01. International Tax

We provide tailored solutions to complex global businesses doing business in the U.S. Small or multinational, we guide clients through the maze of complex U.S. international tax rules.

02. Offshore Tax Compliance

We assist clients with specialized counsel to fix noncompliance with international tax reporting and penalties. FBAR, forms 8938, 8621, 3520, 926, 5471 and 5472 are among the most common forms that we solve through compliance programs such as streamlined procedures, Voluntary Disclosure Program or the Delinquent International Information Return Submission Procedures (DIIR).

03. Small Business Tax Planning

We assist small and medium businesses with efficient tax structuring to improve efficiencies. Proper tax election, s-corp elections and partnership planning are some of the main solutions offered.

04. Controversy Tax

We guide and represent clients before the IRS including examinations and appeals, as well as represent clients in Tax Court or Federal Courts.

05. Tax Debt Resolution

We help clients to face harsh collection activities, including liens, levies and obtaining a collection alternative such as an offer in compromise, installment payment plans, among others.

06. IRS Criminal Investigations

Our Firm provides representation before IRS Criminal Investigation Division, including Malta Pension Plans and summons.

07. High Net Worth & Family Offices

Assistance with estate planning for select clients and those with cross-border operations, planning for inheritance taxes, and gift taxes in the USA.

08. Start-Ups & Business Tax

No matter how small the idea, we assist clients with the best tax planning and alternatives for their business.

09. Crypto Tax

Our Firm provides tax planning and tax advice on crypto assets and crypto events, including mining, forks, rewards, and disposition/exchange of crypto.

10. BOI Report- Corporate Transparency Act

We assist business owners, CPA and tax preparation firms to file the Beneficial Ownership Information (BOI) report with the FinCEN.

Form 8938: Who must file, and how to file

International Tax

10.05.2025

Form 8938, “Statement of Specified Foreign Financial Assets,” is a critical reporting requirement for U.S. taxpayers with foreign financial interests. Introduced as part of the Foreign Account Tax Compliance Act (FATCA), Form 8938 helps the IRS track offshore assets and prevent tax evasion. Failure to file this form can result in severe penalties. This article outlines how to comply with Form 8938 requirements, with a focus on addressing noncompliance—whether willful or non-willful.

Who Must File Form 8938?

U.S. citizens, residents, and certain non-resident aliens must file Form 8938 if they meet the threshold for specified foreign financial assets. The threshold varies based on tax filing status and residence:

    • Single or Married Filing Separately (U.S. residents): Total foreign assets exceeding $50,000 on the last day of the tax year or $75,000 at any point during the year.
    • Married Filing Jointly (U.S. residents): $100,000 on the last day or $150,000 at any time.
    • Taxpayers Living Abroad: Higher thresholds apply (e.g., $200,000 on the last day or $300,000 at any time for single filers).

Types of Assets That Must Be Reported on Form 8938

The IRS requires individuals to report specified foreign financial assets, including but not limited to:

    1. Foreign Bank Accounts – Savings, checking, and deposit accounts held in non-U.S. financial institutions. (Note: This does not replace FBAR reporting.)
    2. Foreign Investment Accounts – Brokerage accounts or custodial accounts maintained with foreign institutions.
    3. Foreign Stocks and Securities – Stocks, bonds, or other securities issued by a foreign entity that are not held in a U.S. brokerage account.
    4. Foreign Mutual Funds and ETFs – Interests in foreign mutual funds, hedge funds, or exchange-traded funds (ETFs).
    5. Foreign Retirement Accounts – Certain foreign pension funds and retirement accounts, unless exempt under a tax treaty.
    6. Foreign Trusts and Estates – Beneficial interests in a foreign trust or estate with a fair market value above the reporting threshold.
    7. Foreign Life Insurance or Annuity Contracts – Policies with cash value issued by a non-U.S. insurer.
    8. Foreign Derivatives or Other Financial Instruments – Options, swaps, and other contracts issued by foreign entities.
    9. Foreign Real Estate Held Through a Foreign Entity – Direct ownership of foreign real estate does not need to be reported, but if the real estate is held through a foreign corporation, trust, or partnership, the ownership interest must be disclosed.
    10. Direct Ownership in Foreign Entities – If an individual owns shares or equity in a foreign corporation, partnership, or similar entity, the ownership must be reported on Form 8938, regardless of whether the entity generates income.

Examples of Foreign Entity Structures That Must Be Reported on Form 8938:

      • Mexico – Sociedad Anónima de Capital Variable (A. de C.V.) or Sociedad de Responsabilidad Limitada (S. de R.L.)
      • Brazil – Sociedade Anônima (A.) or Sociedade Limitada (Ltda.)
      • Colombia – Sociedad por Acciones Simplificada (A.S.)
      • Japan – Kabushiki Kaisha (K.) or Godo Kaisha (G.K.)
      • Australia – Proprietary Limited Company (Pty Ltd)
      • United Kingdom (UK) – Private Limited Company (Ltd)
      • France – Société Anonyme (A.) or Société par Actions Simplifiée (S.A.S.)

Noncompliance: Willful vs. Non-Willful

Taxpayers who have failed to file Form 8938 must determine whether their noncompliance was willful or non-willful, as the available correction options differ significantly.

1. Willful Noncompliance – Voluntary Disclosure Practice

          • If a taxpayer knowingly failed to report foreign assets, they face severe penalties, including a $10,000 fine per violation, with a potential 40% penalty on unreported income and even criminal charges.
          • The Voluntary Disclosure Practice (VDP) of the IRS offers a pathway to compliance for willful violators.
          • To participate, taxpayers must submit Form 14457 and cooperate fully with the IRS to determine owed taxes, interest, and penalties.
          • VDP does not guarantee immunity from prosecution but significantly reduces the risk of harsher consequences.

2. Non-Willful Noncompliance – Streamlined Filing Compliance Procedures

          • If the failure to file was due to negligence, misunderstanding, or a reasonable cause, the Streamlined Procedures provide relief.
          • There are two types of streamlined programs:
          • Streamlined Foreign Offshore Procedures (SFOP): Available for U.S. expats who did not file Form 8938 but meet the foreign residence test. These taxpayers are exempt from penalties but must file three years of amended tax returns and six years of FBARs.
          • Streamlined Domestic Offshore Procedures (SDOP): For U.S. residents, requiring the same filings but with a 5% penalty on unreported foreign assets.

Relevance for Taxpayers

Filing Form 8938 is essential for avoiding IRS scrutiny and financial penalties. Taxpayers with foreign assets should review their compliance history and take appropriate corrective action. For non-willful failures, streamlined procedures offer a relatively simple fix. However, willful violations require immediate legal guidance to minimize risks.

By understanding Form 8938 and available compliance options, taxpayers can ensure they meet their reporting obligations while mitigating potential penalties.

For individuals and businesses across the United States and worldwide facing complex international tax issues, seeking the guidance of an experienced international tax attorney is essential. Juarez Hernandez Tax Law specializes in navigating intricate cross-border tax matters, including foreign asset reporting (FBAR, Form 8938, Form 3520, Form 5471, and Form 5472), international tax compliance, streamlined offshore procedures, and tax litigation. 

0