Form 8938 Exceptions to Filing with IRS (4 Examples)

Escaping Out From Form 8938 Filing is Possible: 4 Tax Tips

Can You Avoid Form 8938 Filing Requirements?

When it comes to US Persons having to report overseas assets and foreign bank and financial accounts, one of the newest forms Taxpayers have to contend with is IRS Form 8938, which was developed in conjunction with FATCA (Foreign Account Tax Compliance Act). While the form is not as difficult as some of the other international reporting forms such as IRS Forms 3520-A and 5471, most Taxpayers generally do not want to voluntarily provide any additional information to the US government than necessary. When it comes to filing Form 8938, there are a few ways Taxpayers may be able to escape the reporting requirements and circumvent the tax filing rules. Here are four ways you may be able to avoid a Form 8938 requirement

No Tax Return Required

Unlike the FBAR (aka FinCEN Form 114) and several of the other international reporting forms which are required to be filed even when no actual tax return is necessary, Form 8938 is treated differently. In fact, Form 8938 is only required to be filed in any tax year in which the Taxpayers are required to file a tax return. Thus, when a Taxpayer is not required to file a tax return, then they are not required to file a Form 8938.

Per the IRS Form 8938 instructions:

• • • Exception if no income tax return required

      • If you do not have to file an income tax return for the tax year, you do not have to file Form 8938, even if the value of your specified foreign financial assets is more than the appropriate reporting threshold.

No Election to Be Treated as US Resident

Some non-resident aliens elect to be treated as a US Person because they want to file Married Filing Jointly with their US person spouse. In order to do so, the Taxpayer makes a formal election to do so. And, while making the election does not require the non-resident to file the FBAR, Form 8938 would still be required. Therefore, if the foreign spouse has the majority, if not all of the foreign assets, it may be better to avoid the election and MFJ status.

Why is FBAR not required, but Form 8938 is?

Because the FBAR is not actually a tax form and it is not covered under Title 26 (Internal Revenue Code) of the US code; conversely, Form 8938 is covered under Internal Revenue Code section 6038D and is subject to US tax filing requirements.

Per the IRS Form 8938 instructions:

• • • Specified Individual

      • A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return.

Married Filed Separately to Avoid Form 8938

Sometimes, if the tax benefit of filing jointly does not outweigh the invasion of privacy of one spouse who may have significant foreign assets and that spouse also does not have sufficient income to file a tax return independent of their spouse, it may be better for the higher income earner (who presumably has little or no foreign assets) to file Married Filing Separately. This way, the spouse with significant foreign assets and low income can avoid filing (noting, joint assets are split for value purposes in an MFS return but not separate assets).

Per the IRS Form 8938 instructions:

• • • • My spouse and I do not live abroad. We file separate income tax returns and jointly own a specified foreign financial asset valued at $60,000 for the entire year.

      • Neither you nor your spouse has to file Form 8938. You each use one-half of the value of the asset, $30,000, to determine the total value of specified foreign financial assets that you each own. Neither of you satisfies the reporting threshold of more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

Was There Duplicate Reporting of the Same Asset?

If a foreign asset that would otherwise be reportable on Form 8938 is reported on another form (and in this circumstance would usually be the only foreign asset the Taxpayer owns, such as a corporation / Form 5471), then they do not have to duplicate the filing on Form 8938. But, if there are other assets, this may not be viable as the total value of all the foreign assets is used to calculate whether the Form 8938 threshold is met.

Per the IRS Form 8938 instructions:

• • • If you are a specified individual, you must include the value of the assets reported on Forms 3520, 3520-A, 5471, 8621, and 8865 in determining whether you satisfy the reporting threshold that applies to you. See Reporting Thresholds Applying to Specified Individuals, earlier.

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