Form 8938 Thresholds: Why Americans Abroad Get Higher Limits, and Who Still Has to File

Form 8938, Statement of Specified Foreign Financial Assets, comes from FATCA, the Foreign Account Tax Compliance Act. The statute is 26 U.S.C. 6038D. It requires individuals to attach information about specified foreign financial assets to their income tax return when the aggregate value exceeds a threshold.

The statute sets the floor at $50,000 and lets Treasury set higher amounts. Treasury did, in 26 CFR 1.6038D-2. The result is a four-tier system. Where you fall depends on two questions: do you file jointly, and do you qualify as living abroad?

The four thresholds

Under 26 CFR 1.6038D-2(a), you must file Form 8938 if the aggregate value of your specified foreign financial assets exceeds:

• Unmarried, or married filing separately, living in the U.S.: more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.
• Married filing jointly, living in the U.S.: more than $100,000 on the last day of the year, or more than $150,000 at any time during the year.
• Living abroad, not filing jointly: more than $200,000 on the last day of the year, or more than $300,000 at any time during the year.
• Living abroad, married filing jointly: more than $400,000 on the last day of the year, or more than $600,000 at any time during the year.

These numbers are set in the regulation. They are not adjusted for inflation each year the way the FBAR penalty figures are.

What "living abroad" means for Form 8938

This is the detail that trips people. The higher thresholds in 26 CFR 1.6038D-2(a)(3) and (a)(4) apply to a specified individual who is a "qualified individual under section 911(d)(1)" for the tax year. That is the same test used for the foreign earned income exclusion: your tax home must be in a foreign country, and you must meet either the bona fide residence test or the physical presence test.

For a married couple filing jointly, the regulation requires that the specified individual be a qualified individual, and the couple then files a single Form 8938 using the $400,000 and $600,000 thresholds.

So an American who moved abroad in September and does not yet meet either test for that year is not a qualified individual for that year, and the lower domestic thresholds apply. Timing matters.

What counts toward the threshold

Section 6038D(b) defines specified foreign financial assets as financial accounts maintained by a foreign financial institution, and, if not held in an account at a financial institution, stock or securities issued by a non-U.S. person, financial instruments or contracts held for investment with a non-U.S. issuer or counterparty, and interests in foreign entities.

The IRS's comparison chart, along with the Form 8938 instructions, gives practical answers for common assets. Foreign bank and brokerage accounts, foreign mutual funds, foreign-issued life insurance or annuity contracts with a cash value, foreign hedge funds and private equity funds, foreign stock held directly, and foreign partnership interests are reportable. Foreign real estate held directly, foreign currency held directly, precious metals and personal property held directly are not. The Form 8938 instructions also say that foreign government social security type benefits are not specified foreign financial assets, but an interest in a foreign pension plan is subject to section 6038D reporting.

Assets that you report on a timely filed Form 3520, 5471, 8621 or 8865 do not have to be detailed again on Form 8938, though you identify those forms in Part IV. Under 26 CFR 1.6038D-2(a)(6), those excepted assets still count toward your aggregate value for the threshold.

Three examples

A single teacher in Seoul. She has lived in Korea for six years and meets the bona fide residence test. Her Korean bank and pension accounts total the equivalent of $180,000 at year end and never exceeded $250,000 during the year. She is under the $200,000 and $300,000 thresholds for a qualified individual living abroad. No Form 8938. She almost certainly still files an FBAR.

A couple who moved to Portugal in October. They file jointly. They do not meet either section 911 test for the year of the move, so the domestic joint thresholds apply: more than $100,000 at year end or $150,000 at any time. With $140,000 in Portuguese accounts at year end, they file Form 8938 for that year. The following year, once one spouse qualifies under section 911(d)(1), the $400,000 and $600,000 thresholds apply.

A U.S. resident with an inherited foreign brokerage account. Single, living in Florida, the account peaked at $80,000 in March and ended the year at $45,000. The year-end test is not met, but the any-time test of more than $75,000 is. Form 8938 is required.

How joint ownership is counted

Joint assets have their own rules in 26 CFR 1.6038D-2(c):

• Married filing jointly: the couple files one Form 8938, and a jointly owned asset is counted only once toward the joint threshold.
• Married filing separately, both spouses specified individuals: each spouse counts one-half of a jointly owned asset for the threshold, but if the spouse must file, he or she reports the entire value of the asset on the form.
• Married filing separately, spouse not a specified individual: the filing spouse counts the entire value of the joint asset toward the threshold.
• Joint owners who are not spouses: each joint owner generally includes the entire value of the asset.

The regulation's own example shows how close calls go. A couple jointly owns a $90,000 asset, the husband separately has $10,000 and the wife $1,000. Filing separately, the husband counts $55,000 and must file, while the wife counts $46,000 and does not. Filing jointly, they total $101,000, which exceeds the $100,000 domestic joint threshold, and they file one form.

Valuing assets for the test

According to the IRS comparison chart, Form 8938 values are fair market value in U.S. dollars, determined under the form's instructions and converted at the year-end exchange rate. For a bank or brokerage account, periodic statements usually tell you most of what you need. For assets outside an account, such as directly held foreign shares or an interest in a foreign entity, valuation can take real work. Do that work before the deadline, not after a notice arrives, because the section 6038D(e) presumption treats an unproven value as over the threshold.

Domestic entities have their own thresholds. The IRS chart lists more than $50,000 at year end or more than $75,000 at any time during the tax year for a specified domestic entity.

When you do not file at all

Form 8938 is attached to an income tax return. Under 26 CFR 1.6038D-2(a)(7), a specified person who is not required to file an annual income tax return for the year is not required to file Form 8938. That is different from the FBAR, which applies whether or not you have a tax return obligation.

Also note that 26 CFR 1.6038D-2(a)(8) requires Form 8938 even if none of the assets affect your tax liability. The form is about disclosure, like the FBAR.

The regulation also treats a specified foreign financial asset as reportable even if it has no positive value, under 1.6038D-2(a)(5). A foreign account that went negative is still on the form if your threshold is met.

Form 8938 and the FBAR overlap, but do not replace each other

Most foreign bank accounts belong on both forms. The IRS is explicit that filing Form 8938 does not relieve you of the FBAR. They have different thresholds, different definitions and different penalties. If you only read one other guide on this site, make it FBAR vs. Form 8938.

Knowledge is protection. If you are close to a threshold, or you are not sure whether you qualified as living abroad in a given year, those are exactly the facts that deserve a second look before you file.