What is Form 8938? FATCA Filing Requirements for US Expats

The US uses a citizenship-based taxation schema, which requires expats to file US taxes, reporting even foreign-earned income, as long as they’re US citizens.

Fortunately, there are many exclusions and exemptions available to reduce US tax owed, often to $0. However, filing does become more complicated when foreign financial assets are involved, as these also need to be reported. This requirement is related to the Foreign Account Tax Compliance Act (FATCA).

As part of complying with FATCA regulations, US expats may need to attach Form 8938 )Statement of Specified Foreign Financial Assets) to their annual tax return when they meet the financial threshold. Below, we’ll break down FATCA and explain when you need to complete Form 8938.

What is Form 8938?

Form 8938 is used to report your foreign financial assets if their total value (including the ones in which you have an interest) exceeds the relevant reporting threshold.

The thresholds for 2024 for those living outside the US are as follows:

Married Filing Jointly	All other filers
$400,000 on the last day of the tax year or more than $600,000 at any time during the year	$200,000 on the last day of the tax year or more than $300,000 at any time during the year

Now, let’s zoom out for a moment to help you understand whether you need to file Form 8398 and why it’s so important. 

What are foreign financial assets?

Foreign financial assets are any financial accounts or investments that you hold outside of the United States. This can include:

• Bank accounts
• Investment accounts
• Mutual funds
• Stocks and bonds that you’ve invested in overseas
• Foreign pension funds
• Ownership shares in foreign businesses (corporations, partnerships)
• Foreign trusts
• Foreign real estate, when held in a foreign company

All of these assets are subject to reporting each year to the IRS.

What is FATCA?

FATCA stands for Foreign Account Tax Compliance Act. Passed in 2010, FATCA was enacted to crack down on offshore tax evasion.

The law requires foreign financial institutions (FFIs) to report information about financial accounts held by U.S. taxpayers to the (IRS). Unfortunately, in practice, it tends to place frustrating filing requirements and foreign financial banking obstacles in the way of millions of ordinary US expats.

Some examples of FFIs include: 

• banks
• investment funds
• insurance companies.

FFIs are required to identify and report certain information about U.S. account holders. This information includes their names, addresses, tax identification numbers, and account balances. 

Who qualifies for FATCA reporting?

Whether you’ll need to comply with FATCA reporting as an individual taxpayer and file Form 8938 depends on all three factors listed below:

• Your US citizenship and immigration status
• Whether you have an interest in a specified foreign financial asset
• Whether the value of your financial assets meets the reporting threshold

A US citizen or Green Card holder qualifies as living abroad for applying FATCA reporting thresholds if they meet either of the tests used to evaluate eligibility for the Foreign Earned Income Exclusion: 

• The Bona Fide Resident test or
• The Physical Presence test

Generally, you’ll need to evaluate the threshold to file Form 8938 if you’re an American citizen or a resident alien (also known as a Green Card holder) for any part of the tax year. 

How do I file Form 8938?

Form 8938 is a two-page document that contains six parts. Below, we walk you through an example.

Identifying information

This is the preliminary section where you’ll enter details like your name, SSN (or ITIN), and type of filer, whether an individual or business.

Part I. Foreign Deposit and Custodial Accounts Summary

This is where you’ll enter a summary of your foreign accounts, including the quantity, type, and value. 

This same information will appear in more detail in other parts of the form.

What is a deposit and custodial account?

A deposit account refers to any financial account that holds funds for safekeeping. For example:

• Checking accounts
• Savings accounts
• Time deposits
• Certificates of deposit

Essentially, deposit accounts are accounts that hold cash or cash equivalents that can be readily accessed by the account holder.

On the other hand, a custodial account refers to a financial account that holds assets managed by a third-party custodian. These can include assets such as stocks, bonds, mutual funds, and other securities.

With a custodial account, the account holder entrusts the assets to the custodian for safekeeping, and the custodian is responsible for managing the assets according to the account holder’s instructions.

Part II. Other Foreign Assets Summary

Here, you’ll enter the other foreign financial accounts you didn’t include in Part I. A perfect example is foreign stock or securities.

Part III. Summary of Tax Items Attributable to Specified Foreign Financial Assets

Here, enter the foreign assets that relate to a tax obligation and for which a relevant return is filed.

In our example, Emma earned $20,000 in interest from her accounts listed in Part I. Have a look at the example below.

Part IV. Excepted Specified Foreign Financial Assets

If you already reported a specified foreign financial asset in forms such as Form 3520, 3520-A, 5471, 8621, or 8865, you only need to indicate the number of documents you filed in this section.

You don’t need to provide detailed information about the individual assets.

Part V. Detailed Information for Each Foreign Deposit and Custodial Account Included in the Part I Summary

This section is where you’ll provide the information on the accounts you already summarized in Part I. You’ll need to use additional pages if you have multiple accounts.

Part VI. Detailed Information for Each Other Foreign Asset Included in the Part II Summary

Just like in Part V, you’ll enter the details of your other foreign financial assets here.

As a reminder, qualifying assets in this section might include:

• A business that the taxpayer has a shareholder interest in
• Investments
• Foreign retirement plans and bank balances

Reporting foreign financial assets valued in foreign currency 

To evaluate the filing threshold and report foreign financial assets accurately, you need to know both the highest fair market value during the tax year, as well as the fair market value on the last day of the tax year, for each asset, in the currency that it is denominated in.

You should then convert these figures into US dollars using the official U.S. Treasury Bureau of the Fiscal Service foreign currency exchange rate for purchasing U.S. dollars.

You can find the rates on the Treasury website.

Penalties for not filing Form 8938

Several penalties can be assessed for not filing Form 8938 or for filing an incomplete or inaccurate form.

The IRS can assess a $10,000 penalty for failure to file Form 8938 by the due date (which is typically the same due date as your Form 1040).

There are also penalties for filing an incomplete or inaccurate form. If the form is not filed within 90 days after the IRS issues a notice of failure to file, an additional penalty of $10,000 for each 30-day period of non-filing can be assessed, up to a maximum penalty of $60,000.

If the failure to file is deemed intentional, the penalty can be even more severe. For example, if the IRS finds a taxpayer to have willfully failed to file Form 8938, the penalty can be as high as $100,000 or 50% of the value of the foreign financial assets that the taxpayer should have reported on the form, whichever is greater.

The failure to report foreign financial assets may trigger additional penalties under other tax laws, such as the failure to report foreign bank accounts under the FBAR (FinCEN Form 114), which can carry even higher penalties.

Catch up on filing Form 8938 and US taxes with the Streamlined Filing Procedure

Given the high complexity of navigating US tax filing requirements associated with foreign financial assets, it’s quite common for taxpayers to fall behind. And with the intimidating penalties that failing to file implies, completing one US expat tax return can sometimes feel like an insurmountable task. But what if you’ve fallen behind and need to catch up? 

If you’ve fallen behind on your taxes because you did not know you needed to file, there’s good news. The IRS created an amnesty program called the Streamlined Filing Procedure to alleviate the financial stress expats associated with late filing. If you qualify for this procedure, you can catch up and become completely compliant with the IRS with $0 in penalties. 

There are certain qualifying conditions to meet here, so be sure to consult with an US expat tax expert on how to ensure you meet the eligibility requirements for this program. If you qualify, you may also be eligible to claim certain tax exclusions and credits retroactively, such as COVID-19 stimulus payments, the Child Tax Credit, and others.

Resources

1. Summary of FATCA Reporting for U.S. Taxpayers | Internal Revenue Service (irs.gov)
2. Do I need to file Form 8938, Statement of Specified Foreign Financial Assets? | Internal Revenue Service (irs.gov)
3. About Form 8938, Statement of Specified Foreign Financial Assets | Internal Revenue Service (irs.gov)
4. Treasury Reporting Rates of Exchange
5. Report of Foreign Bank and Financial Accounts (FBAR) | Internal Revenue Service (irs.gov)