Foreign Account Tax Compliance Act

2025 Form 8938 Threshold | US International Tax Lawyers

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US taxpayers must file Form 8938 with their US tax returns if they hold foreign financial assets with an aggregate value exceeding a relevant balance threshold. This article discusses the 2025 Form 8938 threshold limits.

2025 Form 8938 Threshold: Form 8938 Background

Form 8938 burst into the US international compliance scene in 2011 as a result of the famous Foreign Accounts Tax Compliance Act (FATCA). FATCA was enacted as part of the Hiring Incentives to Restore Employment Act of 2010 (“HIRE Act” or “Act”) which was signed into law by President Obama in 2020.

FATCA revolutionized international tax compliance of the world by forcing foreign banks to report their US-held accounts to the IRS. In essence, it created the third-party verification of foreign accounts that FBAR has always lacked. This third-party verification was supported on the other side by creation of a new requirement to report foreign assets by US taxpayers as part of their US tax returns – Form 8938.

Form 8938’s scope of disclosure is very broad. It generally includes two types of “specified foreign financial assets”: (a) any financial account (also defined very broadly) maintained by a foreign financial institution (again defined broadly); and (b) other specified foreign financial assets not held in an account maintained by a foreign institution.  Other Specified Foreign Financial Assets is a term with a reach far and beyond any other US international tax form, making Form 8938 a unique “catch-all” international tax reporting requirement.

2025 Form 8938 Threshold: Form 8938 is a Dangerous Form

The huge scope of Form 8938 presents a grave danger to US taxpayers, because US Congress armed the form with a wide range of penalties, including a $10,000 failure-to-file fee.  For these reasons, it is highly important to understand when a particular situation triggers the Form 8938 filing requirement. One of the most important filing criteria is the subject of this article — the 2025 Form 8938 filing threshold limits.

2025 Form 8938 Threshold: Filing Threshold Factors

When considering the Form 8938 threshold requirements, there are two most important factors that influence which filing threshold will apply in a particular situation. First, the filing status of the taxpayer(s): married filing jointly, married filing separately, single, et cetera.

The second factor is whether the taxpayer lives in the United States or lives abroad. 

2025 Form 8938 Threshold: Legal Test for Living Abroad

The IRS will agree that a taxpayer lives abroad if he meets one of the two “presence abroad” tests.

The first presence abroad test is satisfied if the taxpayer is a US citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period of an entire tax year.

The second presence abroad test is satisfied if the taxpayer is a US citizen or resident who is present in a foreign country or countries at least 330 full days during any period of twelve consecutive months in the relevant tax year.

Of course, these tests are almost exact replicas of the test for Foreign Earned Income Exclusion.

2025 Form 8938 Threshold: Taxpayers Living in the United States

Let’s first discuss the Form 8938 filing thresholds for taxpayers who live in the United States category by category:

Unmarried Taxpayers Living in the United States: the taxpayer is required to file Form 8938  if the total value of his specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during that tax year.

Married Taxpayers Filing a Joint Income Tax Return and Living in the United States: if the taxpayer is married and files joint income tax return with his spouse, Form 8938 must be filed if the spouses’ specified foreign financial assets are either more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the tax year.

Married Taxpayers Filing Separate Income Tax Returns and Living in the United States: if the taxpayer is married and lives in the United States, but files a separate income tax return from his spouse, then the reporting threshold is satisfied if the total value of his specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year. Therefore, this category is very similar to that of the unmarried taxpayer who resides in the United States.

2025 Form 8938 Threshold: Taxpayers Living Abroad

Here are the Form 8938 filing thresholds for taxpayers who live abroad:

Married Taxpayers Filing a Joint Income Tax Return and Living Abroad: if the taxpayer lives abroad (as described above) and files a joint tax return with his spouse, then the reporting threshold is satisfied if the value of all specified foreign financial assets that the spouses own is either more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.

Taxpayers Filing Any Return Other Than Joint Tax Return and Living Abroad: if that taxpayer lives abroad and does not file a joint income tax return (instead he files a different type of tax return such as married filing separately, head of household or unmarried), then the reporting threshold is satisfied if the value of all specified foreign financial assets is either more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the tax year.

2025 Form 8938 Threshold: Specified Domestic Entity

Specified Domestic Entities are also required to file Form 8938. The filing threshold for a specified domestic entity is satisfied if the total value of such an entity’s specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

Contact Sherayzen Law Office For Help With IRS Form 8938

The reporting requirements under Form 8938 can be very complex. Moreover, Form 8938 noncompliance often occurs in conjunction with noncompliance with FBAR and other reporting requirements (such as Forms 5471, 8621, 8865 et cetera).  In such cases, filing of a late Form 8938 is often should be done through an IRS offshore voluntary disclosure option in order to reduce additional IRS tax penalties.

Sherayzen Law Office is an international tax law firm that specializes in US international tax compliance, including Form 8938. We are highly experienced with Form 8938 issues, including offshore voluntary disclosures involving Form 8938.  We can help you!

Contact us today to schedule your confidential consultation!

Pakistani Bank Accounts FBAR & FATCA Compliance | International Tax Lawyer

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Over the past couple of years, I have seen a rise in the number of clients with Pakistani bank accounts. This increase is undoubtedly tied to the last year’s changes to Pakistani tax laws, which now require a disclosure of certain foreign assets for certain Pakistani tax residents. These new laws created for the very first time awareness among Pakistani taxpayers that foreign assets may be subject to a separate disclosure. For Pakistanis who are also US Persons, this awareness created further inquiries into their US tax reporting of their Pakistani bank accounts. In this article, I will discuss the two most important US tax reporting requirements that may be applicable to US taxpayers with Pakistani bank accounts – FBAR and FATCA Form 8938.

Pakistani Bank Accounts: Income-Reporting Requirements

Before we delve into our discussion of FBAR and FATCA, it is important to address the income tax reporting requirements concerning foreign accounts in general as well as Pakistani accounts in particular. If you are a tax resident of the United States, you are subject to the worldwide income reporting requirement and you must disclose all income generated by your Pakistani bank accounts on your personal US tax return.

This is an absolute rule with almost no exceptions. It does not matter whether you live outside of the United States or reside in the United States, whether this income is brought to the United States or if it continues to accumulate in your foreign bank accounts, or whether you already paid Pakistani taxes on this income or not. As long as you are a tax resident of the United States, you must comply with the worldwide income reporting requirement.

This requirement applies to all reportable income as determined by US tax rules. I want to emphasize this point: the worldwide income reporting rule requires US tax residents to disclose all of their foreign income deemed reportable under the US tax rules, not the Pakistani rules. Since there are huge differences between the Pakistani tax code and the US Internal Revenue Code, this is a potential tax trap for US taxpayers with Pakistani bank accounts.

Pakistani Bank Accounts: Asset Disclosure In General

As I mentioned above, under FATCA (Foreign Account Tax Compliance Act) as well as the BSA (Bank Secrecy Act of 1970), Pakistani bank accounts may be subject to multiple asset disclosure requirements. FinCEN Form 114 (FBAR) and FATCA Form 8938 are undoubtedly the most important among these requirements.

Pakistani Bank Accounts: FBAR

The most important requirement that applies to US taxpayers with Pakistani bank accounts is FinCEN Form 114, the Report of Foreign Bank and Financial Accounts, commonly known as “FBAR”. As long they meet the filing threshold (see below), US taxpayers are required to disclose all of their Pakistani bank accounts over which they have signatory authority or in which they have a financial interest (i.e. they own an account directly or indirectly, either individually or jointly).

FBAR is a unique information return. The anomaly begins with the fact that FBAR is not technically a tax form, but a BSA form which has been administered by the IRS since the year 2001. This is why FBAR is not filed together with the tax return, but has to be e-filed separately through BSA website.

Second, FBAR also has a very low filing threshold – just $10,000. Moreover, this threshold is determined by taking the highest balances during a calendar year of all of the taxpayer’s foreign accounts (even if these accounts are located in another country in addition to Pakistan) and adding them all up. Sometimes, this results in significant over-reporting of a person’s actual balances, which easily satisfies the reporting threshold.

Finally, FBAR has the most severe noncompliance penalties among all information returns concerning foreign asset disclosure. Its penalties range from non-willful penalties (i.e. potentially a situation where a person simply did not know about FBAR’s existence) to extremely high civil willful penalties and even criminal penalties. In other words, in certain circumstances, FBAR noncompliance may result in actual jail time.

Pakistani Bank Accounts: FATCA Form 8938

While a relative newcomer, FATCA Form 8938 quickly occupied a special place in US international tax compliance. It may appear that Form 8938 duplicates FBAR with respect to foreign bank account reporting, but there are very important differences between these forms. Let’s focus on the top five differences.

First of all, unlike FBAR, it is filed with a US tax return and forms part of the return. This means that the Form 8938 noncompliance may keep the statute of limitations open on the entire tax return indefinitely, potentially subjecting it to an IRS audit indefinitely.

Second, there are differences in how information concerning foreign accounts is being disclosed on FBAR and Form 8938. Form 8938 forces US taxpayers to disclose not only most of the information that is required to be reported on FBAR, but also such details as whether an account was opened or closed in the reporting year, whether it produced any income, how much income was produced, et cetera. This may give the IRS additional information necessary to determine if there was prior tax noncompliance with respect to these accounts.

Third, there are important substantive differences between these two forms with respect to what accounts have to be disclosed. For example, signatory authority accounts must be disclosed on FBAR, but Form 8938 has no such requirement. On the other hand, a bond certificate may not need to be reported on FBAR, but it must be disclosed on Form 8938. In general, Form 8938 is likely to apply to a wider range of Pakistani assets than FBAR; this is why it is often called the “catch-all” form.

Fourth, while FBAR penalties are extremely severe, Form 8938 sports its own arsenal of noncompliance penalties. While they are theoretically lower than FBAR penalties, the Form 8938 penalties may have an equivalent impact due to the fact that they have a much wider range. For example, Form 8938 noncompliance may lead to higher accuracy-related penalties with respect to income-tax noncompliance. A taxpayer’s ability to utilize foreign tax credit may also be impacted by the Form 8938 penalties.

Finally, unlike FBAR, Form 8938 comes with a third-party FATCA verification mechanism. Under FATCA, the IRS should receive foreign-account information not only from taxpayers who file Forms 8938, but also from their foreign financial institutions. This means that it is much easier for the IRS to identify Form 8938 noncompliance than that of FBAR. It also means that Form 8938 noncompliance may have a higher chance to be investigated and penalized by the IRS.

Contact Sherayzen Law Office for Professional Help With US Tax Reporting of Your Pakistani Bank Accounts

If you are a US Person who has undisclosed Pakistani bank accounts, contact Sherayzen Law Office for professional help as soon as possible. We have helped hundreds of US taxpayers around the globe to resolve their past FBAR and FATCA noncompliance, including with respect to financial accounts in Pakistan We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Ukrainian FATCA IGA Enters Into Force | FATCA Tax Lawyer & Attorney

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On November 18, 2019, the Ukrainian FATCA IGA entered into force. Sherayzen Law Office already wrote on this subject a little more than three years ago. This essay updates the status of the Ukrainian FATCA IGA.

Ukrainian FATCA IGA: Background Information

The Foreign Account Tax Compliance Act (FATCA) was enacted into law in 2010 and quickly caused a revolution in the area of international tax information exchange. While FATCA is very complex, its basic purpose is clear – improving US international tax compliance through new information reporting standards. The revolutionary aspect of FATCA was to force foreign financial institutions (“FFIs”) to comply these new information reporting standards through what essentially amounted to FATCA tax withholding penalties. In other words, FATCA turned FFIs throughout the world into IRS informants.

Using brutal economic force on the FFIs, however, may be considered by many foreign countries as a violation of their sovereignty, because FFIs are not US taxpayers. In order to enforce FATCA effectively, the United States has worked to enlist the cooperation of the FFIs’ home countries. The ultimate products of these negotiations have been FATCA implementation treaties, officially called FATCA IGAs (Intergovernmental Agreements). The Ukrainian FATCA IGA is just one example of such a treaty.

Ukrainian FATCA IGA: History and Current Status

On November 9, 2016, the Ukrainian government authorized the Ukrainian FATCA IGA for signature. On February 7, 2017, the IGA was signed. Since November 18, 2019, it has been in force.

Ukrainian FATCA IGA: Model 1 FATCA Agreement

The Ukrainian FATCA IGA is a Model 1 FATCA Agreement. In order to understand what this means, we need to explore the two types of FATCA IGAs – Model 1 and Model 2. The Model 2 FATCA treaty requires FFIs to individually enter into an FFI Agreement with the IRS in order to report the required FATCA information directly to the IRS (for example, Switzerland signed a Model 2 treaty).

On the other hand, the Model 1 treaty requires FFIs in a “partner country” (i.e. the country that signed a Model 1 FATCA agreement) to report the required FATCA information regarding US accounts to the local tax authorities. Then, the tax authorities of the partner country share this information with the IRS.

Thus, the Ukrainian FFIs will report FATCA information to the Ukrainian tax authorities first. Then, the Ukrainian IRS will turn over this information to the IRS.

Impact of Ukranian FATCA IGA on Noncompliant US Taxpayers

The implementation of the Ukrainian FATCA IGA means that the Ukrainian FFIs either have already implemented or will soon implement the necessary KYC (Know Your Client) procedures. Using these procedures, the FFIs will collect the required FATCA information concerning their US customers and send this information to the Ukranian tax authorities, which, in turn, will share this information with the IRS.

Then, the IRS will process this information in order to identify noncompliant US taxpayers. Once it reaches this point, the IRS will most likely investigate these persons and determine whether to conduct a civil audit or proceed with a criminal prosecution.

In other words, since November 18, 2019, US taxpayers who have undisclosed foreign accounts in Ukraine have been at an ever-increasing risk of the IRS detection. Once their noncompliance is verified by the IRS, these taxpayers, may face the imposition of draconian IRS penalties and potentially even a criminal prosecution.

Contact Sherayzen Law Office for Professional Help Undisclosed Ukrainian Foreign Accounts and Other Assets

If you have undisclosed Ukrainian assets (including Ukrainian bank accounts) and/or Ukrainian-source income, contact Sherayzen Law Office for professional help as soon as possible. We have successfully helped hundreds of US taxpayers around the globe (including Ukrainians) to resolve their past US tax noncompliance issues, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

FATCA Criminal Penalties | International Tax Lawyer & Attorney

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While there are a number of articles in professional publications and attorneys’ blogs covering the civil penalties associated with a failure to comply with the Foreign Account Tax Compliance Act (“FATCA”), there is almost a complete silence with respect to FATCA criminal penalties. This essay intends to fill this gap by introducing its readers to potential FATCA criminal penalties that the IRS may pursue in case of FATCA noncompliance.

FATCA Criminal Penalties: FATCA Background and FFI Reporting Requirements

Congress enacted the Foreign Account Tax Compliance Act (“FATCA”) as part of the Hiring Incentives to Restore Employment (“HIRE”) Act of 2010. The law revolutionized international tax compliance, because, for the very first time, it forced all foreign financial institutions (“FFIs”) to report their US account holders to the IRS, including their names, account numbers and highest values of these accounts.

In other words, FATCA has turned all compliant FFIs into IRS agents. FFIs now carry the entire burden of automatically (and, it is important to emphasize the word “automatically”) disclosing all of the FATCA-required information directly to the IRS. The IRS now only needs to properly process and analyze the data in order to identify noncompliant taxpayers and investigate them.

How did the Congress achieve this goal? It imposed a very harsh penalty on FATCA-noncompliant FFIs without paying much attention to the potential legal and political implications such an over-reaching law has for the sovereignty of other nations. FATCA created a new tax withholding regime under which every noncompliant FFI faces a 30% withholding with respect to any incoming transaction. The penalty is imposed on the gross amount of a transaction, which means that using a noncompliant FFI may result in a net loss for the parties engaged in the transaction.

The net impact of the FATCA FFI penalty is that no bank or person would wish to utilize a noncompliant FFI, effectively cutting off the latter from the any USD-nominated transactions and the world markets.

FATCA Criminal Penalties: FATCA Requirements Imposed on US Taxpayers

FATCA created a new tax reporting obligation specifically for US taxpayers called Form 8938. I have discussed Form 8938 in detail elsewhere on my website and here I will provide just a very simplified description of this requirement. A Specified Person (who can be an individual or an entity) must file Form 8938 if the value of his Specified Foreign Financial Assets (SFFAs) exceeds a certain filing threshold which is determined by the tax return filing status of the Specified Person.

SFFAs are defined very broadly to include pretty much any type of a financial asset, an ownership interest in a foreign business, ownership of a beneficiary interest in a foreign trust, ownership interest in a foreign trust under the IRC Sections 671 through 679, et cetera. Additionally, Form 8938 requires the Specified Person to report foreign income attributable to holding or disposing of SFFAs.

Failure to file Form 8938 may lead to an imposition of a $10,000 civil penalty, subject to reasonable cause exception. An additional $10,000 penalty applies if the taxpayer fails to file Form 8938 within 90 days after the IRS mails notice of the failure to file the form. If the taxpayer persists in his failure to file the form, the IRS will impose additional $10,000 for each thirty-day periods the failure continues up to the maximum of $50,000. It is important to note that the statute of limitations does not start to run if Form 8938 has not been filed.

FATCA Criminal Penalties in General

Interestingly, the US Congress did not create any separate FATCA criminal penalties. The IRS and the US Department of Justice (“DOJ”), however, have not had any problems in engaging into criminal prosecutions of FATCA violations.

There are three major provisions that the IRS and the DOJ can rely upon in their criminal prosecution of FATCA violations. First, 18 U.S.C. section 371 (see below for more details). Second, 26 U.S.C. 7201 – a felony charge for intentional filing of a false Form 8938. Finally, 26 U.S.C. 7203 – a misdemeanor charge for a willful failure to file Form 8938.

So far, the IRS and the DOJ have used Section 371 more than Sections 7201 and 7203. However, as time goes on, I expect that Sections 7201 and 7203 will be used more extensively.

Since Section 371 criminal charges are the most common at this point, let’s explore this type of a criminal prosecution charge in more detail.

FATCA Criminal Penalties: 18 U.S.C. Section 371

As long as there is enough evidence, the IRS and the DOJ can use 18 U.S.C. section 371 to prosecute US taxpayers based on a charge of engaging in a FATCA-related conspiracy. This is likely to become the most favorite tool to prosecute persons for aiding US clients to circumvent FATCA requirements, including tax withholding provisions.

The DOJ already used this tool as early as within two months after FATCA tax withholding obligations became effective in July of 2014. On September 9, 2014, Mr. Robert Bandfield, five other individuals and six corporations were charged under 18 U.S.C. section 371 for a conspiracy to aid US clients with evasion of FATCA reporting requirements.

It is important to point out that criminal charges under 18 U.S.C. section 371 are especially dangerous for foreigners who help US taxpayers with tax evasion.

Contact Sherayzen Law Office for Professional Help With a Willful Failure to File Forms 8938

For persons who willfully failed to file their Forms 8938, the best strategy to avoid a criminal prosecution is to engage in a voluntary disclosure of their undisclosed foreign assets before the IRS finds out about your willful FATCA violations. Sherayzen Law Office can help you!

While the IRS flagship Offshore Voluntary Disclosure Program (“OVDP”) was closed on September 28, 2019, the IRS updated its traditional voluntary disclosure program in November of 2018 to help willful taxpayers voluntarily disclose their prior tax noncompliance. I will refer to this option as Modified Traditional Voluntary Disclosure (“MTVD”).

Sherayzen Law Office can help you with MTVD and any other type of a voluntary disclosure. Our highly-experienced team of tax professionals has helped hundreds of US taxpayers to successfully conduct an offshore voluntary disclosure of their undisclosed foreign assets and foreign income. We have prevented the initiation of numerous criminal prosecutions and saved tens of millions of dollars in penalties for our clients. We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

Finnish US Bank Accounts Face IRS John Doe Summonses | FATCA News

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On May 1, 2019, the United States District Court for the Western District of North Carolina (the “Court”) authorized the IRS to serve John Doe Summonses seeking information about Finnish residents who own secret US bank accounts (collectively Finnish US Bank Accounts). Let’s discuss this development concerning Finnish US bank accounts in more depth.

Finnish US Bank Accounts Targeted by the Finnish Tax Administration.

This whole case is about the Finnish government’s efforts to identify noncompliant Finnish taxpayers who failed to disclose income related to their non-Finnish bank accounts. Specifically, the Finnish Tax Administration (“FTA”) identified bank accounts in the United States owned by Finnish tax residents as one of the primary targets in its tax enforcement campaign.

The reason why Finland cannot identify the affected individuals itself is because, in circumstances where the payment cards are used only at ATMs or in other transactions where authorization is by PIN code, and the cardholder need not identify himself or herself to the merchant, the cardholders cannot be identified from sources in Finland. Earlier FTA investigations of approximately 120 to 150 Finnish taxpayers who used foreign payment cards in a similar manner have yielded extremely high rates of tax non-compliance, as noted in the United States’ memo in support of the petition, which indicates that it is likely that the John Does sought by the summons are Finnish residents who are failing to report these foreign accounts and associated income.

Hence, the FTA asked the US Department of Justice (“DOJ”) and the IRS for help as prescribed by the tax treaty between Finland and the United States. The treaty provides for cooperation in exchanging information that is necessary for enforcement each of the signatory’s tax laws.

The DOJ and the IRS readily agreed. Then, the DOJ filed a petition in the Court asking for it to grant the IRS a permission to issue John Doe Summonses in response to the FTA’s request for help.

Finnish US Bank Accounts: Affected US Financial Institutions

The IRS Summonses specially target persons who reside in Finland and have Bank of America, Charles Schwab or TD Bank payment cards linked to bank accounts located outside of Finland. It is important to note that the DOJ does not allege that Bank of America, Charles Schwab or TD Bank violated any US or Finnish laws with respect to these accounts.

Finnish US Bank Accounts: Information Targeted by the IRS John Doe Summonses

The IRS John Doe Summonses seek the identities of Finnish residents who have payment cards linked to bank accounts located outside of Finland so that the Finnish government can determine if those persons have complied with Finnish tax laws.

Finnish US Bank Accounts: Foreign Individuals With Secret US Bank Accounts Are Not Safe from Disclosure to Their Governments

The recent IRS John Doe summonses concerning Finnish US bank accounts is another indication that foreign individuals with secret US bank accounts are not immune from the disclosure of these accounts to their governments at home. In fact, the US government will cooperate with requests for such information, at least from friendly governments.

“The Department of Justice and the IRS are committed to working with the United States’ international treaty partners to identify and stop individuals using hidden offshore accounts to evade tax laws,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “The United States does not tolerate offshore tax evasion, nor does it sanction tax evasion committed through U.S. financial institutions.”

This cooperation also stems from the desire to somehow thank the foreign government for their prior cooperation with the IRS tax enforcement efforts that targeted (and continue to target) US taxpayers with undisclosed foreign bank accounts. “Our continued success in combating offshore tax noncompliance has been helped by the assistance we receive through the network of tax treaties around the globe,” said IRS Commissioner Charles Rettig. “Yesterday’s effort reflects that the U.S. will return this help by working under the law with tax administrators in other nations to help them in their fight against tax evasion and avoidance. A global economy should not be allowed to serve as a possible vehicle for tax evasion in any country.”

Sherayzen Law Office has predicted in the past that, after FATCA, the global tax enforcement will become tighter and more cooperative. Our predictions turned out to be correct.