What is Form 8938?

Definition

Form 8938, Statement of Specified Foreign Financial Assets, is the IRS form through which US taxpayers report their foreign financial assets under the Foreign Account Tax Compliance Act (FATCA). It is filed as an attachment to your annual income tax return (Form 1040 or 1040-NR) and is separate from — but overlaps with — the FBAR (FinCEN Form 114). While both forms require reporting foreign financial accounts, Form 8938 covers a broader range of asset types and has higher reporting thresholds. Reporting Thresholds: Form 8938 thresholds vary based on filing status and whether you reside in the US or abroad. For US residents filing single or married filing separately: $50,000 on the last day of the tax year OR $75,000 at any time during the year. For US residents filing married filing jointly: $100,000 on the last day OR $150,000 at any time. For taxpayers living abroad filing single or married filing separately: $200,000 on the last day OR $300,000 at any time. For taxpayers living abroad filing married filing jointly: $400,000 on the last day OR $600,000 at any time. You meet the 'living abroad' thresholds if you have a tax home in a foreign country and are either a bona fide resident of a foreign country for the entire tax year or meet the Physical Presence Test. For US citizens in Canada, the higher thresholds typically apply. Specified Foreign Financial Assets: Form 8938 covers a broader category of assets than the FBAR. Reportable assets include: financial accounts maintained by a foreign financial institution (bank accounts, brokerage accounts, investment accounts — same as FBAR); stock or securities issued by a foreign person that are NOT held in a financial account (e.g., directly-held shares of a Canadian private corporation); any financial instrument or contract held for investment with a foreign counterparty (e.g., derivatives, options with a Canadian bank); an interest in a foreign entity (partnership interest, membership interest in a foreign LLC, ownership in a foreign trust); and foreign-issued life insurance or annuity contracts with cash value. Notable exclusions: assets reportable on other specific forms (Form 3520 for foreign trusts, Form 5471 for CFCs, Form 8865 for foreign partnerships) may be reported by checking a box on Form 8938 indicating they are reported elsewhere, rather than providing full details. How Form 8938 Differs from FBAR: This distinction is critical for cross-border compliance. The FBAR is filed with FinCEN (not the IRS), covers only financial accounts, has a $10,000 aggregate threshold, and is due April 15 with automatic extension to October 15. Form 8938 is filed with the IRS as part of the tax return, covers financial accounts PLUS other foreign assets (stock, partnership interests, foreign instruments), has much higher thresholds ($50,000-$400,000), and is due with the tax return. In most cases, US citizens in Canada with significant assets must file both. Filing one does not satisfy the other. Valuation Rules: Assets must be valued in US dollars using the Treasury Department's end-of-year exchange rate for year-end values and the exchange rate on the date of any transaction. For Canadian dollar-denominated assets, the Bank of Canada or Federal Reserve exchange rates are typically used. If a reasonable estimate is necessary (for example, for a private company interest), you must describe the valuation method used. The IRS will not accept zero or unknown values — you must make a reasonable good-faith estimate. Penalties for Non-Filing: The penalty structure for Form 8938 is multi-layered. Initial penalty: $10,000 for failure to file or failure to report an asset. Continuation penalty: if the IRS sends a notice of failure and you do not file within 90 days, an additional $10,000 for each 30-day period (or fraction) of continued non-filing, up to a maximum additional $60,000. That means total penalties can reach $70,000 per year for persistent non-filing. Beyond these direct penalties, failure to file Form 8938 triggers two additional consequences: a 40% accuracy-related penalty on any underpayment attributable to undisclosed foreign financial assets (instead of the normal 20%), and a 3-year extension of the statute of limitations for any tax return on which Form 8938 should have been filed. For unreported assets, the statute of limitations extends to 6 years. Common Assets for US-Canada Taxpayers: The most commonly reported assets on Form 8938 for US citizens in Canada include: Canadian bank accounts (chequing, savings, high-interest savings), Canadian brokerage and investment accounts, RRSP and RRIF accounts, TFSA accounts, RESP accounts, ownership interests in Canadian private corporations (CCPC shares), Canadian-issued life insurance policies with cash value, and Canadian pension plan interests (though CPP and OAS are government programs and generally not reportable). Streamlined Filing for Late Filers: US citizens in Canada who have not been filing Form 8938 can often come into compliance through the IRS Streamlined Filing Compliance Procedures, which waive penalties for non-willful non-compliance. This requires filing three years of delinquent returns and six years of delinquent FBARs, along with a certification of non-willfulness. Given the severe penalty exposure for Form 8938 non-filing, the Streamlined Procedures represent a valuable opportunity to become compliant before the IRS initiates contact.

Related Forms

Common Mistakes to Avoid

• 1Assuming that filing the FBAR satisfies the Form 8938 requirement (or vice versa) — they are separate filings with different agencies, thresholds, and asset coverage
• 2Not knowing that the thresholds are significantly higher for US taxpayers living abroad ($200K/$400K vs $50K/$100K) — many expats file unnecessarily or miss the filing when they should
• 3Failing to report ownership interests in Canadian private corporations, which are specified foreign financial assets even though they are not financial accounts

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