of dollars.

Tips:
1. Ensure every FBAR has been filed for the last 6 years
2. If anything “irregular” shows up, file these late FBARs within the next few weeks, together with a reasonable cause request
3. Always – without fail – get a professional opinion on the reasonable cause wording because the risk is just too big for anyone to ever try to do this without help.