Form 8938 (Statement of Specified Foreign Financial Assets) is required under IRC §6038D as part of the Foreign Account Tax Compliance Act (FATCA). It requires certain US persons to report specified foreign financial assets - foreign bank accounts, foreign securities, interests in foreign entities, and certain foreign contracts - when the aggregate value exceeds the applicable threshold. Form 8938 is filed with the federal income tax return and is separate from the FBAR (FinCEN 114). Both may be required for the same foreign accounts. Failure to file when required triggers a $10,000 penalty per year, rising by up to an additional $50,000 (maximum $60,000) after IRS notice, and keeps the assessment period for the related return open until 3 years after the required information is furnished (limited to the related items if the failure is due to reasonable cause).
US residents (living in the US):
Single or MFS: File if aggregate value exceeds $50,000 on last day of tax year OR $75,000 at any point during the year.
MFJ: File if aggregate value exceeds $100,000 on last day OR $150,000 at any point.
Bona fide residents abroad (or present in a foreign country at least 330 full days in a 12-month period ending in the tax year):
Single or MFS: File if aggregate value exceeds $200,000 on last day OR $300,000 at any point.
MFJ: File if aggregate value exceeds $400,000 on last day OR $600,000 at any point.
Specified foreign financial assets include: financial accounts maintained by foreign financial institutions (foreign bank accounts, foreign brokerage accounts, foreign pension accounts); and foreign financial assets not held in an account, including stock or securities issued by a foreign person, any interest in a foreign entity, and any financial instrument or contract with a foreign counterparty. Foreign real estate is NOT a specified foreign financial asset for Form 8938 purposes - but any foreign entity that holds the real estate would be reportable if the taxpayer has an interest in the entity.
The penalty for failure to disclose a specified foreign financial asset is $10,000 for each annual failure, with an additional penalty of $10,000 for each 30-day period (or fraction thereof) after 90 days from the date of IRS notice of failure to disclose - up to a maximum additional penalty of $50,000. Total maximum penalty per taxable year (per failure to file Form 8938, not per account): $60,000. Underpayments attributable to non-disclosed foreign financial assets are subject to a 40% penalty (rather than the standard 20% accuracy-related penalty). No penalty is imposed if the taxpayer can demonstrate reasonable cause.
Under IRC §6501(c)(8), if a taxpayer fails to file Form 8938 when required, the statute of limitations on the entire tax return remains open - generally for all items on the return, not just the foreign asset items - until three years after the required information is furnished. If the failure is due to reasonable cause and not willful neglect, only the items related to the failure remain open (IRC §6501(c)(8)(B)). This is one of the most severe consequences of non-filing: a single missing Form 8938 keeps the return open until 3 years after the information is furnished, exposing items on the return to potential IRS adjustment (all items, unless the failure is due to reasonable cause, in which case only the related items).