Failing to file a required Form 8938 (opens the official IRS page in a new tab) can bring a penalty of $10,000, with further penalties if the failure continues after the IRS sends a notice. The larger cost is often indirect. Tax underpaid on an undisclosed foreign asset attracts a heavier accuracy-related penalty, and the period in which the IRS can assess tax on the return can stay open until three years after the missing information is filed.
This post is for US citizens and green card holders in the UK who have realised that their foreign assets passed the Form 8938 threshold in a year when they filed no form, or filed one with assets missing. It extends our guide to FBAR and FATCA for UK residents on one question: what the Form 8938 penalty rules are, how the open statute of limitations works, and where reasonable cause changes the answer.
What is the penalty for not filing Form 8938
The Form 8938 instructions set an initial penalty of $10,000 for a required filer who does not file a complete and correct form by the due date, including extensions. If the IRS mails a notice and the failure continues beyond the period the notice allows, an additional penalty of the same amount applies for each further period, or part of one, up to a statutory maximum.
The penalty attaches to a failure to file a complete and correct form, so an incomplete form is within its reach as well as a missing one. A UK resident who reported a current account but left off a workplace pension or a stocks and shares ISA has not filed a complete form. Our post on what counts as a specified foreign financial asset sets out what the form has to include.
Married couples filing a joint return are treated as a single person for the failure-to-file penalties, and their liability for all penalties is joint and several. The instructions also confirm that someone with no income tax return to file for the year has no Form 8938 to file. Whether you are a required filer at all turns on the thresholds explained in the IRS tool Do I need to file Form 8938 (opens the official IRS page in a new tab) and on our page for Form 8938.
- Initial penalty for a missing or incomplete form: $10,000
- Further penalties if the failure continues after an IRS notice, up to a statutory cap
- Joint filers: treated as one person, with joint and several liability
- No income tax return due for the year: no Form 8938 due either
Can the IRS add penalties to the tax itself
Yes. Where tax is underpaid as a result of a transaction involving an undisclosed specified foreign financial asset, the instructions provide for an accuracy-related penalty at a higher rate than the usual one, charged on that underpayment. Fraud carries a larger penalty still, and criminal penalties are possible in serious cases.
This is the penalty that tends to matter most to people in Britain. The flat penalty applies to the form. The accuracy-related penalty applies to tax, and it grows with the income that went unreported. Interest from a UK savings account that never reached the return, gains inside a fund that were not declared, or dividends from an investment platform left off Schedule B can each produce an underpayment linked to an asset that Form 8938 did not disclose.
The two operate side by side. Filing a late Form 8938 deals with the information failure going forward, but it does not by itself correct the tax. Unreported income goes on an amended return under the Form 1040-X (opens the official IRS page in a new tab) rules, and our page on Form 1040-X explains how the amended return is put together. Our IRS representation service handles cases where the IRS has already raised the penalty.
Why a missing Form 8938 keeps the statute open
Because the Form 8938 rules hold the assessment period open until the information arrives. The instructions say that if you fail to file a required form, or fail to report a required asset, the statute of limitations for that tax year may remain open for all or part of the return until three years after the date you file Form 8938.
IRS examination guidance on these rules says the extended period applies to the entire return, not only to the tax linked to the information that was missing. The practical effect is that a year that looks closed is not. Every item on the return, including items with no foreign connection, can stay open to assessment for as long as the required information stays unfiled.
This is why a missed Form 8938 is not something time will settle. A year from a decade ago with a missing form can, on the wording of the rule, still be open now. Filing the form starts a fresh three-year period, after which the year closes in the ordinary way unless another exception applies. Our post on whether you file the FBAR, Form 8938 or both explains why the two reports do not overlap.
How reasonable cause limits the penalty and the open statute
Reasonable cause works in two places. The instructions say no failure-to-file penalty is imposed where the failure is due to reasonable cause and not wilful neglect. IRS guidance on the statute adds that where the failure was due to reasonable cause, the extended assessment period applies only to the items connected with the failure, not to the whole return.
The burden sits with the taxpayer. The instructions say you must affirmatively show the facts that support a reasonable cause claim, so a bare statement that you did not know is unlikely to carry much weight without the facts behind it. What counts depends on the circumstances of each case, and we set out the history in writing before the claim is made.
One argument is ruled out by the instructions themselves. The fact that a foreign jurisdiction would impose a civil or criminal penalty for disclosing the required information is not reasonable cause. The IRS summary of FATCA reporting (opens the official IRS page in a new tab) sets out the wider framework.
- Reasonable cause shown: no failure-to-file penalty under the instructions
- Reasonable cause shown: the open statute limited to the related items
- No reasonable cause: the whole return can stay open until the form is filed
- Foreign law penalising disclosure: expressly not reasonable cause
When the IRS has six years instead of three
Where you leave out of gross income an amount relating to one or more specified foreign financial assets, and the omission exceeds a set amount, the instructions say any tax for the year can be assessed at any time within six years after the return was filed.
The six-year rule is separate from the open statute. The open statute turns on missing information and lasts until three years after the form is filed. The six-year rule turns on missing income and runs from the date of the return. A taxpayer can face both: no Form 8938, and foreign interest or gains left off the return.
The set amount is modest, so someone with unreported fund income or gains from UK investments should not assume an older year has closed. Where the omitted income came from UK funds, the reporting problems can overlap with Form 8621 as well. We review each year's income and assets together before deciding which periods are still open.
How Form 8938 penalties differ from FBAR penalties
They are two separate regimes. Form 8938 is filed with the income tax return and its penalties come from the tax code. The FBAR is filed with FinCEN, not with the IRS return, and its penalties come from the Bank Secrecy Act. The IRS comparison of the two (opens the official IRS page in a new tab) confirms that filing one does not satisfy the other.
The same UK account can sit on both reports, so a person who missed both can face penalty exposure under each regime for the same year. FBAR penalties turn on whether the failure was wilful, and the Supreme Court held in Bittner that the non-wilful penalty applies per report, not per account. Our post on wilful and non-wilful FBAR penalties after Bittner covers that side.
The open statute described above is a Form 8938 and tax return rule, and filing a late Form 8938 does nothing for a missing FBAR. The IRS basic questions on Form 8938 (opens the official IRS page in a new tab) confirm that filing Form 8938 does not relieve you of the separate FBAR requirement. Our page on FinCEN Form 114 covers the FBAR itself.
A worked example and what to do next
Take a US citizen employed as a solicitor in Edinburgh, filing as single. She has filed a Form 1040 and an FBAR every year, but never Form 8938, although her UK pension, ISAs and savings passed the threshold for several of those years. Her ISA dividends and savings interest were also left off her returns.
Each of those years carries potential exposure to the $10,000 penalty, the statute for each return stays open, and the unreported dividends and interest bring tax, interest and possibly the higher accuracy-related penalty. Because the omitted income relates to foreign assets, the six-year rule may apply to the older years as well. If her failure was due to reasonable cause, the penalties may not apply and the open statute narrows to the related items.
The route for correcting this depends on the facts. Where the failure was non-wilful, the streamlined procedures may be available; they require a written certification of non-wilful conduct and close once the IRS has opened an examination. We prepare the corrected filings through our foreign income and FBAR reporting service and our IRS streamlined service, and the routes are compared in our guide to FBAR and FATCA for UK residents.
General information, not advice. The right answer depends on your circumstances and the tax year concerned.
