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Foreign Financial Assets

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Specified foreign financial assets on 1040 Form 8938


Will you pay your tax as a US person or as a foreign person? 

Have you recently purchased a few foreign assets and don’t know whether you will be taxed or not?

The US taxation system is quite challenging to understand. With so many criteria, rules, and regulations, reckoning their applicability for one own self is not an easy job. Moreover, if you are not filing your tax returns correctly, you will be assessed a lot in penalties for wrong tax returns. 

So, if you have certain foreign assets, you should be aware of everything about the “specified foreign financial assets” and the related Form 8938. In this article, you will get to know about all the details that will help you realize whether or not you need to file Form 8938 during your annual tax return submission. 

What is a foreign financial asset? 

Before moving further, you need to know exactly what a foreign financial asset is. Let’s say you, as a US individual, have bought a private island somewhere in Greece. This asset is tangible property, and hence it’s considered a foreign financial asset as the property is registered under the Greek government. Similarly, if you start a small company in Germany, it will be of German origin and not the US. Hence, your company will be considered a foreign financial asset. 

“specified foreign financial assets” include:

  • Any kind of financial account like investment, bank, retirement, and other account types
  • Securities like stocks and bonds in an investment account an issued by a non-US authority
  • The interest in a foreign corporation, partnership, or trust
  • Any financial agreement with an involved party being a non-US person
  • Any personal real estate property held through a foreign partnership or corporation, trust or estate.

What is Form 8938, and what does it consists of?

On March 18, 2019, then-President Barack Obama introduced Form 8938 under the FATCA compliance act to ensure stricter rules on the ownership of any foreign financial asset. When an individual owns a foreign financial asset, he becomes non-compliant for the offshore taxes, and the government suffers the losses. To prevent this, Obama issued the Form 8938 rule so that taxpayers can pay the proper taxes against the various foreign financial assets they possess.

Six different parts are there mentioned in Form 8938. They are: 

  1. Part I consists of financial account details 
  2. Part II consists of stocks, bonds, and other financial instruments.
  3. Part III will summarize the incomes mentioned in the tax return file having a foreign asset as a source.
  4. Part IV summarizes those foreign financial assets which have been overviewed somewhere else in the return file. 
  5. Parts V and Vi both describe the Part I details you have mentioned thoroughly. 

Eligibility criteria for filling up Form 8938

Every US taxpayer, including US citizens, US persons, resident aliens, and non-resident aliens, are allowed to fill Form 8938 only when their total foreign financial assets valuation crosses the threshold. This threshold value will be set according to the type of individual you have, the valuation rate, the asset type, and other attributes. 


Filing up Form 8938 is essential if you have foreign financial assets with a total valuation exceeding the threshold mentioned in the IRS rules. If you are not filing the form, you might be assessed penalties. So, make sure to contact a proper tax advisor who can help you understand Form 8938 properly and file it without errors. 

Streamlined Filing Procedures:
Every United States resident, who is filing their taxes on worldwide income and has foreign financial assets, needs to report those assets and disclose the transaction and property details to the IRS (FBAR). This is to ensure that no taxpayer abuses tax laws and offshore taxation rules. Foreign assets and transactions are a high radar for the IRS and high penalties.
But, what if you mistakenly miss the reporting of the foreign accounts in your tax return?
What would happen if you forgot to submit the reporting of the foreign financial assets? Taxation is complex enough. Foreign accounts and foreign transactions tax law is even more complex.
Well, if the IRS finds that these errors have been done willfully you will be penalized per year that you didn’t report the assets.
However, if you can prove that the absence of the filing was unintentional you may file it through the Streamlined Filing Procedures.
Streamlined procedures to report your foreign assets and foreign transactions are availed when a taxpayer needs to declare and support his unintentional behavior of non-disclosing the information. With this strategy, you may be able to:
● Have access to a streamlined process to file the missing returns ;
● Resolve the IRS issues while submitting the missed disclosures and reporting;
Streamlined procedures eligibility:
Per the IRS at https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures,
“Taxpayers must certify that conduct was not willful;
-Taxpayers who want to participate in the streamlined procedures need a valid Taxpayer Identification Number.
-Taxpayers who want to participate in the streamlined procedures need a valid Taxpayer Identification Number.
-When the taxpayer submits his missed returns under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, he may not participate in OVDP. Similarly, a taxpayer who submits an OVDP voluntary disclosure letter pursuant to OVDP FAQ 24 on or after July 1, 2014, is not eligible to participate in the streamlined procedures.

-Not under IRS examination”.

Not willful example:

-you did disclose the assets or the transactions elsewhere in the returns;

-hiring a specialized tax professional,

-following their tax advice,

-providing the tax professional with all necessary information.

If the IRS has started a civil examination of your return stating that the data present is not matching their data, the IRS officials may check your bank accounts and any other evidence to verify the information.

Availability of valid Taxpayer Identification Number

You need to have your Taxpayer identification number so that you can present it during filing for Streamlined Procedures. A US person, a resident alien, and a non-resident alien- all can apply for TIN at the IRS.


With the help of Streamlined filing compliance procedures, you, as a taxpayer, can prove your compliance and avoid criminal or civil problems.

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