# Problem with 8938



## P123

Hi all, 

I filed a 2014 income tax return even though I was well below the filing threshold and therefore not required to file. I also filed an FBAR (for which I do meet filing requirements as I live abroad.)

However, I failed to file an 8938. A total oversight. I thought the Fbar was enough! I have read on the 8938/info form that if I don't need to file an income tax return I am not required to file an 8938. But what if I filed an 1040 anyway and did not include an 8938? My foreign savings exceed the filing threshold.

Do I have to worry? I kinda don't want a $10,000 fine. I'd rather not file an amended return as I don't want to draw attention to myself for an honest mistake. Or am I in the clear since I did not meet filing requirements to begin with and therefore have no 8938 filing obligation?

Thanks for any and all advice


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## BBCWatcher

If you met the (overseas) filing threshold for IRS Form 8938, and if you filed a tax return, then yes, you were supposed to file an 8938 with your tax return.

But I don't think there's any need to worry. The IRS offers a Streamlined Compliance Program which appears to be a very good fit for you to resolve this oversight, without penalty.


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## Bevdeforges

The IRS hasn't shown any particular interest in slamming outrageous penalties on folks who have committed minor errors in filing their forms. Especially given that you didn't really need to have filed a return for 2014, it seems particularly unlikely that they'll come after you for neglecting to include the 8938 - unless, of course, your 1040 had something spectacularly unusual on it that might lead them to think you were hiding something.
Cheers,
Bev


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## P123

Bevdeforges said:


> The IRS hasn't shown any particular interest in slamming outrageous penalties on folks who have committed minor errors in filing their forms. Especially given that you didn't really need to have filed a return for 2014, it seems particularly unlikely that they'll come after you for neglecting to include the 8938 - unless, of course, your 1040 had something spectacularly unusual on it that might lead them to think you were hiding something.
> Cheers,
> Bev


Thanks for your reply, Bev. I did file an FBAR but not the 8938--was a total oversight. My savings abroad are just slightly over the $200,000 threshold. 

I'd like to be totally compliant and transparent. I just don't know if filing amended 1040 + 8938 is opening up the door to more problems than leaving it as is??

Should I call the IRS and ask them directly?


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## Bevdeforges

It's a real shame that the IRS offices in Europe have all shut down, cause I think this is one of those cases where the overseas office would have told you simply to file an 8938 this year if you file and not worry about the prior year. (The Paris office had a reputation for being pretty open about what sorts of things were or weren't likely to generate "problems.") 

I would think that filing the amended return only to add the 8938 would be likely to cause more problems than it would solve, but if you want to be in "perfect" compliance (whatever that means), you should probably file the amendment (if it's permitted to amend simply to add a form like that - I seem to recall something about being able to file an amendment only if there is a change in the amount of tax involved, but that was a long time ago in a galaxy far, far away). 
Cheers,
Bev


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## P123

Yeah, contact with IRS folks here in Europe would make this all a little more manageable. Being so far away from the US seems to (ironically) magnify the problem for me. I would just like to speak to someone reasonable. As far as I can tell the IRS fines you $10,000 for failure to file 8938...but if they become aware of your failure to file do they give you a chance to explain?


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## Bevdeforges

By definition, I think they have to. "Innocent until proven guilty" and all that good stuff. Plus, you may have an argument based on the fact that you actually didn't need to file anyhow.

But no, they don't simply issue a bill to you for the $10,000 penalty simply if they notice you didn't file a particular form.
Cheers,
Bev


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## ForeignBody

Philipp123 said:


> Yeah, contact with IRS folks here in Europe would make this all a little more manageable. Being so far away from the US seems to (ironically) magnify the problem for me. I would just like to speak to someone reasonable. As far as I can tell the IRS fines you $10,000 for failure to file 8938...but if they become aware of your failure to file do they give you a chance to explain?


I'm not sure you would find it any easier speaking to "someone reasonable" in the IRS here and, in any event, could not rely on a phone conversation as authority to do whatever they suggest.

Personally, I would file an amendment (1040X), ensure Schedule B is correctly completed and attach 8938. That shows good faith on your part by the fact that you have corrected it before they came asking you questions.

From the Instructions for 1040X:

_If you are not changing any dollar amounts you originally reported, but are
sending in only additional information, do the following.
Check the box for the calendar year or enter the other
calendar or fiscal year you are amending.
Complete name, address, and SSN.
Check a box in Part II, if applicable, for the Presidential
Election Campaign Fund.
Complete Part III, Explanation of changes. _


This matter was covered in this thread also: http://www.expatforum.com/expats/expat-tax/437945-late-filing-8938-a.html


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## BBCWatcher

Why wouldn't the Streamlined Program make sense in this case? That program is explicitly designed to waive penalties. So why not take that deal?


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## ForeignBody

BBCWatcher said:


> Why wouldn't the Streamlined Program make sense in this case? That program is explicitly designed to waive penalties. So why not take that deal?


What are the penalties for failing to file a form which the OP was not required to file in the first place?

To me the OP is just wanting to tidy up and be 100% honest - good for him.

We do not know the circumstances of filing for the three years that the streamlined procedure requires. If there are problems with all three years then the streamlined procedure may make sense. On the information available the streamlined procedure seems like overkill.


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## iota2014

> I filed my income tax return but now realize that I should have filed Form 8938 with my return, what should I do?
> If you omitted Form 8938 when you filed your income tax return, you should file Form 1040X, Amended U.S. Individual Income Tax Return, with your Form 8938 attached.


https://www.irs.gov/Businesses/Corporations/Basic-Questions-and-Answers-on-Form-8938#FPensionsQ2

If it was me I would do exactly that.


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## BBCWatcher

There's a published penalty of $10,000 for failure to file IRS Form 8938 if you are required to file one. Although I might agree that the chance the IRS assesses that penalty are slim in these circumstances, I can't _completely_ rule it out. The Streamlined Program is available, and it is expressly designed to waive penalties if you qualify. If you don't qualify then you fall back to standard operating procedures.

Why the heck not? What's the downside in the Streamlined Program?


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## iota2014

lane:


BBCWatcher said:


> There's a published penalty of $10,000 for failure to file IRS Form 8938 if you are required to file one. Although I might agree that the chance the IRS assesses that penalty are slim in these circumstances, I can't _completely_ rule it out.


The 8938 instructions say:


> Reasonable cause exception. No penalty will be imposed if you fail to file Form 8938 or to disclose one or more specified foreign financial assets on Form 8938 and the failure is due to reasonable cause and not to willful neglect. You must affirmatively show the facts that support a reasonable cause claim.
> The determination of whether a failure to disclose a specified foreign financial asset on Form 8938 was due to reasonable cause and not due to willful neglect will be determined on a case-by-base basis, taking into account all pertinent facts and circumstances.


This is pretty much the same as with the Streamlined Procedures - if not wilful, no penalty.

So if it was me I would follow the instructions at https://www.irs.gov/Businesses/Corporations/Basic-Questions-and-Answers-on-Form-8938#FPensionsQ2 and not worry.


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## BBCWatcher

The Streamlined Program gives you two bites at this apple, not one. *Why* (on earth) *not?*


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## maz57

BBCWatcher said:


> The Streamlined Program gives you two bites at this apple, not one. *Why* (on earth) *not?*


Because Streamlined is a PITA?


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## BBCWatcher

Probably not in this case, not as I read it.


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## P123

BBCWatcher said:


> Why wouldn't the Streamlined Program make sense in this case? That program is explicitly designed to waive penalties. So why not take that deal?


Thanks for your reply BBCWatcher.

Here is a direct quote from the IRS website (Fatca Information for Individuals):

"Taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, regardless of the value of their specified foreign financial assets."

Yes, I filed for 2014...but I was not required to do so as I was far below the filing threshold. For me the crux of all this is whether filing a 1040 alone requires me to file an 8938?


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## P123

iota2014 said:


> https://www.irs.gov/Businesses/Corporations/Basic-Questions-and-Answers-on-Form-8938#FPensionsQ2
> 
> If it was me I would do exactly that.


Thanks for your reply Iota.

I reviewed the link you posted but don't know what you'd do?

As is states on the first bulletin point: Taxpayers who are not required to file an income tax return are not required to file Form 8938. 

Yes, I filed a 1040 but was not required to do so. Why in your opinion does my logic not hold up? I understand you are saying I should file an amended return but why given the above information?


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## Bevdeforges

Philipp123 said:


> Thanks for your reply BBCWatcher.
> 
> Here is a direct quote from the IRS website (Fatca Information for Individuals):
> 
> "Taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, regardless of the value of their specified foreign financial assets."
> 
> Yes, I filed for 2014...but I was not required to do so as I was far below the filing threshold. For me the crux of all this is whether filing a 1040 alone requires me to file an 8938?


Actually, I was tempted to suggest exactly that approach. But it also tends to support the notion that they are highly unlikely to pursue the "failure to file a 8938" in any event.
Cheers,
Bev


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## iota2014

Philipp123 said:


> Thanks for your reply Iota.
> 
> I reviewed the link you posted but don't know what you'd do?


I'd do what it tells you to do:
*"If you omitted Form 8938 when you filed your income tax return, you should file Form 1040X, Amended U.S. Individual Income Tax Return, with your Form 8938 attached."*



> As is states on the first bulletin point: Taxpayers who are not required to file an income tax return are not required to file Form 8938.
> 
> Yes, I filed a 1040 but was not required to do so. Why in your opinion does my logic not hold up? I understand you are saying I should file an amended return but why given the above information?


Peace of mind, lest a slight anomaly (i.e., return received, FBAR received, but no 8938) might have caused the form to be added to a pile somewhere, waiting to see if the 8938 comes in.

My reasoning is that they obviously get a lot of returns that should have an 8938, since they've put it on the list of Basic Questions. So they probably aren't going to see it as unusual or worth investigating, as long as the 8938 eventually turns up, with a reasonable explanation. Is my guess.


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## BBCWatcher

iota2014 said:


> I'd do what it tells you to do:
> *"If you omitted Form 8938 when you filed your income tax return, you should file Form 1040X, Amended U.S. Individual Income Tax Return, with your Form 8938 attached."*


Which in no way disallows you from choosing the Streamlined Program, because that's also the same process you follow (1040X/8938) when participating in the Streamlined Program. The Streamlined Program is an amnesty program -- in this case nothing more than a particular inbox at the IRS for what you'd do anyway to correct this problem.

Look, I'm sure that the risk of being assessed the published penalty in these circumstances is slight. But I can't completely rule out the possibility. Consequently, *why not* take the best deal on offer? That's the offshore Streamlined Program. Assuming it's not substantially more complicated or difficult than ordinary late/amended filing, but it doesn't seem to be in these circumstances.

I don't understand the opposition here. There is, technically, a published $10,000 penalty. There's also an amnesty program that waives penalties. Why not try the amnesty program? If that doesn't work, the penalty is still considered on its own merit the same way, still unlikely (in my view). But no harm done and potentially some help, so what's not to like?

You're staring at two identical boxes of noodles in the grocery store, but one has a coupon attached to the front. The coupon may or may not be interesting -- but why not put the noodles with the coupon in your cart? Why not? I don't think this is hard.


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## iota2014

BBCWatcher said:


> Which in no way disallows you from choosing the Streamlined Program, because that's also the same process you follow (1040X/8938) when participating in the Streamlined Program. The Streamlined Program is an amnesty program -- in this case nothing more than a particular inbox at the IRS for what you'd do anyway to correct this problem.
> 
> Look, I'm sure that the risk of being assessed the published penalty in these circumstances is slight. But I can't completely rule out the possibility. Consequently, *why not* take the best deal on offer? That's the offshore Streamlined Program. Assuming it's not substantially more complicated or difficult than ordinary late/amended filing, but it doesn't seem to be in these circumstances.
> 
> I don't understand the opposition here. There is, technically, a published $10,000 penalty. There's also an amnesty program that waives penalties. Why not try the amnesty program? If that doesn't work, the penalty is still considered on its own merit the same way, still unlikely (in my view). But no harm done and potentially some help, so what's not to like?
> 
> You're staring at two identical boxes of noodles in the grocery store, but one has a coupon attached to the front. The coupon may or may not be interesting -- but why not put the noodles with the coupon in your cart? Why not? I don't think this is hard.


LoL, BBCWatcher, you sound like you would really like to have the Streamlined Experience yourself, why not give it a try?


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## P123

Thanks everyone for your responses, they have definitely helped me be able to make an informed decision. I will keep you all posted.

On a side note, can anyone tell me how to report tax if I already paid it in Austria, namely 105 euro of interest. 25 euro was paid (kest)--automatically pulled from my account. When I report my interest can I report 80 euro (using average exchange rate for 2015)?


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## Bevdeforges

You normally have the choice between reporting your interest income net (i.e. what you actually got after the taxes were taken out) or to gross it up and then take the tax paid as a tax credit, using form 1116. 

If you're likely to have to pay tax (i.e. with adjusted gross income above your exemptions and deductions), going for the tax credit usually produces a better result. But as with all tax matters, your mileage may vary.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> You normally have the choice between reporting your interest income net (i.e. what you actually got after the taxes were taken out) or to gross it up and then take the tax paid as a tax credit, using form 1116.


You _might_ have a choice (very arguable), but the second, surely correct path results in a lower tax, if not now then quite probably in the future (excess Foreign Tax Credit).


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## Bevdeforges

From IRS Pub 17:



> Foreign Income Taxes
> 
> Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U.S. possession.


It's a longstanding choice and under some circumstances the deduction is the way to go. 
Cheers,
Bev


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## BBCWatcher

You might be mixing up a couple issues, Bev, or at least what you wrote above doesn't look the same (to me anyway) as what you wrote below. Whether you're taking a foreign tax deduction or credit, you're still dealing with gross income in the "top line." And that's the part that I was reacting to.


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## P123

Just downloaded the 1040x and 8938 form. 

The 8938 form says 2015 in the upper right hand corner. Is that OK considering I am filing for 2014?

Sorry if this is a silly question.


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## P123

Philipp123 said:


> Just downloaded the 1040x and 8938 form.
> 
> The 8938 form says 2015 in the upper right hand corner. Is that OK considering I am filing for 2014?
> 
> Sorry if this is a silly question.


Also, the 1040X asks which calender year I am filing for--I want to file for 2014--I originally filed in June of 2015. 

I am a little confused about calender years vs. tax years. If I am filing for 2014 do I select 2015 calender year or 2014?

Again, my apologies if this is a dumb question. Learning by doing :juggle:


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## Bevdeforges

When you go to the site to download the forms https://www.irs.gov/Forms-&-Pubs be sure to click on the tab that says PRIOR YEAR to make sure that you get the proper version of the form. The form year refers to the calendar year that is subject to tax, NOT to the year in which you file the forms. So you want to search on the Prior Year tab for 2014 form 8938.

The 1040X allows you to indicate what year you're filing for, but most other forms need to be the ones from the tax year you're filing for.
Cheers,
Bev


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## P123

Thank you Bev, once again you have made my life easier ;-)

I am filing the 1040x only so I can add an 8938--I don't need to change any income amounts. 

From what I gather if I don't have to change any amounts I can leave those sections blank, right?

I did put in my income (as shown on my original 1040) but that is it...


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## Bevdeforges

I'd have to re-read the instructions for the 1040X form to be sure, but that sounds about right.
Cheers,
Bev


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