What's considered a foreign asset?
Turns out most assets held offshore are considered foreign assets...
If you hold foreign financial assets above certain dollar thresholds, the IRS requires you to report them on Form 8938. This applies even if the asset produced no income or distributions during the year.
Do you have to file?
Only if the total value of your specified foreign financial assets is above the threshold for your filing status and where you live.
If you live in the U.S.:
- Single or married filing separately: more than $50,000 on the last day of the year, or more than $75,000 at any point during the year
- Married filing jointly: more than $100,000 on the last day of the year, or more than $150,000 at any point during the year
If you live abroad:
- Single or married filing separately: more than $200,000 on the last day of the year, or more than $300,000 at any point during the year
- Married filing jointly: more than $400,000 on the last day of the year, or more than $600,000 at any point during the year
What counts as a specified foreign financial asset
- Any financial account maintained by a foreign financial institution, including savings, deposit, checking, and brokerage accounts
- Stock or securities issued by a foreign corporation
- A note, bond, or debenture issued by a foreign person
- A swap or similar agreement with a foreign counterparty
- An option or other derivative instrument entered into with a foreign counterparty or issuer
- An interest in a foreign partnership
- An interest in a foreign retirement plan, pension, or deferred compensation plan
- An interest in a foreign estate or foreign trust
- Any interest in a foreign-issued insurance contract or annuity with a cash surrender value
- Reportable assets held through a disregarded entity
What doesn't count
You don't report these on Form 8938:
- Foreign real estate you own directly, such as a personal residence or rental property. If you hold that real estate through a foreign corporation, partnership, trust, or estate, your interest in the entity is reportable instead.
- Foreign currency held directly
- Directly held shares of a U.S. mutual fund that owns foreign stocks and securities
- Financial accounts maintained by a U.S. financial institution that holds foreign stock and securities. This covers U.S. mutual fund accounts, traditional and Roth IRAs, 401(k) and other qualified U.S. retirement plans, and brokerage accounts at U.S. institutions.
- A financial account maintained by a U.S. branch or U.S. affiliate of a foreign financial institution
- Depository, custodial, or retirement accounts held through a foreign branch or foreign affiliate of a U.S.-based financial institution
- Payments, or the right to receive payments, from the foreign equivalent of Social Security
Neither list is all-inclusive.
If you already reported an asset on Form 3520, 3520-A, 5471, 8621, or 8865, you don't detail it again on Form 8938. You identify the other form in Part IV instead.
Form 8938 is not the FBAR
FinCEN Form 114, the FBAR, is a separate requirement with a much lower $10,000 threshold. You file it electronically with FinCEN rather than with your tax return. Many people have to file both for the same account, and filing one does not satisfy the other. Read more about the FBAR
Penalties
Failure to file Form 8938 carries a $10,000 penalty. If you receive an IRS notice and don't file within 90 days, an additional $10,000 applies for each 30-day period that passes, up to $50,000 more. The IRS may also assess a 40% penalty on any understatement of tax tied to undisclosed assets. The statute of limitations also extends from three years to six when more than $5,000 of income is omitted.
Not sure whether something counts?
Answer the foreign asset questions during onboarding as completely as you can. Your Tax Pro reviews what you report and tells you what's reportable in your situation.