If Expats Don’t File Taxes, Do They Still Report Foreign Assets

If Expats Don’t File Taxes, Do They Still Report Foreign Assets

When Do Expats Report Foreign Assets?

When it comes to filing U.S. tax returns, oftentimes the most complicated aspect of the return is just figuring out which international information reporting form may be required for taxpayers with foreign accounts, assets, investments, or income. Many different types of foreign IRS tax forms may be required, and one of the more recent forms is IRS Form 8938. The Form 8938 is a relative newcomer to the world of international tax and it is similar to but not identical to the FBAR. One common question our international tax law specialist team receives is whether or not Form 8938 is required when a tax return is not required to be filed in that year.

…For those of you sitting on the edge of your seat, the answer is no, it is not required.

First, Owing Taxes vs Filing a Tax Return

Briefly, a distinction should be made between having to file a U.S. tax return and owing any taxes. When a person is required to file a tax return, then Form 8938 may be required — even when no taxes are due. Conversely, if a person is not required to file a tax return because they don’t have sufficient income, then they would not have to file a Form 8938. In other words, the the catalyst for having to file Form 8938 is not whether or not a person owes taxes, but whether or not a person has to file a tax return.

Form 8938 to Report Foreign Assets

The Form 8938 is used to report specified foreign financial assets. Oftentimes, this form is filed to report assets that are similar to assets that would be found on the annual FBAR — such as foreign accounts, foreign investments, foreign stock accounts, foreign pension plans, and certain foreign life insurance policies. One distinguishing factor between Form 8938 and all the other international information reporting forms such as Form 3520, Form 8621, and Form 5471, is that Form 8938 is only required in a year in which a person has to file a tax return.

Let’s look at a simple example for reference:

Form 8938 Example

Miranda is a US person who has $800,000 worth of specified foreign financial assets but does not earn any income (either in the United States or abroad). In this situation, Miranda does not have to file Form 8938, because she is not required to file a tax return. In other words, even though Miranda did exceed the threshold for having to file a Form 8938 as a single taxpayer residing in the United States because she did not earn sufficient income necessary for her to file a U.S. tax return in the current year, she is not required to file the tax return even though the Form 8938 threshold was met.

Other International Reporting may be Required

It is also important to note, that while Miranda may not need to file a Form 8938, she may have other international information reporting forms she has to file. For example, Miranda would have to file the FBAR because her foreign financial accounts exceed $10,000, and Form 8621 because she has $300,000 in foreign mutual funds.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.