Non Compliance with Form 8938
If you are required to file Form 8938 and fail to do so, you are subject to penalties. A $10000 penalty is charged for the failure of filing the form while an additional penalty could lead up to $ 50000 for a continuation of the failure. This could be charged if there is a failure in filing the form after you are notified by the IRS for the same. An additional 40% penalty would also be charged on an understatement of tax attributes for the non-disclosure of these assets.
This would be chargeable for an extended time span of 06 years after filing a return post the omission of $ 5000 from the gross income which could be attributable to any specified financial asset without regard to the reporting threshold or any reporting exceptions. For the ones who fail to file Form 8938 or do not report the assets properly on the form, the statute of limitations for the tax year gets extended for another 03 years following the time of producing the false or inadequate information. The failures that occurred by reasonable causes have a statute of limitation that extends only with regards to the item or items related to the failure and not on for the entire tax return.
If you are willing to show that the failure in disclosure of the right or adequate information is caused because of something reasonable and not because it was neglected willfully, there is a possibility of not being charged with any penalties at all in regards to filing Form 8938. There is no proper justification that would determine all the reasonable causes but they would be testified and identified on a case to case basis where a proper consideration of facts, figures, and circumstance would take place.
THE FORM 8938 DOES NOT RELIEVE FILERS OF FBAR FILING REQUIREMENTS
It is very essential to understand that the FBAR and the Form 8938 are totally different and individual requirements required to be filed by the US government for disclosing the information on the foreign financial assets. Hence, if you happen to have a financial interest in or a signatory authority in an offshore financial account, you must report the account on an FBAR (Form 114) even if the obligations of fining Form 8938 do not apply on you.
Although there are certain accounts that need to be reported on both, Form 8938 and FBAR, it is not necessary that the information required to be mentioned in these forms is identical in all the cases. Differed rules, key definitions, and reporting requirements are applicable to both the forms as their reporting standards. It is because of these differences that certain foreign financial accounts would not be required as a mention on both the forms.
THE COMPARISON BETWEEN FORM 8938 AND FBAR REQUIREMENTS
| FATCA AND FBAR | FATCA Form 8938, Statement of Specified Foreign Financial Assets | FBAR Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts |
| Who Must File? | Specified individuals: This shall include US citizens, resident aliens, and certain nonresident aliens that have an interest in specified foreign financial assets and meet the reporting threshold. | US persons: This shall include the US citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold. |
| Does the United States include the US territories? | No | Yes, the resident aliens of US territories and US territory entities are subject to the FBAR reporting. |
| Reporting Threshold (Total Value of Assets) | $50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad) | $10,000 at any time during the calendar year |
| When do you have an interest in an account or asset? | 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. This would be included, or otherwise get reflected on your income tax return. | Financial interest: You are the owner of record or holder of legal title. The owner of record or holder of legal title is your agent or representative; you have a sufficient interest in the entity that is the owner of record or holder of a legal title. |
| Signature authority: You have the authority to control the disposition of the assets in the account directly by communicating with the financial institution maintaining the account. | ||
| What is Reported? | The maximum value of any specified foreign financial assets, which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets. | The maximum value of any financial accounts maintained by a financial institution physically located in a foreign country. |
| How are the maximum account or asset values determined and reported? | A fair market value in US dollars in accord with the Form 8938 instructions for each of the accounts and assets that are reported. | Use the periodic account statements for determining the maximum value in the currency of the account. |
| Convert to US dollars at the end with the help of the taxable year exchange rate and report in US dollars. | Convert to US dollars by using the end of the calendar year exchange rate and report in US dollars. | |
| When Due? | By the due date, including extension, if any, for income tax return. | Received by June 30 (no extensions of time granted) |
| Where to File? | File with income tax return pursuant to instructions for filing the return. | Individuals would file electronically at BSA E-Filing System. |
| Penalties | Up to $10,000 for failure to disclose and an additional $10,000 for every 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply. | If non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties might also be applicable. |
As already discussed, the due date of filing the FBAR is April 15 for all the financial accounts that have a financial interest or signature authority in the previous year’s calendar. The FBAR needs to be filed electronically via the Financial Crimes Enforcement Network’s BSA E-filing System. Form 8938 is due to the annual income tax return and needs to be filed with the applicable IRS service centers.
For the specified foreign financial assets held beyond the account with the financial institutions must be reported on the Form 8938 but not on the FBAR.