Amended Return for Missing Form 8938

I have a client that did not file a Form 8938, Statement of Specified Financial Assets, reporting his foreign bank accounts for 2018. The account did not earn any income, so he believed it was not required.

Unfortunately, he is not eligible to fix this under the IRS Delinquent International Information Return Submission Procedures, because his 2017 tax return is currently under audit. The audit is a NRP audit, they are just doing research and not looking for any specific problems. The IRS is taking forever to move on the audit, though, and they recently asked the client to sign an extension to extend the statute of limitations to December 2022.

In the meantime, the client would really like to resolve 2018 issue with the missing Form 8938 and doesn't want to wait months and months until the 2017 audit if finished to do it. I am inclined to file an amended tax return with the From 8938 attached. Again, there would be no change in income or tax liability. I know that some people recommend against doing that, though, because the amended return doesn't offer the same penalty protection that the DIIRSP program offers.

Does anyone have thoughts or experience with filing a late Form 8938 as part of an amended tax return? Many thanks for any insights provided.

Some practitioners believe you can still follow that guidance under that old IRS program

The DIIRSP was changed so is now likely to result in a penalty - followed by a lengthy argument over reasonable cause. Form 8938 reports many, many kinds of specified financial assets that are not bank accounts? Did the client file FBARs for any year? Are there PFICs, foreign pension plans, foreign entities? Was an 8938 filed for any other year? Any logic not to use he SDOP and pay just the 5% penalty?

I found your thread here- I have a similar problem and would appreciate advice from experienced pro in FATCA / FBAR issues. Here's the situation:

New client , 24 year old recent college grad , didn't file required FBAR and Form 8938 with his '18 tax return. He received 350 k ,foreign bank account balance he inherited and promptly closed out. No requirement to file F3520 or associated foreign info report forms - just 8938 and FBAR. This is first time he's ever dealt with foreign tax issue.

Prior to November of 2020, he would have qualified for the Delinquent International Information Return Submission Procedures (DIIRSP). But, this is now gone and so is his chance to easily avoid penalties. Basically, I think I of more than I can chew here Which option do you think is best of the following:

A) Refer this out to experienced IRS lawyer with foreign non-compliance experience.

B) File amended return with FBAR and 8938 for client. If/when a follow up notice is received assessing non-filing penalties and reasonable cause statement, client can hire an attorney to respond.

C) Additional Option not already contemplated

Thanks so much for any help you can offer !

Even though the IRS took down the page, some folks still think DIIRSP works

He received 350 k *** he inherited. No requirement to file F3520

Please explain why an inheritance of 350k from a foreign person does not require a Form 3520. Was the inheritance from a U.S. person?

Please explain why an inheritance of 350k from a foreign person does not require a Form 3520. Was the inheritance from a U.S. person?

The inheritance was from a US citizen.

Good question on DIIRSP.

It was a great revenue source because it took a lot of work to recreate history and clients would pay if you could remove potential IRS exposure, particularly with those pesky $10,000 5471 automatic late filing penalties.

My perspective now is that what is gone is the DIIRSP guarantee of no penalties for clients in the program, but as far as the IRS recommended approach to delinquencies, nothing has changed. I think that makes it too risky for a CPA firm to handle the delinquent filings without an atty, because the IRS could always turn around and slap a fine on client and they in turn blame us for advising them to file in delinquency - that seems like significant liability exposure for us. At the same time, I dont see how we can meet professional standards and tell the client not to file into the delinquency program because it is still the IRS's recommended guidance. So, how are they going to use their latest speed trap? Imperfect 5471, didnt get the Schedule J and P-1 PTEP E&P reclasses right in 2018, no presumption of penalty abatement, $10,000 penalty and there is no way to say it wasnt our fault.

For my practice, I have decided not to take on any new delinquency submissions without an attorney directing the client. In the future, if the dust gets settled and we see a consistent pattern of how the IRS is handling the modified program, I might consider taking it on again.

Prospect contacts me. Might need amended 2018 and 2019 returns for an issue related to rental real estate.

Prospect has also filed FBARs for each year in the past, but upon conversation, it comes to light that the prospect should have been filing 8938s but did not. Multiple years, at least going back the past 3 years, probably more.

It looks like this prospect needs an attorney? And I shouldn't file an amended 2018 and/or 2019 without an attorney's input?

We have insufficient guidance and high exposure, but I am finding it difficult to turn away the client. After I outlined the risks, they agreed anyway.