Timing of filing Form 8938 and FBAR for previous years

[makorin]

My husband and I recently learned that we need to file Form 8938 and FBAR for our bank accounts in Japan. We didn't know we had to, and we would like to correct this situation as soon as possible.

1. We know that statute of limitation for Form 8938 is 3 years, whereas it is 6 years for FBAR. We would like to submit them for previous 3 & 6 years as soon as possible.
2. We also learned that filing Form 8938 for previous years would involve amending Form1040 for each year, although the interest rate has been so low that the interests incurred likely are not much worth reporting.
3. We want to start filing these forms starting this year (i.e., for year 2024) on time.
4. However, we’re wondering if it would be a problem if we file 2024 forms (including 1040) before filing/amending them for previous years, because IRS would likely find out about our Japanese accounts as soon as we file something about them, which may put us at risk for being penalized for the previous years not yet reported…!?

Our question is: in theory, it probably makes more sense to file for the previous years first then for 2024, but given the deadline for 2024 forms coming up, we’re wondering if we should 1) file for extension for 2024 and then do the previous years forms first, then file 2024; OR 2) go ahead and file all of 2024 forms first, then file the previous years ASAP.

TIA for your advice!

[pk · Accepted solution]

@makorin , assuming that you are US person ( citizen/GreenCard/Resident for Tax purposes ),  I am not quite clear as to your situation-- what I get 
(a)  you own bank accounts in Japan  -- is this all you have or are you talking about bank accounts and  also other specified  financial assets  ( but no real-Estate    ? )  ?

(b)  Are you taking into consideration the  FATCA -- 8938 -- threshold differences based on your  filing status and tax home ?

 I would de-couple  the missed filings from  current  ( 2024 ) filing requirements.  I say this because  IRS  already  gets info on foreign bank accounts  ( of US persons ) directly.

So my  curative plan would be 

1.  file  form 114 ( at FinCen.gov  and on-line  filing only ) starting from 2024 and walk backwards covering at least three years.   I don't remember if it asks   for reasons for missed filing -- just say  you were unaware of the requirements  ( which is true).

2. Then  start amending your  returns  -- again starting with 2023 and walk backwards.  These would be  paper  / by mail filings.   On each of the amended returns  provide the  "reason for amending" as missed  attaching  form 8938 -- sign/date.  Mail these  at the address  shown at IRS  site.

3.  File your 2024 return per usual -- e-file and include form 8938.

4. There is no reason for  rush/panic -- as long as your reason is  " not being aware of the requirement " and not  purposefully ignoring the law, there is nothing to worry about.

I do have a question though -- considering that  TurboTax asks  you every year if you have foreign bank accounts  / if you are required to file FBAR form, if you need to file  form 8938 --- how did you happen to miss  this  blaring siren.   I am assuming that you have been using TurboTax for the last few years -- yes ?   

Here is a page  from the IRS talking about  what are  specified foreign financial assets  -- what is included and what is not .   

Basic questions and answers on Form 8938 | Internal Revenue Service

Is there more I can do for you ?

pk

[makorin]

@pk - thank you so much for your guidance.

Just to clarify my situation:

1. both my husband and I are US Green Card holders
2. the only assets we have outside of the US are these bank accounts in Japan. 
3. As far as we know, US doesn't know the existence of our bank accounts in Japan yet, because we haven't told the Japanese banks that we live in the US. Our guess is US/IRS would not know about them until we either file either Form 8938/FBAR or make some sort of transactions from/to the bank to our US bank accounts. 

To answer your question, we only recently found out about these Japanese bank accounts. My husband found out, when his grandmother passed away and discovered that she had opened an account for him years ago. We've seen the question in TurboTax since, but initially it didn't occur to us that this Japanese account would have direct impact on the US tax filing process - we totally missed it a couple of times (just repeated same response from previous years). Over the last year, we finally learned that we were/are required to report the account, and upon finding that out, I also checked with family to see if there's a similar account under my name in similar situation and did find one. Now we are aware of the existence of the accounts AND the requirements, totally panicking...! 

Your response is extremely helpful. Do you feel any part of your suggestion may change based on the fact that IRS likely does not know the existence of these account, i.e., the Japanese banks not aware that we are US persons at the moment?

Thank you so much again for your assistance.

[pk]

@makorin , thank you for answering my questions.  I understand  better on how this situation has evolved.

No, I don't think I would change my  earlier articulation.  However, I think all you need to do is to amend  only the returns  ( for form 8938 inclusion ) to the later of  (a) when you became a US person  and (b) when you became aware of the existence of the account(s).

BTW -- in your first post you mentioned about "interest" -- do you mean that you have had  yearly interest earnings  that you have not recognized ?  If so , you need to  recognize  these earnings and  pay US taxes on these.  If the amount is small, it may not affect your tax liabilities for the years that you need to amend.

In any case, please  make sure that your future  filings are all accurate  ( for FBASR, FATCA and  interest earnings  recognition etc. ).  IRS has a habit of  flagging and tracking  tax payers for at least three years  to make sure  the  taxpayer is compliant.

Hope this helps. 

Is there more I can do for you ?

konnichiua

pk

pk

[makorin]

@pk 

Yes, there was some interest each year, but because the rate was extremely low until this year, the amount is very small. We will recognize all interest income in our filings and pay US taxes as required. 

Thank you again for your very helpful guidance. We were afraid we may not be able to do this on our own, but now we are more confident that we can get through this!

[pk]

@makorin   arrigatto gozaimaas