Can Taxpayers With Foreign Assets Be Exempted From Filing Form 8938?

 Posted on April 05, 2022 in Taxation Law

U.S. taxpayers who own assets in other countries must meet a number of requirements when filing tax returns with the IRS. Reporting of foreign assets can be complex, and in some cases, taxpayers may wish to avoid providing the IRS with more information than is necessary. Form 8938 (Statement of Specified Foreign Financial Assets) will provide information about multiple types of foreign accounts, and taxpayers may be required to submit this form along with their annual tax return. However, there are some exceptions to this requirement, and depending on the tax strategies a person uses and the extent of their assets, they may be able to avoid submitting Form 8938 in certain situations.

Exceptions to Form 8938 Requirements

Taxpayers who are considered “specified individuals” or “specified domestic entities” are required to submit Form 8938 if they own foreign assets with a value above a certain threshold. However, a person who is not required to file a tax return for a certain year will not need to submit Form 8938.

Specified individuals include U.S. citizens, people who are considered resident aliens, and nonresident aliens who choose to be treated as resident aliens so that they can file a joint tax return with their spouse. If a nonresident alien does not elect to be treated as a U.S. resident, they will not be required to file Form 8938. Specified domestic entities include closely held domestic corporations or partnerships that earn at least 50% of their gross income from passive income or hold at least 50% of their assets for the production of passive income. Entities that own foreign assets but do not use at least 50% of their assets for passive income will not be required to file Form 8938.

Depending on the applicable reporting thresholds, individual taxpayers may not be required to Form 8938. Married taxpayers who reside in the United States who file a joint tax return will meet the threshold for reporting if their specified foreign financial assets have a total value of $100,000 or more at the end of the tax year or if their assets were worth more than $150,000 at any point during the year. For a married couple living outside the United States, the threshold is $400,000 at the end of the year or $600,000 at other times during the year. These amounts are halved for taxpayers who are not married or spouses who file separate tax returns. A person may be exempted from the requirement to file Form 8938 if the value of their foreign assets is below the applicable threshold. For example, if a couple lives outside the United States, and they have one joint foreign account with a balance of $300,000, they would not need to file Form 8938 because the total value of their foreign assets is below the applicable threshold.

Contact Our San Jose, CA Tax Compliance Attorney

Understanding your requirements for reporting foreign assets to the IRS is not always easy, and if you fail to file the proper forms, you could face penalties. At John D. Teter Law Offices, we can help you determine how to address issues related to your reporting of foreign assets, and we will work with you to provide the correct information to the IRS and avoid or minimize penalties. Contact our San Jose tax lawyer at 408-866-1810 to get legal help with your case.

Sources:

https://www.irs.gov/instructions/i8938

https://www.thebalance.com/foreign-financial-assets-3193146

https://www.hrblock.com/expat-tax-preparation/resource-center/forms/form-8938/