The IRS Form 8938 is a tax form used by certain U.S. taxpayers and corporations, partnerships, and associations that have foreign assets exceeding a certain threshold.
Definition and Example of IRS Form 8938
The FATCA Act was signed into law by President Obama on March 18, 2010, to create more stringent reporting requirements for taxpayers regarding foreign assets and to reduce government losses resulting from non-compliance with foreign tax laws. Taxpayers and corporations and partnerships owning foreign assets that exceed the thresholds must file Form 8938 when submitting their tax returns.
Note: Foreign investments held through investment accounts located in the United States are not reported on Form 8938 and are not subject to FATCA rules.
What Are Considered Foreign Financial Assets?
The IRS refers to foreign financial assets as “specified foreign financial assets.” These include:
- Financial accounts held at institutions outside the United States, such as bank accounts, investment accounts, retirement accounts, deferred compensation plans, and mutual funds.
- Stocks and bonds or other securities issued by a non-U.S. person and not held through an investment account.
- Bonds or notes issued by a foreign person.
- Any interest in a foreign entity, such as a foreign corporation, foreign partnership, or foreign trust.
- Any financial instrument or contract with a counterparty that is not a U.S. person.
- Personal residences and rental properties, but only if owned by a foreign partnership or corporation, trust, or estate.
Who Uses IRS Form 8938?
In theory, all U.S. taxpayers are subject to FATCA rules, but only under certain circumstances. The instructions for Form 8938 refer to “specified individuals” and “specified domestic entities” and explain when reporting must be done.
Specified individuals include U.S. citizens, resident aliens, and non-resident aliens who elect to be treated as U.S. residents for tax purposes, as well as non-resident aliens residing in American Samoa or Puerto Rico.
Note: Taxpayers who are not required to file tax returns because they earn less than the income thresholds do not have to file Form 8938. The filing requirements are the same as the standard exception for most non-filers as of 2022.
Specified domestic entities include any closely held corporation or partnership that meets the following conditions:
- 80% of the voting power or stock or capital is owned by one person on the last day of the tax year.
- 50% of the corporation’s gross income is from passive income, or 50% of its assets are held to produce passive income.
This may also apply to a domestic trust that has at least one specified current beneficiary for the specified tax year.
Thresholds for Filing Form 8938
Taxpayers must also meet certain thresholds for them to be required to file Form 8938. The IRS has set different thresholds for different types of taxpayers. All of these thresholds represent the total foreign assets owned:
- Unmarried individuals residing in the United States must file Form 8938 if the market value of their foreign financial assets exceeds $50,000 on the last day of the year or exceeds $75,000 at any time during the year.
- Married couples filing jointly and residing in the United States must file Form 8938 if the market value of their foreign financial assets exceeds $100,000 on the last day of the year or exceeds $150,000 at any time during the year.
- Married couples filing separately and residing in the United States must file Form 8938 if the market value of their foreign financial assets exceeds $50,000 on the last day of the year or exceeds $75,000 at any time during the year.
- Must
Unmarried individuals residing outside the United States who meet the substantial presence test or the physical presence test must file Form 8938 if the fair market value of their foreign financial assets exceeds $200,000 on the last day of the year or exceeds $300,000 at any time during the year. - Married couples filing jointly and residing outside the United States who meet the substantial presence test or the physical presence test must file Form 8938 if the fair market value of their foreign financial assets exceeds $400,000 on the last day of the year or exceeds $600,000 at any time during the year.
- Married couples filing separately and residing outside the United States who meet the substantial presence test or the physical presence test must file Form 8938 if the fair market value of their foreign financial assets exceeds $200,000 on the last day of the year
Source: https://www.thebalancemoney.com/foreign-financial-assets-3193146
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