Who must file Form 8938?
Form 8938 is required to be filed by any “specified person” (either a specified individual or a specified domestic entity) that has an interest in foreign financial assets with the value over the applicable threshold.
New filing requirement
From 2011 through 2015, only specified individuals (i.e., U.S. citizens, U.S. resident aliens and nonresident aliens who make the election to be treated as resident aliens) were required to file Form 8938. Starting with the 2016 tax year, specified domestic entities are required to file Form 8938 if they fulfill the threshold requirement.
The new rules cover domestic corporations, partnerships and trusts that are considered formed or availed of for the purpose of holding, directly or indirectly, specified foreign financial assets.
A specific domestic entity is defined as:
- A closely held domestic corporation or partnership that has at least 50% of its gross income from passive income.
- A closely held domestic corporation or partnership if at least 50% of its assets produce or are held for production of passive income.
- A domestic trust that has one or more specified persons as a current beneficiary.
Domestic specified entities must file Form 8938 if the total value of their specified foreign financial assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year.
A corporation is considered "closely held" if a specified individual directly, indirectly or constructively owns at least 80% of the corporation (by vote or by value), on the last day of the corporation's tax year. A partnership is considered "closely held" if a specified individual holds directly, indirectly or constructively, at least 80% of the partnership's capital or profits interest on the last day of the partnership's tax year.
Failure to file Form 8938 as part of an annual tax return may result in a penalty of $10,000, with an additional $10,000 for each 30 days of non-filing after the IRS becomes aware of your failure to disclose, up to a maximum penalty of $60,000.