If you hold dual U.S. citizenship, or hold permanent resident status in the United States (green card holders), you should be familiar with the Foreign Financial Assets Declaration Form – Form 8938. This form is part of the annual tax report and includes information regarding financial assets you hold – in Israel or anywhere else in the world. Failure to submit the form may result in excessive fines and charges.
In the article before you, we will explain everything you need to know about Form 8938 – who should submit the form, what information should be included in it and what are the sanctions for not submitting it.
Form 8938 – Statement of Specified Foreign Financial Assets
U.S. citizens, U.S. residents, and foreign citizens who generate income derived from the United States must report annual tax to the U.S. Tax Authority, given they reach a certain income threshold. Similarly, foreign companies that generate income in the United States and local companies (partnerships, LLD, C-CORP) must file tax reports on their income.
Annual tax reports are done using dedicated tax reporting forms for each tax status – a designated form for individuals, a designated form for companies, a designated form for foreign citizens, and so on. In these forms, the taxpayers report their income, earnings, and losses, deductions, and credits to which they are entitled. Using the information specified in each form, the tax liability of the taxpayer (which may also be $0) is calculated.
As part of the annual tax report, some taxpayers must report further information using an accompanying form – Form 8938, also known as The Statement of Foreign Financial Assets. This is an additional annual tax reporting form, unique to financial assets. In the form, the taxpayer lists all the financial assets he holds outside the United States.
It should be noted that this reporting obligation differs from the reporting obligation using FBAR forms. All through the FBAR is also used by U.S. citizens reporting their financial holdings outside the United States, these forms differ, the annual FBAR report is reported to the U.S. Treasury Department, while Form 8938 is reported to the U.S. Internal Revenue Service.
Who should submit form 8938?
The taxpayers required to file the form (Specified Person) are those who hold defined financial assets outside the United States (Specified Foreign Financial Asset), with a value that exceeds a certain threshold.
Who is considered a Specified Person?
A taxpayer is a specified person if he meets the following conditions:
A taxpayer who must submit an annual income tax report.
Namely a taxpayer whose income meets the annual income tax reporting thresholds. Even if the total financial assets of the taxpayer exceed the income thresholds that require reporting on Form 8938, but the taxpayer does not meet the income thresholds that require annual tax reporting – the taxpayer will not be required to submit Form 8938. Form 8938 will always be added to the annual report.
A permanent resident of the United States who has been in the United States throughout the tax year or a foreign citizen who has chosen to file a joint tax report with an American citizen.
The obligation to report not only applies to individuals but also partnerships and trust companies, given the following cumulative conditions:
- On the last day of reporting, more than 80% of the corporation’s shares are held by the person defined as described above.
- More than 50% of gross income comes from passive income. Alternatively, 50% of the corporation’s funds are generated or held to generate passive income.
What are financial assets that require reporting?
The definition of financial assets is very broad and refers to financial assets and non-financial assets held for investment. These include stocks, bonds, options, securities, foreign financial instruments, ownership of foreign companies, and futures contracts.
What are the holdings that require reporting?
In order to establish the reporting obligation, the taxpayer must meet the reporting threshold. The tax provisions stipulate that a person whose cumulative sum of the total value of his financial assets meets the following criteria will be obligated to report:
Taxpayers located within the United States:
A single person or married couple filing separately.
$50,000 at the end of the year or $75,000 at any point during the year.
Married couples filing jointly.
$100,000 at the end of the year or $150,000 at any point during the year.
Taxpayers outside the United States:
A single person or married couple filing separately
$200,000 at the end of the year or $300,000 at any point during the year.
Married couples filing jointly
$400,000 at the end of the year or $600,000 at any point during the year.
What are the consequences of not submitting the form?
The non-filing sanctions expose the defendant to hefty fines – $10,000 for non-filing and $50,000 for continuing refusal to submit the form.
If you are not sure whether or not you should file forms and what forms, you need to submit? Having trouble filling out the forms? MasAmerica’s professional and skilled team specializes in accounting and law in Israel and the United States and will be happy to be at your service and to accompany you at every step.
This should not be seen as legal advice. It is recommended to consult with MasAmerica’s team before any action. The service is provided by a professional team, who speaks fluent English and Hebrew and includes lawyers and accountants with American licensees.