Possible error in TurboTax calculation of maximum value of deposit accounts in Part I of Form 8938

[CBerteau]

I believe TurboTax is wrong in how it calculates the value for Item 2 (Maximum Value of All Deposit Accounts) in Part I of Form 8938 Statement of Specified Foreign Financial Assets.

The IRS instructions for this item state to "Report the total maximum value of these deposit accounts."  This would seem to mean "what's the most money one had in all foreign deposit accounts, combined, at any point during the year."

TurboTax calculates this answer by adding the maximum values of the individual Part V accounts.  But this is not necessarily correct. 

Let's say I have two accounts, A and B.  Assume neither draws interest, the exchange rate is fixed, and I make no withdrawals or additions other than the transfer I note here.At the start of the tax year, account A has $500,000 and account B has $5,000.  Mid-year I transfer funds so that account A now has $5,000 and account B has $500,000.  Individually I list the maximum on each account as $500,000, because that's what each had at one point in time.  TurboTax then calculates the Part I Item 2 value as $1,000,000.  But in fact the maximum I had at any point, across all accounts, was only $505,000 - this is the value that should go into Part I Item 2.  I've tried over-riding this figure, but TurboTax doesn't like this.  This has been an issue for me several years in a row.

[pk]

I am sorry but TurboTax is correct---  While I agree with deluded figure the process creates, the law appears not to have allowed for people moving monies between two reported accounts. Thus what it requires is that each account report the highest at any point in the year and also the sum total of all the accounts at their maximum.   This is the way the  rules are written for FATCA compliance -- all they are trying to do is to  get all the accounts  come under the regulation. I agree it seems  counter intuitive and definitely results in inflated numbers when monies are moved between accounts.   Sorry.

[Hmmmmm]

I have had this debate with the firm (large global) preparing my taxes and heard the same thing with respect to Form 8938 and reporting the maximum aggregate value of all assets.  I was told "it is the sum of the max of each account.  Don't worry about it, it is only informational."  (also this is how their software is coded)

In disbelief, I contacted the IRS (Help Line – Regulatory Law) for clarification.  I was advised that the intent of the line was to report the maximum aggregated value of all assets for the period and NOT the sum of the maximums for each account.  So MAX (Acct 1 + 2+ 3) during the period and not MAX 1 + MAX 2 +MAX 3.

A rather indigent IRS advisor said... "You are over thinking this. The aggregate max value is the max value of all accounts at a single point in the year.  It is not the sum of the maximums of each account.  That would be stupid."  He further advised my tax firm correct their software and call the IRS and that maybe I should find another company to prepare my taxes.

What about clarifying the instructions for this form? .... The advisor said that clarified instructions were not required as the intent is clear for the maximum total value of assets held were to be reported and reporting the sum of the maximums may overstate this amount.

Incidentally, I suspect the logic for this line is confused by the foreign asset reporting requirement limit which is if the sum of the maximum (MAX1 + MAX2 + MAX3) for each account is >10K.

Since the software could not changed and the value overridden, we added a statement that indicated the correct value.  Maybe next year, the software will be corrected. 

[obsidianj]

This is still not fixed in 2023. I also get an inflated number because we moved some money between accounts.

[clintl]

That is simply poor implementation, no effort was made to understand the intent.

[clintl]

four years and waiting for a correction..... LMFs

[vicing214950]

Can there be some bad consequences for us?   I think Question 6 in Part I of 8938 shall be clarified or modified, or instructions shall be provided by IRS.  It is not about turbotax, it is  more about form 8938.  By no means , the idea  of the question was not to inflate your money and to provide a wrong data.  IRS needs a real picture about how much money /financial assets did one owe over the course of a tax year in foreign bans,  if it is more than 10K.  If you move your money from one pocket to another pocket it does not mean these sums shall be aggregated.  This is so simple. If I had $5 in my right pocket and $5 in my left pocket it simply means I had $10 and it will stay the same $ 10 after I put the money in one pocket, it wont; make me $15:)))  unfortunately, I would love to make money this way, so simple.   The same happens when we  transfer money internally from checking account to saving account.  If you blindly follow the question 6 of the Form 8938 you aggregate these sums and this is a fraud actually.  That is what Turbotax did in my case just yesterday..  It was my very first year I had to submit tax return and form 8938 and only after I submitted forms to IRS via turbotax I noticed this crazy data under Part I , Section 6 of 8938. I am very disappointed and I do hope I wont be penalized for providing wrong information  to IRS. What actions shall I take to correct this? Do I have any options? 

[obsidianj]

I submit my taxes for over 20 years with turbo tax and became aware of this issue in the last few years. So far nobody has ever questioned me on these numbers. Yes, I know they are inflated for the reasons you pointed out. If you fill out the FBAR it again asks for the max amount per account in the las year. They are not asking how much money is in a foreign country. Moving money between accounts always inflates the number. Sometimes to get to the real number is tricky.

[sheilabassett1]

Still not fixed for tax year 2023.

Not clear whether it is ok to override the calculated number with the correct number.

Turbo Tax's Smart Check calls it an error and says that you shouldn't override it, but still allows you to proceed and file.  

Any thoughts?

[SusanY1]

TurboTax reports this correctly, so you shouldn't override the number.

This form is meant to report the total of the highest values of each account, even though that will overstate the individual's net worth when the same funds are transferred between accounts (such as checking and savings or when moving banks). 
 

[jamroz]

Having the same issue, TurboTax doesn't let you file if you overriden this value...

So if i had 100k in account A and 200k in account B and then i moved 200k from B to A, i suddenly have to report 500k as my TOTAL amount even though i only had 300k max at any point in time? This sounds wrong and nonsensical, and the fact that IRS person confirms it wouldnt make sense to work that way worries me...

why is turbotax forcing you to report incorrect information?

[jamroz]

it actually let you file with this override? It doesnt allow me...

[obsidianj]

I don't override the number. I file as the software asks me. If someone comes and asks I can get the numbers. So far nobody asked.