Key Takeaways
- Form 8938 is a FATCA disclosure filed with Form 1040 when specified foreign financial assets exceed $50,000/$100,000 thresholds depending on filing status and residency.
- Thresholds differ for U.S. residents vs taxpayers living abroad, with tests based on end-of-year value or highest balance during the year.
- Reportable assets extend beyond bank accounts to include foreign stocks, partnerships, trusts, pensions, and other specified assets.
- Form 8938 does not replace FBAR (FinCEN 114); many clients must file both with different agencies and deadlines.
- Failure-to-file penalties start at $10,000 and can increase to $50,000, plus a 40% penalty on unreported income.
- Foreign currency values must be converted to USD using IRS-approved exchange rates, typically year-end Treasury rates.
- FATCA noncompliance can extend the statute of limitations on the entire return.
Introduction
For Indian Chartered Accountants expanding into U.S. tax preparation, FATCA reporting is one of the most frequent and risk-sensitive compliance areas you will manage for clients. Form 8938, while conceptually simple, creates repeated confusion around thresholds, asset coverage, and its overlap with FBAR.
As a practitioner, your role is not only to complete the form but to identify reportable assets early, apply the correct valuation rules, and coordinate FATCA disclosures with income reporting and foreign tax credits. Errors here routinely trigger IRS notices and extended audits.
This article breaks down Form 8938 FATCA reporting requirements from a practitioner’s perspective. You will learn who must file, how thresholds work, what assets are reportable, how to file correctly, how Form 8938 differs from FBAR, and the penalties for noncompliance. The goal is to help you confidently handle FATCA disclosures as part of a scalable U.S. tax service offering.
What Are Form 8938 FATCA Reporting Requirements?
Overview of FATCA
The Foreign Account Tax Compliance Act (FATCA) is a U.S. anti-tax evasion law designed to identify offshore financial assets held by U.S. taxpayers. FATCA operates through two parallel systems: reporting by foreign financial institutions (FFIs) and self-reporting by U.S. taxpayers.
For Indian CAs, Form 8938 sits squarely in the taxpayer self-reporting regime. It requires disclosure of specified foreign financial assets once certain thresholds are crossed.
Purpose of Form 8938
Form 8938 is used to report Specified Foreign Financial Assets (SFFAs) held during the tax year. It provides the IRS with visibility into offshore holdings that may generate taxable income or capital gains.
The form supplements income reporting. Filing Form 8938 does not replace the need to report interest, dividends, or gains on Schedule B, Schedule D, or other relevant forms.
Who must file Form 8938
Form 8938 applies to U.S. citizens, resident aliens, and certain nonresident aliens who elect to be treated as residents for tax purposes. Certain domestic entities with foreign assets may also have FATCA obligations, though individual filing is most common.
Importantly, FATCA entity-level obligations (such as FFIs reporting via GIIN and IDES) are distinct from individual Form 8938 filing. Individual taxpayers file Form 8938 attached to Form 1040 and submit it by the normal return due date, including extensions.
Practitioner Tip: Always evaluate Form 8938 applicability during client onboarding. Do not wait until Schedule B disclosures flag foreign accounts.
Form 8938 Threshold Amounts Explained
Thresholds for taxpayers living in the U.S.
Threshold amounts determine whether Form 8938 is required. For taxpayers residing in the U.S., thresholds are relatively low and easily triggered by multiple accounts.
Thresholds for taxpayers living abroad
Taxpayers who meet the IRS definition of “living abroad” benefit from higher thresholds. Residency is determined under FATCA rules, not immigration status.
How filing status affects threshold amounts
Thresholds vary by filing status and are tested using two measures: the end-of-year value and the highest value at any time during the year. Exceeding either test triggers filing.
| Filing Status | Residency | End-of-Year Threshold | Highest Balance Threshold |
|---|---|---|---|
| Single / MFS | U.S. | $50,000 | $75,000 |
| MFJ | U.S. | $100,000 | $150,000 |
| Single / MFS | Abroad | $200,000 | $300,000 |
| MFJ | Abroad | $400,000 | $600,000 |
Foreign asset values must be converted to USD using IRS-approved exchange rates. The IRS generally accepts U.S. Treasury year-end rates or another consistently applied, reasonable rate.
Practitioner Tip: Document the exchange rate source in your workpapers. Inconsistent conversion methods are a common audit trigger.
What Are Specified Foreign Financial Assets?
Reportable foreign financial accounts
Specified foreign financial assets include foreign bank accounts, savings accounts, checking accounts, and foreign brokerage accounts. These often overlap with FBAR reporting but are governed by different rules.
Foreign mutual funds, exchange-traded funds, and foreign-issued insurance or annuity contracts with cash value are also reportable.
Other specified foreign financial assets
This category captures assets held outside a financial account. Examples include foreign stocks held directly, foreign partnership interests, ownership in foreign corporations, and beneficial interests in foreign trusts.
The scope is intentionally broad. Any asset held for investment and issued by a non-U.S. person may fall into this category unless explicitly excluded.
Examples of reportable vs non-reportable assets
| Reportable Assets | Non-Reportable Assets |
|---|---|
| Foreign bank account | U.S. bank account |
| Foreign brokerage account | Indian residential property held directly |
| Shares in foreign company | Foreign real estate (directly held) |
| Foreign pension interest | Social security-type government benefits |
Practitioner Tip: Real estate itself is not reportable, but entities holding real estate often are. Always look through ownership structures.
How to File Form 8938
Information needed to complete Form 8938
You will need maximum account values, institution names, addresses, account numbers, and income generated from each asset. For non-account assets, ownership details and valuation methodology are required.
Where FFIs are involved, GIINs may appear on Forms W-9 or withholding statements, though GIIN entry is not mandatory on Form 8938.
Step-by-step filing process
- Identify all specified foreign financial assets.
- Determine if thresholds are exceeded.
- Convert values to USD.
- Complete Form 8938 and attach to Form 1040.
Form 8938 is not filed via IDES; IDES is used by FFIs for FATCA reporting. Individual taxpayers file through normal IRS e-file channels.
Common filing mistakes to avoid
Common errors include omitting indirectly held assets, using incorrect exchange rates, and assuming FBAR filing eliminates Form 8938.
Practitioner Tip: Reconcile Form 8938 asset lists with Schedule B and FBAR to ensure consistency.
Form 8938 vs FBAR: Key Differences
Comparison of Form 8938 and FBAR
| Criteria | Form 8938 | FBAR (FinCEN 114) |
|---|---|---|
| Authority | IRS | FinCEN |
| Threshold | $50,000+ | $10,000 aggregate |
| Filing method | With Form 1040 | Standalone e-file |
| Deadline | Tax return due date | April 15 (auto-extend) |
When both forms are required
Many clients exceed both thresholds. Filing one does not exempt the other.
Why compliance with both matters
Each form carries independent penalties and enforcement mechanisms.
Penalties for Failing to Meet Form 8938 Requirements
Failure-to-file penalties
The initial penalty is $10,000. Continued noncompliance after IRS notice can increase penalties up to $50,000.
Accuracy-related and understatement penalties
Unreported income tied to undisclosed assets can attract a 40% understatement penalty.
How penalties interact with other international tax rules
Failure to file Form 8938 can extend the statute of limitations to six years for the entire return. Foreign Tax Credits remain available, but only if income is properly reported.
Practitioner Tip: Late FATCA disclosures often require coordinated amended returns and penalty mitigation strategies.
Conclusion
Form 8938 compliance is a core competency for Indian CAs offering U.S. tax services. Mastery of thresholds, asset definitions, and filing mechanics allows you to prevent penalties and manage client risk proactively.
As you build U.S. tax capabilities, embed FATCA reviews into your standard compliance workflow. A structured approach ensures accuracy, scalability, and credibility with U.S. clients and partners.
FAQs
Is Form 8938 required for all foreign bank accounts?
No. Form 8938 is required only if total specified foreign financial assets exceed the applicable threshold. Small or inactive accounts below thresholds do not trigger filing.
Can Form 8938 thresholds be aggregated across spouses?
Yes, for married filing jointly taxpayers, thresholds apply to combined assets. Each spouse’s assets are included in the aggregate calculation.
Does filing FBAR remove the need for Form 8938?
No. FBAR and Form 8938 are separate requirements. Many clients must file both.
Which exchange rate should be used for asset valuation?
The IRS accepts U.S. Treasury year-end rates or other reasonable, consistently applied rates. Documentation is critical.
Are Indian mutual funds reportable on Form 8938?
Yes. Indian mutual funds are foreign financial assets and typically reportable.
Is foreign real estate reportable?
Directly held foreign real estate is not reportable. Entities holding real estate may be.
Does Form 8938 apply to green card holders?
Yes. Green card holders are U.S. residents for tax purposes and subject to FATCA.
What is the relationship between Form 8938 and Form W-9?
Form W-9 is used by U.S. persons to certify status to FFIs. It supports FATCA compliance but is separate from Form 8938.
Can penalties be waived for reasonable cause?
Yes, but documentation is required. Waivers are discretionary and fact-specific.
Does Form 8938 impact Foreign Tax Credit claims?
Indirectly. Proper disclosure supports income reporting, which is necessary to claim Foreign Tax Credits.
