Guide to Form 8938 and FATCA Requirements for US Expats
Understanding your Form 8938 reporting obligations is crucial for U.S. expats to ensure compliance with tax laws. Knowing how and when to report Specified Foreign Financial Assets can protect you from severe penalties. That's where Expatfile can help. Our software simplifies filing and shows you:
- Who must file
- What to report
- When to file
- Thresholds for expats
FATCA stands for Foreign Account Tax Compliance Act and went into effect on July 1, 2014. The law was introduced to combat tax evasion abroad. This article gives you a basic overview of FATCA for Americans living abroad. It explains what the law entails, who must file, what must be reported, when to file, and the consequences if you do not file.
What is FATCA?
To prevent US citizens and residents from potentially evading taxes, FATCA was put in place. Form 8938 requires individual taxpayers to report financial assets they own overseas. Please note that FATCA is only a reporting requirement and has no additional tax implications. If you must comply with FATCA, you must file Form 8938, which should be part of your tax return.
What needs to be reported under FATCA?
The foreign financial accounts and assets that you need to report to the IRS include:
- Financial accounts in a foreign financial institution, such as savings, deposit, checking, and brokerage accounts,
- Foreign financial assets held for investment that are not managed by a financial institution (U.S or foreign), such as stock or securities issued by someone who is not considered to be a U.S. person,
- Foreign bonds, debentures, notes issued by a foreign person,
- Interests in a foreign entity, partnership, estate, and
- Financial instruments or contracts from an issuer or counterparty that is not a U.S. person.
The IRS has a useful overview published where you can easily see what needs to be reported and what does not need to be reported.
Who needs to file Form 8938?
American taxpayers with substantial foreign financial accounts and assets need to file form 8938 as part of their tax return. Thresholds for Americans living abroad is higher than when you live in the US.
If you are a taxpayer living abroad and filing a tax return that is not a joint return, and the aggregate value of your specified foreign financial assets is higher than $200,000 at the end of the tax year, you will need to file Form 8938 under the FATCA reporting requirement. Additionally, if you have more foreign assets with a value greater than $300,000 at any time in the tax year, you will also be required to file Form 8938.
When filing a joint return, the threshold is higher. For joint tax filers, if you have a specified foreign asset of more than $400,000 as of the last day of the applicable tax year, or more than $600,000 at any given time in the year, you will be required to file your tax return with Form 8938 in compliance with FATCA.
You can determine the value of your foreign financial assets by either calculating the fair market value, or using the year-end value, or the value of the financial statement of your aggregate financial assets.
When to file form 8938 under FATCA as an expat?
Since Form 8938 is filed as part of your expat tax return, the filing deadline for FATCA follows the filing deadlines of your US expat tax return. The deadline for expats is June 16, 2025 (2024 return). You can file form 8938 till October 15, if you have requested an extended filing deadline for your federal return.
What are the penalties for not filing Form 8938 under FATCA?
If you fail to meet the filing requirements for the Foreign Account Tax Compliance Act, you can face about $10,000 penalty fees, up to a maximum of about $60,000. The penalty fee can easily add up to a significant amount as you may pay an additional $10,000 for every 30 days of not meeting the filing requirements. In severe cases, there may be applicable criminal penalties for failure to disclose your foreign assets and accounts after being notified by the IRS.
If you are wondering how the FATCA requirements get enforced, then it is important to note that many countries have signed intergovernmental agreements that require financial institutions to also report any foreign accounts or financial assets owned by U.S citizens to local tax or U.S tax agencies. It seems that the US government can easily redflag you if you don’t file form 8938 while the info is also received from the financial instituions themselves.
If I file FATCA, do I still need to file FBAR?
FBAR should not confused with FATCA since they can be considered two separate reporting requirements.
Under the FBAR filing requirement, you are required to report certain foreign financial accounts, such as bank accounts, brokerage accounts, and mutual funds, to the Treasury Department through the Report of Foreign Bank and Financial Accounts (FBAR) on FinCEN Form 114 in case you have foreign financial accounts provided that the total value of the accounts exceed $10,000 at any time of the calendar year.
FBAR is a total separate reporting obligation which does not replace FATCA. Under the FBAR filing requirement, you (also) need to report certain foreign financial accounts, such as bank accounts, brokerage accounts, and mutual funds. So, it could very well be that you need to report your foreign accounts for FBAR and FATCA as well.
How to file form 8938 as an expat?
As said, Form 8938 needs to be filed as part of your federal tax return. Expatfile made this now really easy for you. Our software first checks whether you have a filing requirement of Form 8938 by answering our wizard. If it turns out you have a filing requirement under FATCA, we collect the required info in our questionnaire and generate form 8938 as part of your return. You can easily e-file your return yourself with the IRS as we are an IRS certified e-file provider.
How Do I Calculate the Highest Value if My Foreign Accounts Are Denominated in Multiple Currencies?
Conversion of foreign currency is a unique challenge in determining whether you cross the Form 8938 thresholds. You have to convert all the amounts in foreign currency to U.S. dollars using the Treasury's Bureau of Fiscal Service exchange rate on the last date of the tax year.
Do I Have to Report Foreign Real Estate on Form 8938?
Foreign real estate need not be reported on Form 8938. However, if you own foreign property in a foreign corporation, partnership, trust, or other type of entity, your interest in the entity is considered a reportable specified foreign financial asset.
Foreign real estate investment trusts (REITs) are also reportable assets. Understanding the difference between owning property and owning property through foreign entities can affect what and how you must report.
[Common Tax Forms for U.S. Expats]
What Happens to My Statute of Limitations if I Don't File Form 8938?
When you file Form 8938 correctly, a standard three-year audit period applies. Failure to file Form 8938 means that the IRS can audit your return many years down the line. The three-year statute of limitations runs from the date you file the missing form correctly.
If you are not counting income in excess of $5,000 as an asset to report on Form 8938, the IRS has six years to audit your overall return. The extended periods give tax officials time to identify issues and assess taxes, and the FATCA Penalty for Noncompliance.
Do I Qualify to Claim Reasonable Cause to Avoid Form 8938 Penalties?
The IRS may abate the penalty if you can provide reasonable cause for not filing. Reasonable cause is that you had good faith, exercised prudent care, but were nevertheless unable. Not knowing the Form 8938 deadline, or being confused by the regulations, won't cut it. Being ill, suffering from a natural disaster that destroyed your records, or receiving inadequate professional advice may work in your favor.
The most important thing is to prove that you managed the situation responsibly, even when an unexpected event beyond your control happened. Voluntary compliance with expat taxes is always easier than explaining it later.
What Do I Do if I Discover That I Needed to File Form 8938 in Previous Years?
Discovering noncompliance won't automatically lead to penalties, and the IRS has several voluntary disclosure programs available, depending on your situation. For non-willful mistakes, the Streamlined Filing Compliance Procedures allow you to file amended returns with significantly reduced penalties, or even no penalty at all.
Using the Proper Tools Makes It Easier to File Form 8938
Our user-friendly software guides you through every step, determining thresholds and helping you report accurately. No wonder thousands of U.S. expats worldwide rely on it!