# Form 8938 stress



## Muffin1001

So I am close to tearing my hair out with my first time round at completing form 8938, OR giving up and moving back to Blighty. BUT I'm determined, and think I'm almost there, through hours of reading and other forum amazingness! Anyone that cares to review my details below and comment yay/nay is totally amazing. OR failing that, anyone that can recommend a reliable tax professional to help get this right would be awesome!

My situation: 
Moved to the US Feb this year through marriage and filling taxes jointly with my spouse. I have savings account in the UK over the threshold for reporting, as well as a pension plan, some credit cards and an old current account.

*Type of filer*
3a specified individual.

*Savings account/Current accounts*

Record sum of account totals (at year end) under part I (line 1), record number of accounts (line 2) as deposit accounts. Ignore custodial accounts.
Record interest from savings accounts under Part III, 1a. Ignore all other boxes on III part 1 (despite having made withdrawals and transfers over the year).
Complete details for each account under part V.

*Pension*
This is, I believe, a defined contribution plan so does not need additional form 3520.

Record total value under part II.
Ignore everything in part 2, as I've now left that employer, so the money's just kinda hanging out.
Complete part VI with details, completing boxes 8 with counterparty info, type of issuer "corporation" (ignoring boxes 3*none apply, 7* it's not stock or interest in a foreign entity)

*Credit cards*
Balance is 0 but the accounts are still open, I'm just going to leave these off.

Am I likely to be fined/imprisoned/hunted down for completing in such a fashion? THANK you so much for reading and helping! :fingerscrossed:


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## Bevdeforges

Have moved you over to our Expat Tax forum. There are lots of folks here with experience with that 8938 form.

One thing I can tell you on your concerns about the Savings Accounts part is, don't worry about withdrawals and transfers you've made over the year. This form is part of your income tax return, and the primary concern is for the various elements of income related to your accounts. Withdrawals and transfers don't generate income (other than possible realized capital gains on certain types of investments). 

And no, there is no need to report your credit cards on the form. This chart might help https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements but in general credit cards are not considered to be financial assets.
Cheers,
Bev


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## Moulard

Form 8938 shouldn't be all that stressful. It can be a bit of a pain if you have a lot of accounts. Here is my approach it takes some of the pain out of it. You do need a little bit of excel formula skills though.

Do the following before you even look at the form...

Deposit and Custodial Accounts -

Step 1
If you can, download from your financial institution a CSV file. while statements generally include the daily balance, the CSV of transactions do not. So add a column, look up the starting balance, and create a formula that calculates the daily balance for the entire year.

Step 2. 
Download the spot rates for each day for the year. I would recommend using a UK one so that the exchange rate provided is in the form of 1 Pound = X USD. Y

Step 3. 
Multiply your daily balance by the exchange rate for the day. I happen to use a VLOOKUP to do it, because it makes it easier to do the same conversion for all foreign income.

Step 4. 
Use MAX to find the maximum value in USD for the calendar year.
Look up the USD value for the last business day of the year.

Rinse and repeat for each foreign bank account.


Other Foreign Assets.

This is for all those other things, including your foreign pension plan. 
Given you are talking about the UK, I seem to recall seeing something about the US recognizing British Pension plans... you may want to read up on that. 

I would expect that all that means is that that for the purposes of US taxes it will be treated as a qualified plan, but I am only guessing here... not in the UK, no UK assets...

As per the instructions, for a pension plan ...

... the maximum value of your interest is the fair market value of your beneficial interest in the assets of the estate, pension plan, or deferred compensation plan as of the last day of the tax year.

So you don't need to go through the daily conversion.. just the one for the last business day of the tax year.

If you don't get a statement that ends on 31 Dec, you may be able to report the value as zero .. read the instructions on Valuing interests in foreign estates, foreign pension plans, and foreign deferred compensation plans carefully.

You still have to report your interest int the pension plan though.


Now you have gathered all the info you need to complete the form it should be easy..

Part I - Enter the number of accounts and their combined max value during the year.

Part II - As above but their combined end of year value

Parts III and IV - Report where in your return you have reported the taxes due on any of the income generated (if any)

Parts V and VI populate with account info and the details from the spreadsheets you created earlier.

If you have more than one Deposit or other account, use multiple copies of the continuation page until you have a Part V or VI entry for every foreign asset.


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## horseshoe846

Isn't there a website .gov which posts what the annual 'exchange rate' which should be used - rather than worrying about daily spot rates ?

I can't post a link yet but you can search on "2016 us treasury exchange rate".


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## Moulard

Like you I can't post links yet either... but

The IRS publishes an annual rate.

.../individuals/international-taxpayers/yearly-average-currency-exchange-rates

The Federal Reserve does it too...

.../releases/g5a/current/default.htm

That said... the 8938 instructions are quite clear about using the exchange rate on the last day of the tax year to determine the maximum value you must report... 

For deposit accounts
... Use the currency exchange rate on the last day of the tax year to figure the maximum value of a specified foreign financial asset or the value

and for foreign estates, pension plans, trusts..

.. the maximum value of your interest is the fair market value of your beneficial interest in the assets of the estate, pension plan, or deferred compensation plan as of the last day of the tax year


Note that they both clearly say exchange rate on the last day of the year, not the yearly average.

BUT.. you also need to consider that you must report if at any point in the year your assets exceed a threshold at any point during the tax year not just the end of year value. To be able to assess that you need to be able to determine the value of the assets through the year.

The instructions say to use the treasury rate here...

.../fsreports/rpt/treasRptRateExch/treasRptRateExch_home.htm

This is a quarterly published rate, not a daily rate. I have to admit that I ignore that and use the daily rate as it isn't really consequential unless the total value of the assets lies somewhere between the end of year threshold and the max in year threshold. Perhaps I will re-evaluate if that applies to me...


That said, I believe that you are right in that you are allowed to use an average yearly rate but only to convert regular wage or salary type payments - in part because it will even out over the course of the year. I can't for the life of me find where it is written, but I know I have seen it somewhere.

The current version of Pub 54 simply says to 

...Use the exchange rate prevailing when you receive, pay, or accrue the item...


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## ForeignBody

This has got confused. As per the 8938 instructions:

Determine the maximum value of each account in local currency.

Convert this maximum value to USD by using the Treasury Exchange Rate - https://www.fiscal.treasury.gov/fsreports/rpt/treasRptRateExch/currentRates.htm - for December 31 of the year being reported.

There is no need for spot rates throughout the year.


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## Moulard

Correct.

Except that you need to consider the two reporting thresholds.

1) the combined value of the assets on 31 Dec.
2) the maximum value at any point during the tax year.


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## horseshoe846

I am far from the expert - but what I do is take the 12 monthly account statements and determine the highest balance for the year - based on the month-end balance. I then use the US Treasury exchange rate to report account info (on both the 8938 and the FBAR).


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## Moulard

Horseshoe...

The point I was trying to make in reply to your earlier post is that you should not use the average exchange rate for the year. You can use that to convert foreign wages, but not on this Form 8938. The value to report against for financial assets for Form 8938 is the exchange rate on 31 Dec.

The second point I was trying to make was that for the "...at any time during the tax year" threshold you are meant to use the prevailing rate. So in your case, if you are using the month end statement for Jan, then you must use the prevailing rate (i.e. the Jan rate) to assess the value in that month, and then add up the Jan total across all reportable accounts to determine if you have met that higher threshold. Then rinse and repeat for each month until you hit Dec.

The realities are that unless you are moving large sums between accounts, closed accounts with major sums, have major fluctuations is exchange rates during the year, or have extreme variations in investment returns within the year, this second threshold isn't likely to come into play. 

I happen to use a daily rate rather than the monthly one as the "prevailing rate", because in my specific circumstances it is actually easier for me. Why is it easier? In part, because it means I can download a CSV from each bank, other financial institutions, and from treasury, and in one hit convert all income, deductions, exemptions into US Dollars in a couple simple cut and paste activities. Then all I have to do is cut and paste into the relevant forms. Not just for Form 8938 but for my entire return. 

Consider a humble transactional bank account, that is reportable on 8938. That very same statement that you extract out the balance at the end of the month, also has interest payments, work related expenses and other transactions that are reportable elsewhere in the return.


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## horseshoe846

But the value reported at the treasury.gov website IS the exchange rate on Dec 31st.

I'll have to kindly disagree with you about your view of the ongoing yearly 'prevailing' rate. There is no way an average college grad - even an MBA - is going to go through the trouble of computing their true net worth on a daily basis. To be honest - before I retired I did use Quicken on weekends to see where we stood - and if at that time I had had foreign accounts (which I didn't) I could have changed the exchange rate for my report - but I've stopped that practice for one reason - at any given day I really don't know what my foreign holdings are really worth... And our current foreign banks don't tell us.

You should do what you are comfortable with - and there are experts here who will chime in at some point - but I think you are over-working it.

Just yesterday I had a nice half hour conversation with a CPA in Miami regarding letting him take over doing our simple taxes (which last year TurboTax generaed 48 pages). The 8938 itself was 8 pages long - primarily because of something you mentioned - if we were unhappy with a bank we closed the account and found a new one. Our return for last year - if you look at it from that perspective puts us in a George Soros category (only kidding). 

Anyway - back to yesterday's conversation - this CPA wanted a minimum of 1000 USD to do our taxes. I'm not stupid - and I may be getting a little slower - but what is the world coming to if a simple retired couple of modest means needs to pay someone that kind of money just for the pleasure of living outside the US and having local accounts ?


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## Moulard

1) I agree, the Board of Governors H.10 daily rate for 31 Dec and the Bureau of Fiscal Service rate for 31 Dec will be the same (or at least should be the same).

2) Agree wholeheartedly that no one should have to compute their true net worth on a daily (or for that matter monthly basis). But for things like capital gains they expect you do do exactly that. Buy a house for 250,000 Pound in 2000 and then sell it for 250,000 Pounds in 2016, the IRS expects you to pay capital gains based purely on the fact that the exchange rate is different even though there has been no real gain. Bone-achingly stupid based on a parochial view of the world.

FBAR, FACTA, and these forms all are there because the US seems to think that the only reason why anyone would have a non-US account is because they have criminal intent. That the FBAR is reported to a Financial Crimes unit is telling about US attitudes to dual nationality and foreign residence in itself. 

3) Agree that I am probably over-working it - I wouldn't disagree even if you said I was definitely over-working it. At the moment I do it only because it is easier for me at this point in time. 

4) In my opinion most CPAs and other Tax preparers feed on the fear of fines and penalties to drive business - that and what I would refer to as the lazy tax. Unless you had extremely complicated circumstances, most individuals should be able to do it themselves, following the various IRS instructions. It may take you four or five attempts to parse the instructions particularly if you have to factor in excluded income but it isn't rocket science.


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## Sendrigo

Muffin1001 said:


> So I am close to tearing my hair out with my first time round at completing form 8938, OR giving up and moving back to Blighty.


You would most definitely not be the first 



Muffin1001 said:


> My situation:
> Moved to the US Feb this year through marriage and filling taxes jointly with my spouse. I have savings account in the UK over the threshold for reporting, as well as a pension plan, some credit cards and an old current account.
> 
> Am I likely to be fined/imprisoned/hunted down for completing in such a fashion? THANK you so much for reading and helping! :fingerscrossed:


Depending on your situation, you might not even have to file a Form 8938 and might be able to get by with just filing an FBAR form. The IRS has a page that compares the two forms, but since I'm a new member here, I'm not allowed to post links yet. Just do a search for "Comparison of Form 8938 and FBAR Requirements".

You won't have to worry about the credit cards since they are not an asset, and the savings/current account/pension would not need to be reported on Form 8938 if the value is not greater than the threshold. 

It is difficult to give advice since I have no idea of the amounts, but you are correct to be looking at the 8938/FBAR for reporting these foreign accounts. These forms are not difficult to file, but I recommend getting professional help since the cost to file these is usually not very much and it is worth the peace of mind to get them done correctly.

Any other questions, please feel free to ask here or send me a private message.


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## Bevdeforges

The FBAR is extremely easy to file, and you should not need paid-for assistance to do so.

Individuals Filing the Report of Foreign Bank and Financial Accounts (FBAR) is the relevant site. It's rather easy - though if you're running a Linux system, it takes a bit of fudging around. (I gave up this year and just filed it all using the Windows partition on my computer.) You either download a pdf file to fill in, then upload it to the site. Or, you can do the form online using your browser. Remember, this is just a simple listing of your overseas accounts, with the high balance during the year. (You can estimate this and/or report it in round numbers.)

While the threshold for the FBAR is only $10,000 in combined value of all your foreign accounts, the threshold for the form 8938 is considerably higher: $50,000 if you're resident in the US and $200,000 if you're resident overseas and single, $400,000 if overseas and married, filing jointly. If you aren't required to file (say, because your income is below the filing threshold) you don't need to bother with the form 8938 at all. 

https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements is the comparison of FBAR and form 8938 already mentioned.
Cheers,
Bev


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## Moulard

Indeed. The FBAR form is basically just a PDF that you upload to their site.

Each year I simply remove the electronic signature update the maximum values for that year, add or remove listings as required, eletronically resign it, save it out with a new filename and file. The completing the form and submitting bit typically takes me 5-10 minutes.

If you have lots of accounts, or you regularly open and close accounts that can take a bit of time... but I suspect that is not the case for most ordinary filers.


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