201806.07
1

Form 8938 Penalty (2018) – Limitations on Form 8938 Reasonable Cause

Form 8938 Penalty (2018) – Limitations on Form 8938 Reasonable Cause

Form 8938 Penalty (2018) – Limitations on Form 8938 Reasonable Cause (Krantz Attorneys)

Form 8938 Penalty (2018) – Limitations on Form 8938 Reasonable Cause (Krantz Attorneys)

Form 8938 is the FATCA form, which you may have to file along with your U.S. Tax Return.

FATCA is the Foreign Account Tax Compliance Act. The act came into effect in 2010, and Form 8938 was introduced for the first time in tax year 2011.

Who Has To File Form 8938?

Form 8938 is required by certain individuals who have ownership of Specified Foreign Financial assets.  The types of assets range from certain bank accounts or other financial accounts to ownership of foreign businesses, foreign investments — and everything in between.

Not everybody has to file the form even if they have specified foreign financial assets. Rather, it depends on whether they meet certain threshold requirements, or if they have to file an alternative form for the same asset, such as a 5471 or 8865.

The requirements will vary depending on whether the person is filing single/married filing separate or jointly and whether the person it Is considered a US resident or foreign residence.

Form 8938 Is Not The Same as the FBAR

Even though Form 8938 and the FBAR (FinCEN 114) are similar, there are key distinctions between the two forms.

Oftentimes, clients will get form 8938 and the FBAR confused because they are very similar forms, with similar disclosure requirements. But, while Form 8938 is part of your tax return and filed alongside your 1040, the FBAR is a separate and distinct form which is the creation of FinCEN (Financial Crimes Enforcement Network) and filed separately on the FinCEN website (And, to confuse you a bit more, even though the form was not created by the IRS since 2003 the IRS took over enforcement of the penalties associated with that form)

Form 8938 Penalties

Form 8938 penalties will vary, depending on your particular facts and circumstances. You may even be able to obtain a penalty waiver using Streamlined Foreign Offshore Procedures or Reasonable Cause (if the IRS agent is feeling friendly) and avoid being penalized upwards of $60,000 (for multiple years of non-compliance) 

Reasonable Cause Limitation

While the IRS refuses to clearly identify what specific facts and circumstances will qualify for reasonable cause, they are quick to include a major hurdle for you in trying to qualify reasonable cause… and the limitation does not seem very reasonable.

For example, if you come from a country in which exposing your own financial information to another government (such as the United States) would be illegal in that foreign country – that will not justify failing to comply with form 8938 requirements.

In fact, the IRS has specifically stated that the above referenced example of violating your own countries law is not sufficient to meet the reasonable cause standard. As provided in Form 8938 Instructions, Page 9, “Effect of foreign jurisdiction laws: The fact that a foreign jurisdiction would impose a civil or criminal penalty on you if you disclose the required information is not reasonable cause.”

Other IRS Penalties

Beyond form 8938, oftentimes if a person has foreign financial assets, they will have several other forms they may need to file, and the failure to file these forms may result in additional offshore fines and penalties.

Krantz Attorneys, A PLC

We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.

International Tax Lawyers - Krantz Attorneys, A PLC

International Tax Lawyers - Krantz Attorneys, A PLC

Krantz Attorneys: Our international tax lawyers practice exclusively in the area of IRS Offshore & Voluntary Disclosure. We represent clients in 70+ different countries. Managing Partner Ezra Krantz is a Board-Certified Tax Law Specialist Attorney (a designation earned by < 1% of attorneys nationwide.). He leads a full-service offshore disclosure & tax law firm. Ezra and his team have represented thousands of clients nationwide & worldwide in all aspects of IRS offshore & voluntary disclosure and compliance during his 20-year career as an Attorney.

Ezra holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Krantz's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
International Tax Lawyers - Krantz Attorneys, A PLC

Latest posts by International Tax Lawyers - Krantz Attorneys, A PLC (see all)