December 17, 2021

Foreign Account Tax Compliance Act Reporting

In 2011, the U.S. introduced an international asset reporting Form 8938 to ensure that US taxpayers located anywhere would report their foreign assets, accounts, investments, and income. The purpose was to reduce offshore tax evasion and to dissuade people from hiding money offshore in overseas accounts.

  • The Form 8938 is due the same day as your individual tax return and is included in the filing.
  • Worldwide income is reportable no matter where you reside if you are a US citizen.
  • An interest in a foreign account with a balance of $10,000 or more on any one day in the calendar year is reported on a FBAR (Report of Foreign Bank and Financial Account Form).
  • FATCA filing is more comprehensive than the FBAR and requires reporting assets, such as interest in a business or foreign corporation depending on the level of ownership.
  • Foreign real estate is not directly reported on Form 8938 and is only include through a person’s interest in a foreign corporation or business that owns real estate.
  • Form 8938 requires the type of income: capital gains, interest income, dividend income or other earned income that is also reflected on other income tax schedules.
  • A foreign gift or trust distribution may require Form 3520 that overlaps the Form 8938.
  • An individual may need to file Form 5471 for ownership of a foreign corporation and/or Form 8865 for ownership of a foreign partnership.

The IRS can ask you to file the Form 8938 and allow you to file the form within 90 days. Failure to file the Form 8938 results in $10,000 penalties for every 30-day period of non-filing. Other forms noted above incur similar failure to file penalties.

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