# Form 8938 in a Nutshell



## FFMralph

FACTA requires taxpayers to report their interest in foreign assets and to indicate where the related income, if any is picked up on their tax return.

This can get confusing. Here is my simplified interpretation of Form 8938.

*Who Must File*
You must file Form 8938 if you have an interest in specified foreign financial assets and the total value of those assets is more than the applicable reporting threshold.
You must report the specified foreign financial assets in which you have an interest even if none of the assets affects your tax liability for the year. 
Types of foreign assets that must be reported
Specified foreign financial assets include the following assets:
1. Financial accounts maintained by a foreign financial institution
(Savings, deposit, checking, and brokerage accounts held with a bank or broker-dealer) 
2. Foreign financial accounts for which you have signature authority
(only if any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return)
3. Foreign stock or securities not held in a financial account
4. Foreign partnership interests
5. Foreign mutual funds
6. Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
7. Foreign-issued life insurance or annuity contract with a cash-value
8. Foreign hedge funds and foreign private equity funds
9. Foreign pension plans and foreign deferred compensation plans
(not government social security plans)

*When do you have an interest in an account or asset?*
You have an interest in the account if:
1. You are the owner or joint owner of the account or asset
2. You receive distributions from a foreign estate or foreign trust
3. If any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return
Determining the Value of Your Specified Foreign Financial Assets 
You must figure the total value of the specified foreign financial assets in which you have an interest to determine if you satisfy the reporting threshold that applies to you. 

*Valuing specified foreign financial assets* 
You will need to determine the value of your specified foreign financial assets to know if the total value exceeds the threshold applicable to you. Generally, a reasonable estimate of the highest fair market value of the asset during the tax year is reported.
If the asset is jointly owned by your spouse who is filing a separate U.S federal tax return, each tax payer only reports one half (50%) of the fair market value.
For reporting purposes, you may rely on periodic financial account statements (provided at least annually) to determine the maximum value of a financial account. For a specified foreign financial asset that is not held in a financial account, you may rely on the year-end value of the asset if it reasonably approximates the maximum value of the asset during the tax year. Special rules also apply for reporting the maximum value of an interest in a foreign trust, a foreign retirement plan, or a foreign estate.
You may determine the fair market value of a specified foreign financial asset based on information publicly available from reliable financial information sources or from other verifiable sources. Even if there is no information from reliable financial information sources regarding the fair market value of a reported asset, a reasonable estimate of the fair market value will be sufficient for reporting purposes.
If the maximum value of a specified foreign financial asset is less than zero, use a value of zero for the asset. 

*Reporting Thresholds*
The threshold requirements for reporting your Foreign Financial Assets are determined by your: marital status, your federal income tax return filing status and whether or not pass the Presence Abroad test. 

*Unmarried with filing status Single, Head of Household or Qualifying widow(er) *
If living in the U.S. and the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year. 
If living abroad and the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.

*Married taxpayers filing jointly*
If living in the U.S. and the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year. 
If living abroad and the total value of your specified foreign financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year. 

*Married taxpayers filing separately*
If living in the U.S. and the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year. 
If living abroad and the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year. 

*Presence Abroad test*
You satisfy the presence abroad test if you are one of the following. 
1. A U.S. citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. 
2. A U.S. citizen or resident who is present in a foreign country or countries at least 330 full days during any period of 12 consecutive months that ends in the tax year being reported. 

*What are considered Foreign Deposit and Custodial Accounts?*
Depository accounts include a commercial, checking, savings, time or thrift account, an account evidenced by a certificate of deposit or similar instruments, and any amount held by an insurance company under an agreement to pay interest. It is an account where assets, e.g. cash or securities, are placed on deposit in favor of the depositor. 
A custodial account is defined to include an account that holds any financial instrument or contract held for investment for the benefit of another person. For instance an account for which you have signature authority but no financial interest from the account.
Assets held in deposit or custodial accounts are to be included in Part I and Part V of Form 8938.
Other assets not held in a deposit or custodial accounts are to be included in Part II and Part VI of Form 8938. 

*Further resources*
Instructions for Form 8938
http://www.irs.gov/pub/irs-pdf/i8938.pdf
Basic Questions and Answers on Form 8938
Basic Questions and Answers on Form 8938
Types of Foreign Assets and Whether They are Reportable on Form 8938
Types of Foreign Assets and Whether They are Reportable on Form 8938
Comparison-of-Form 8938 and FBAR Requirements
Comparison of Form 8938 and FBAR Requirements
Summary of FATCA Reporting for U.S. Taxpayers
Summary of FATCA Reporting for U.S. Taxpayers

*Example*
John is an American citizen. His spouse is a foreign national who is not required to file a U.S. federal income tax return so he has elected to file as „married filing separately“. 
The following interests exists in specified foreign financial assets:
1. a jointly owned (with his spouse) direct deposit account whose maximum value during the tax year was €8,000.00
2. a jointly owned savings account whose maximum value during the tax year was €75,000.00
3. stocks in his foreign employer's company whose maximum value during the tax year was €35,000.00
4. a company pension plan whose current value is €43,000.00 for which he has not received distributions. 

John is using an annual foreign currency exchange rate of 0.783.
The jointly owned accounts are valued at 100% because his spouse is not filing a separate U.S. federal income tax return. Because he has not yet received distributions from his pension, he values this interest with €0.00. The total value is €119,000.00 or approx. $151,980.00. Because this exceeds the reporting threshold of $75,000.00 (married filing separately), John must report his assets on Form 8938. He reports his bank accounts in Part I of form 8938 and his pension is included in Part II.


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## Bevdeforges

Wow, thanks for that. Did you put that together yourself?

A nice summary of the situation. About the only thing I'd add (just for reference) is that the requirements for "living overseas" are basically the same as those for claiming the Foreign Earned Income Exclusion (FEIE) on form 2555 and for further information you can check either the form instructions for the 2555 or IRS Publication 54. (You do NOT need to actually claim the FEIE to apply the "living abroad" requirements for the 8938.)

Oh, and I may have missed it, but you do not have to file a form 8938 if you do not have to file a US tax return (usually if you have insufficient worldwide income to meet the filing threshold for your filing category).
Cheers,
Bev


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## FFMralph

Thanks Bev. I included your comments in my draft. 

I plan on doing such a summary for the topics which affect most expats doing US Income Tax reporting. My experience is, the info is scattered all over the internet but needs to be bundled so that non experienced expat tax prepares can do their own returns without facing IRS penalties. 

After all, most of us are doing the same types of returns. FEIE or FTC or a combination of the two. Most are employed or retired. Most have savings and maybe some stocks.

I hope you don't mind if I post the summaries for feedback. Beside, maybe it will help someone.


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## Bevdeforges

As long as you're writing these yourself (so we don't run into copyright issues) this is a great idea/project. Thanks for sharing them with us.

One further point to make (just in general) is that it's not the case that "if you make a mistake, you'll be hit with penalties." (Seems to be what so many folks are afraid of.) Generally, the IRS will accept a "good faith" return at face value, as long as they have no reason to believe that you have willfully misrepresented your situation or neglected to report income that they are able to easily match up with your return (i.e. by SSN) based on the reports they have received (1099s, W-2s, other tax reporting documents including the FATCA reporting from foreign banks and financial institutions).
Cheers,
Bev


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