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2024 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 2024 Form 8938 threshold limits.

2024 Form 8938 Threshold: Form 8938 Background

Form 8938 burst onto 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 2010.

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.

2024 Form 8938 Threshold: Form 8938 is a Dangerous Form

This enormously-grand 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 2024 Form 8938 filing threshold limits.

2024 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.  

2024 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.

2024 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:

1. 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.

2. 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.

3. 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.

2024 Form 8938 Threshold: Taxpayers Living Abroad

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

1. 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.

2. Taxpayers Filing Any Return Other Than A 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.

2024 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!

Specified Domestic Entity: Passive Test | FATCA Form 8938 Lawyer & Attorney

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This article is published as part of a long series of articles on the Specified Domestic Entity (“SDE”) Definition. In a previous article, I stated that the term “formed or availed of” consists of two legal tests: the Closely-Held Test and the Passive Test. Since I already explained the general requirements of the Closely-Held Test in another article, I would like to focus today on the Passive Test.

The Passive Test: Background Information

Starting tax year 2016, business entities classified as SDEs may be required to attach Form 8938 to their US tax returns. What entity is considered to be SDE? The answer is found in Treas. Reg. §1.6038D-6(a): “a specified domestic entity is a domestic corporation, a domestic partnership, or a trust described in IRC Section 7701(a)(30)(E), if such corporation, partnership, or trust is formed or availed of for purposes of holding, directly or indirectly, specified foreign financial assets.”

I already explained in a previous article that “formed or availed of” is a term of art and a requirement that an entity meets two legal tests: the Closely-Held Test and the Passive Test.

The Passive Test: General Requirements

The Passive Test consists of two threshold requirements: the Passive Income Threshold and the Passive Assets Threshold. If one of these Thresholds is satisfied, the Passive Test is met and a business entity would be considered as formed or availed of for the purposes of holding specified foreign financial assets. Let’s explore these two requirements in more detail.

The Passive Test: the Passive Income Threshold

The Passive Income Threshold is satisfied if “at least 50 percent of a corporation’s or a partnership’s gross income for the taxable year is passive income.” Treas. Reg. §1.6038D-6(b)(1)(ii). The definition of passive income includes:

“(A) Dividends,

(B) Interest;

(C) Income equivalent to interest, including substitute interest;

(D) Rents and royalties, other than rents and royalties derived in the active conduct of a trade or business conducted, at least in part, by employees of the corporation or partnership;

(E) Annuities;

(F) The excess of gains over losses from the sale or exchange of property that gives rise to passive income described in paragraphs (b)(3)(i)(A) through (b)(3)(i)(E) of this section;

(G) The excess of gains over losses from transactions (including futures, forwards, and similar transactions) in any commodity, but not including –

(1) Any commodity hedging transaction described in section 954(c)(5)(A), determined by treating the corporation or partnership as a controlled foreign corporation; or

(2) Active business gains or losses from the sale of commodities, but only if substantially all the corporation or partnership’s commodities are property described in paragraph (1), (2), or (8) of section 1221(a);

(H) The excess of foreign currency gains over foreign currency losses (as defined in section 988(b)) attributable to any section 988 transaction; and

(I) Net income from notional principal contracts as defined in § 1.446-3(c)(1).” Treas. Reg. §1.6038D-6(b)(3).

The Treasury Regulations also contain certain exceptions to the definition of passive income (for example, for dealers).

The Passive Test: the Passive Assets Threshold

The Passive Assets Threshold is satisfied if at least 50 percent of the assets held by a corporation or a partnership for the taxable year “are assets that produce or are held for the production of passive income.” Treas. Reg. §1.6038D-6(b)(1)(ii). Such assets are called “passive assets”. Id.

The percentage of passive assets held by a corporation or a partnership during a taxable year is determined based on “the weighted average percentage of passive assets (weighted by total assets and measured quarterly).” Id. This is very similar to the PFIC test.

The regulations allow for two different methods of valuation of the assets for the purpose of the Passive Asset Threshold. The first method is Fair Market Value of the assets. The second method is valuation of assets based on the “book value of the assets that is reflected on the corporation’s or partnership’s balance sheet.” Id. Surprisingly, both US and an international financial accounting standard are permitted for the purpose of the valuation of assets (usually, only US GAAP is allowed).

Contact Sherayzen Law Office for Professional Help with FATCA Form 8938 Compliance

If you are concerned about whether your entity is required to file Form 8938 or you have any other FATCA-related questions, please contact Sherayzen Law Office for professional help. Sherayzen Law Office is an international tax law firm that specializes in the US international tax compliance, including FATCA Form 8938 compliance. We have helped hundreds of US taxpayers with their FATCA requirements and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Form 8938 Filing Thresholds | FATCA Tax Lawyer and Attorney Update

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Form 8938 is one of the most important US international tax forms with its own sophisticated penalty structure. Hence, taxpayers should strive to understand when they are required to file the form. In this context, I would like to focus in this essay on the Form 8938 Filing Thresholds.

General Relevant Criteria in the Determination of the Form 8938 Filing Thresholds

There are three most relevant criteria for determining the Form 8938 filing threshold that may apply to a taxpayer: (1) whether the taxpayer is a Specified Individual or a Specified Domestic Entity; (2) the taxpayer’s tax return filing status; and (3) whether the taxpayer resides in the United States or outside of the United States.

I have already described in other articles the criteria for determining whether a taxpayer is a Specified Individual or a Specified Domestic Entity. Hence, for the purposes of this essay, I will assume that the taxpayer satisfies the requirements of one of these categories. Therefore, I will focus solely on the Form 8938 filing thresholds based the filing status and the place of residence.

Form 8938 Filing Thresholds for Unmarried Taxpayers

If a taxpayer files his US tax returns with an unmarried filing status (i.e. “single” or “head of household”) and resides in the United States, he will satisfy the Form 8938 reporting threshold if the total value of the taxpayer’s Specified Foreign Financial Assets (“SFFA”) 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.

If the unmarried taxpayer resides outside of the United States, then the values would go up to more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.

Form 8938 Filing Thresholds for Taxpayers Whose Filing Status is “Married Filing Jointly”

If a taxpayer files his US tax returns as “married filing jointly” and resides in the United States, he will satisfy the Form 8938 reporting threshold if the total value of his SFFA exceeds $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year. If this taxpayer resides outside of the United States, then the Form 8938 reporting thresholds will increase to more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.

Form 8938 Filing Thresholds for Taxpayers Whose Filing Status is “Married Filing Separately”

If a taxpayer files his US tax returns as “married filing separately”, then his Form 8938 reporting thresholds are going to be the same as those of an unmarried taxpayer.

Form 8938 Filing Thresholds for Specified Domestic Entities

Finally, a Specified Domestic Entity has the same Form 8938 Filing Thresholds as those of an unmarried taxpayer who resides in the United States – i.e. SFFA value must be 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 Professional Help With Form 8938

If you were required to file Forms 8938 in the previous years and you have not done so, you may be subject to Form 8938 penalties. In order to avoid or mitigate your Form 8938 penalties, you need to explore your offshore voluntary disclosure options as soon as possible.

Sherayzen Law Office can help You! We are an international tax law firm that specializes in offshore voluntary disclosures of unreported foreign assets and foreign income. We have successfully helped clients from close to 70 countries. You can be next!

Contact Us Today to Schedule Your Confidential Consultation!

Specified Domestic Entity: Domestic Entity | FATCA Lawyer & Attorney

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This is the second article from the series of articles concerning the definition of a Specified Domestic Entity. Today, I will explore what business entities are considered to be “Domestic”.

Specified Domestic Entity Background Information

Specified Domestic Entity is a new category of FATCA Form 8938 filers. Under FATCA, Form 8938 has to be filed with a US taxpayer’s tax return in order to report his Specified Foreign Financial Assets (“SFFA”). Prior to tax year 2016, Form 8938 was applicable only to individual US taxpayers. Starting tax year 2016, however, Specified Domestic Entities are required to file Form 8938 as long as the total value of their SFFA meets the filing threshold.

Definition of a Domestic Entity for the Purposes of FATCA Form 8938

For the purposes of FATCA Form 8938, whether a corporation or a partnership is considered “domestic” is determined under the general definition found in 26 U.S.C. §7701(a)(4): “the term ‘domestic’ when applied to a corporation or partnership means created or organized in the United States or under the law of the United States or of any State unless, in the case of a partnership, the Secretary provides otherwise by regulations.” Thus, while the definition of a domestic corporation is fairly straightforward, it is not always the case with respect to domestic partnerships.

It should also be remembered that an LLC is never taxed as an LLC under the US tax law. Rather, LLC can be taxed either as a partnership or a corporation; it can also be treated as a disregarded entity if there is only one owner of the LLC and the LLC never elected to be taxed as a corporation.

A trust is considered to be a “domestic trust” if it meets the 26 U.S.C. §7701(a)(30)(E). The tests under this section of the Internal Revenue Code (IRC) can be fairly complex and may require additional analysis (see this article for further analysis).

Contact Sherayzen Law Office for Professional Help With FATCA Form 8938

If you need help with the FATCA Form 8938 compliance (including the definition of a Specified Domestic Entity), contact Sherayzen Law Office for professional help. Our experienced international tax team, headed by international tax attorney Eugene Sherayzen, Esq., will thoroughly analyze your case, determine whether you need to file Form 8938 and any other US international information returns, and prepare these forms for you. We can also help you with the voluntary disclosure of any of your offshore assets if you did not timely comply with your US tax obligations with respect to these assets.

Contact Us Today to Schedule Your Confidential Consultation!

Foreign Inheritance Form 8938 Reporting | Form 8938 Lawyers

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Foreign Inheritance Form 8938 reporting has quickly turned into one of the most important tax reporting requirements despite being one of the newest tax forms that debuted barely four years ago in 2012 (for the tax year 2011). In this article, I will discuss when Form 8938 needs to be filed with respect to inherited assets. For the purposes of this article, I will only discuss Form 8938 with respect to the assets actually received, not the assets which are still in the estate. I will also avoid the discussion of Form 3520; it is important to note, though, that Form 3520 is likely to be one of the most relevant reporting requirements with respect to foreign inheritance.

Foreign Inheritance Form 8938 Reporting: Form 8938 Basics

IRS Form 8938 was created by the infamous Foreign Account Tax Compliance Act (FATCA) and, generally, it requires individual U.S. taxpayers to report what are known as “specified foreign financial assets” if the value of those assets exceeds the applicable reporting threshold.

It is beyond the scope of this article to explore Form 8938 filing requirements in detail, but, in essence, IRS Form 8938 requires the reporting of three types of assets. The first category consists of financial accounts maintained at foreign financial institutions. This category closely follows the FBAR reporting requirements (with important exceptions, such as signatory authority accounts) but requires U.S. taxpayers to disclose more information with respect to these accounts.

The second category is the requirement to disclose the ownership of a whole new set of classes of assets grouped together under the vague definition of “other foreign financial assets”. Basically, other foreign financial assets include classes of assets which are held for investment but not held in an account maintained by a financial institution. Such assets include stocks or securities issued by anyone who is not a U.S. person, any interest in a foreign entity, and any financial instrument or contract that has an issuer or counterparty that is other than a U.S. person.

Finally, Form 8938 requires the taxpayer to report whether he disclosed any assets on Forms 5471, 8865, 8621, 3520 and 3520-A.

It should be remembered that Form 8938 has its own set of independent penalties associated with Form 8938 noncompliance. These penalties are imposed in addition to penalties associated with FBARs, Form 3520 and other U.S. information returns.

Foreign Inheritance Form 8938 Reporting: Foreign Financial Accounts

If you received foreign bank and financial accounts as part of your foreign inheritance, you will need to disclose these accounts on Forms 8938 if the relevant filing threshold requirement is satisfied. In a foreign inheritance context, an issue often arises if you are an executor of a foreign estate and have signatory authority over the estate’s financial accounts. Whether Form 8938 would need to be filed for the accounts in this situation is a fact-dependent question and needs to be explored by an international tax attorney (though, in the great majority of cases, an FBAR would need to be filed in this context as long as the relevant reporting threshold is satisfied).

Foreign Inheritance Form 8938 Reporting: Other Investment Instruments

If you received other investment instructions as part of your foreign inheritance, your international tax attorney should explore whether these instruments satisfy the second category of reportable Form 8938 assets. Examples of other foreign financial assets include: a note, bond, debenture, or other form of indebtedness issued by a foreign person; an interest rate swap, currency swap; basis swap; interest rate cap, interest rate floor, commodity swap; equity swap, equity index swap, credit default swap, or similar agreement with a foreign counterparty; an option or other derivative instrument with respect to any currency or commodity that is entered into with a foreign counterparty or issuer; and other assets held for investment.

Foreign Inheritance Form 8938 Reporting: Foreign Business Ownership

The detailed exploration of the reporting of an ownership interest in a foreign business is beyond the scope of this article. Therefore, I want to briefly mention that, if you inherited an ownership interest in a foreign corporation, partnership or a disregarded entity, this interest may need to be reported on Form 8938. However, it is possible that this interest may also have to be reported on Forms 5471, 8865, 8858 and other U.S. information reports related to business entities. In this case, it is possible that you will only need to report on Form 8938 that the information regarding an ownership interest in a foreign entity was reported on Form 5471, 8865 and/or 8621.

The final decision on how a foreign business ownership needs to be reported to the IRS should rest with your international tax lawyer.

Foreign Inheritance Form 8938 Reporting: Foreign Trust Beneficiary Interest

The detailed exploration of the reporting of a beneficiary interest in a foreign trust is beyond the scope of this article. For the purposes of this article, let me just provide this brief and over-simplified summary – if you inherited a beneficiary interest in a foreign trust, you should report it on Form 8938 unless it is already reported on Forms 3520 and/or 3520-A (if the latter is the case, you just need to check the box on Form 8938 for the appropriate form on which the beneficiary interest was reported). Again, the decision on how to report your foreign trust beneficiary interest should rest with your international tax lawyer.

Contact Sherayzen Law Office for Professional Help with Your Foreign Inheritance Form 8938 Reporting

The U.S. tax requirements related to reporting of your foreign inheritance may be highly complex and it is very easy to run into trouble. Contact Sherayzen Law Office for professional help. Our legal team is highly experienced in foreign inheritance reporting, including Forms 8938, 3520 (all parts of Form 3520: foreign trusts, foreign gifts and foreign inheritance), 3520-A, 5471, 8621, 8865 and other relevant forms. We have also helped U.S. taxpayers around the globe with their offshore voluntary disclosures with respect to late reporting of their foreign inheritance.

Contact Us Today to Schedule Your Confidential Consultation!