FATCA penalties: what happens if you fail to report foreign assets?

For most US taxpayers abroad, FATCA penalties mean Form 8938 penalties. If you were required to file Form 8938 for the 2025 tax year and did not, the starting penalty is $10,000 (2025). It can reach $60,000 (2025) after an IRS notice if the problem is not corrected.

When the undisclosed asset also caused tax to be underpaid, the IRS can impose a 40% accuracy-related penalty on the portion of the underpayment tied to that asset under IRC §6662(j).

The Form 8938 instructions describe how this penalty interacts with the filing requirement. FATCA also runs a separate 30% withholding regime for noncompliant foreign financial institutions under Chapter 4 – a different framework from the individual Form 8938 rules.

The Form 8938 penalty starts at $10,000 (2025), can reach $60,000 (2025) after IRS notice, and a 40% penalty applies when undisclosed foreign assets cause a tax underpayment.

 

FATCA penalties for noncompliance are separate from FBAR penalties. Both can apply in the same year because the forms, thresholds, and filing systems are different.

FREE

Not sure if Form 8938 applies to your foreign accounts?

Talk to us.

Schedule my free call

What FATCA actually covers – and what “noncompliance” means

FATCA has two main tracks: one for US taxpayers who may need to file Form 8938 with their income tax return, and another for foreign financial institutions that face Chapter 4 reporting and withholding rules.

For most individuals, noncompliance starts when Form 8938 is required for a tax year, and the form is missing, incomplete, or incorrect.

Noncompliance can take three forms, and each one can create penalty exposure:

• Not filing Form 8938. The form was required and not attached to the return. This triggers the $10,000 (2025) initial penalty under IRC §6038D(d).
• Filing incomplete or incorrect asset values. The form was attached but missing accounts, understating values, or listing incorrect asset types.
• Ignoring IRS notices. The IRS sends a notice about the missing or deficient form, and the taxpayer does not correct it within 90 days. This is where continuation penalties begin.

Noncompliance can exist even when the income tax return was filed on time. Form 8938 is a separate information-reporting obligation attached to the return, and a penalty can apply whether or not additional income tax is due.

What this article covers: the penalty structure for individual Form 8938 failures, the 40% understatement rule, the extended audit window, who is at risk, how to correct missed filings, and how FATCA penalties compare to FBAR penalties.

For the Form 8938 filing mechanics, see our Form 8938 reporting guide.

Types of foreign assets that must be reported

Form 8938 requires disclosure of “specified foreign financial assets” – a defined category under IRC §6038D that is broader than foreign bank accounts alone but does not cover every asset you hold abroad.

Usually reportable on Form 8938:

• Foreign financial accounts – bank accounts, brokerage accounts, savings accounts, custodial accounts
• Foreign stocks and securities held directly, outside a financial account
• Financial instruments and contracts with non-US issuers or counterparties
• Interests in foreign entities – partnership interests, LLC membership interests, ownership in foreign corporations, where held outside a financial account
• Foreign pension and deferred compensation arrangements, depending on the legal structure
• Foreign-issued insurance and annuity contracts with cash surrender value

Often excluded or separately analyzed:

• Directly held foreign real estate – not a specified foreign financial asset in itself, though a foreign entity that holds the real estate may be reportable
• Foreign currency held directly
• Directly held precious metals, art, and collectibles
• Social-security-type benefits from a foreign government
• Assets already reported on Forms 3520, 5471, 8621, or 8865 – these are identified on Part IV of Form 8938 but not reported again in detail, though their value still counts toward the filing threshold

Asset classification errors are one of the fastest ways to create unnecessary filing risk.

Different foreign assets trigger different IRS forms – Form 8938, FBAR, Form 5471, Form 3520, and others.

Our foreign asset reporting guide maps each asset type to the correct form.

Who can face FATCA penalties?

US citizens, green card holders, resident aliens, and dual citizens with US filing obligations are the groups most likely to face FATCA penalties.

Certain specified domestic entities – corporations, partnerships, and trusts formed or used to hold specified foreign financial assets – can also be subject to Form 8938 filing requirements and penalties.

The following five groups can face FATCA-related consequences under the current rules:

1. US citizens who meet the Form 8938 filing thresholds.
2. Green card holders and other resident aliens who are specified individuals for Form 8938 purposes.
3. Certain nonresident aliens who elect to be treated as residents for a joint return, and certain bona fide residents of Puerto Rico or American Samoa, if they fall within the Form 8938 rules.
4. Certain specified domestic corporations, partnerships, and trusts formed or used to hold specified foreign financial assets.
5. Foreign financial institutions, which face Chapter 4 withholding and compliance consequences rather than Form 8938 penalties.

Key takeaway: For most individual filers, the trigger is the Form 8938 threshold, which ranges from more than $50,000 to more than $600,000 (2025) depending on filing status and whether you live in the US or abroad.

Quick self-check – Form 8938 likely applies if all three are true:

• You are a US citizen, green card holder, or resident alien.
• You hold financial accounts or investment assets at foreign institutions.
• The total value of those assets crosses the threshold for your filing status and residence.

If you are not required to file a US income tax return for the year, you do not file Form 8938 regardless of your asset values.

Form 8938 filing thresholds and reporting triggers

The Form 8938 threshold depends on your filing status and whether you live in the US or abroad. The thresholds are set by Treasury regulations and are not inflation-adjusted – they have not changed since Form 8938 was introduced.

Thresholds range from more than $50,000 for US-resident single filers to more than $600,000 for married couples filing jointly abroad – all for tax year 2025.

 

“Living abroad” for these thresholds means your tax home is in a foreign country and you meet either the bona fide residence test for a full tax year or the physical presence test – 330 full days abroad in a 12-month period.

This is the same qualified-individual standard used for the Foreign Earned Income Exclusion under IRC §911(d)(1).

FATCA penalty for failure to report Form 8938

The FATCA penalty for failure to report Form 8938 starts at $10,000 (2025) if a required form was not filed completely and correctly by the due date, including extensions. It can rise to a combined $60,000 (2025) after IRS notice.

A separate 40% penalty can apply when tax was underpaid because of an undisclosed specified foreign financial asset understatement under IRC §6662(j).

Initial failure-to-file penalty: $10,000

The initial FATCA penalty is $10,000 (2025) under IRC §6038D(d)(1). This penalty applies when a required Form 8938 was not attached to a timely filed return – even if the rest of the return is accurate and no additional income tax is due.

That matters because some taxpayers wrongly assume there is no issue if the foreign asset produced no taxable income. Form 8938 is a separate information-reporting obligation. If the filing duty existed, the starting penalty is tied to the missing or incomplete form itself, not to unpaid tax.

Joint filers should note: the Form 8938 instructions say that if spouses file a joint income tax return, the failure-to-file penalties apply as if the spouses were a single person. Liability is joint and several.

Need help with FATCA reporting? Let our team handle Form 8938.

Learn more

Continued failure after IRS notice: up to $50,000 more

If the problem continues for more than 90 days after the IRS mails notice of the failure, an additional $10,000 (2025) can be added for each 30-day period or part of a period, up to $50,000 (2025) more on top of the initial penalty.

Timely correction can prevent the penalty from reaching the $60,000 (2025) maximum – each additional 30-day block matters.

 

Waiting even one extra day into a new 30-day period can trigger another $10,000 (2025) continuation penalty. Ignoring IRS notice is the single most expensive mistake in this penalty structure.

40% understatement penalty when tax was underpaid

FATCA exposure is not only about missed forms.

If omitted foreign assets led to an underpayment of tax, the IRS can apply a 40% accuracy-related penalty – but only to the portion of the underpayment attributable to an undisclosed foreign financial asset understatement under IRC §6662(j).

The IRS international information reporting penalties page covers how this penalty is calculated alongside Form 8938 penalties.

An “undisclosed foreign financial asset” for this purpose is one that was required to be reported on Form 8938, Form 5471, Form 3520, Form 8865, or another international information return under IRC §§6038, 6038B, 6038D, 6046A, or 6048 – but was not.

The 40% rate replaces the standard 20% accuracy-related penalty on that portion.

Based on a TFX client scenario: A US citizen in Spain had an undisclosed foreign brokerage account required to be reported on Form 8938. The account produced $12,000 (2025) of taxable dividend and capital gain income that was omitted from the return, creating a $2,500 (2025) US tax underpayment.

The 40% penalty on that underpayment would be $1,000 (2025), plus interest, because the underpayment was tied to an undisclosed specified foreign financial asset.

This is the part many expats miss. You can face one penalty for the reporting failure and another if the foreign asset also caused income to be omitted or tax to be understated.

US expats who also have late-filing or late-payment exposure should review the penalty structure for late expat returns, which covers the separate failure-to-file and failure-to-pay penalties that can apply alongside Form 8938 penalties.

Extended statute of limitations and why late FATCA issues can linger

Late FATCA problems can stay open longer than many taxpayers expect.

Two separate timing rules apply.

• Three-year extension for missing information. Under IRC §6501(c)(8), if Form 8938 information was required and not furnished, the assessment period for the return generally stays open until three years after that information is finally provided. If the failure is due to reasonable cause, this extension applies only to the items related to that failure – not to the entire return.
• Six-year extension for omitted income. Under IRC §6501(e)(1)(A)(ii), the IRS has six years to assess tax if more than $5,000 (2025) of gross income was omitted from the return and that income is attributable to assets that were required to be reported under §6038D. This rule applies even if the assets were below the Form 8938 filing threshold – the statute ignores the dollar threshold for this purpose.

That is why a late Form 8938 problem is not always solved by waiting out the normal three-year assessment period.

Retain account statements, maximum-balance records, and foreign-income documentation for as long as the extended period could apply.

US taxpayers with open FATCA issues should keep records for at least six years from the date the return was filed – and longer if required information has not yet been furnished.

Can FATCA trigger criminal tax exposure?

Willful conduct involving undisclosed foreign assets can create criminal risk in severe cases, but most Form 8938 failures are handled through civil penalties and IRS compliance programs.

The Form 8938 instructions state that if you fail to file Form 8938, fail to report an asset, or have an underpayment of tax, “you may be subject to criminal penalties.”

A Form 8938 attached to a signed Form 1040 is part of a return made under penalties of perjury. A knowingly false or incomplete Form 8938 can support a charge under IRC §7206(1), which covers willfully filing a false return.

The IRS Criminal Investigation statutory provisions manual lists this among the core criminal tax statutes.

Circumstances that may raise concern include:

• Willfully concealing foreign accounts or assets from the IRS
• Filing returns that omit known foreign income
• Submitting a false non-willfulness certification under the streamlined procedures
• Patterns of offshore concealment involving nominee accounts, shell entities, or undisclosed foreign trusts

Criminal charges require willful conduct – intentional concealment or fraud. Non-willful failures are handled through civil penalties and IRS compliance programs.

 

IRS Criminal Investigation has prosecuted US persons for filing false returns and failing to report foreign accounts.

If you believe your situation involves possible willful conduct, get qualified legal advice before filing.

For a clearer background on the line between tax planning and tax evasion, see our guide on tax avoidance vs. tax evasion.

FATCA penalties for financial institutions

FATCA penalties for financial institutions do not mean Form 8938 at all. For foreign financial institutions, the core consequence is a 30% withholding regime on certain withholdable US-source payments if the institution does not meet Chapter 4 requirements under IRC §1471 or otherwise qualify for an exemption.

In practice, most expats worried about FATCA penalties owe Form 8938 penalties, not the 30% institutional withholding. The two have separate triggers, separate Code sections, and separate consequences.

Affected institution types include:

• Foreign banks and depository institutions
• Foreign brokers and custodial institutions
• Foreign investment entities, including hedge funds and private equity funds
• Certain foreign insurance companies with cash-value products

The IRS maintains a separate FATCA infrastructure for institutions, including registration, Global Intermediary Identification Numbers, and intergovernmental agreement administration.

Most individual taxpayers care about these rules only when a foreign bank sends a FATCA letter or asks for US tax documentation. FATCA fines and penalties at the institutional level are withholding-based, not Form 8938 penalties.

FATCA institutional reporting and the Common Reporting Standard both trigger automatic data sharing with the IRS – our guide on FATCA and CRS reporting requirements explains how each regime affects US account holders.

FATCA vs FBAR penalties: why people confuse them

FATCA and FBAR are separate reporting regimes with different forms, thresholds, filing systems, and penalty structures.

A taxpayer may need Form 8938 because specified foreign financial assets exceeded the applicable threshold and also need an FBAR because foreign account balances exceeded $10,000 at any point during the calendar year.

Form 8938 and the FBAR can both be required for the same 2025 activity, but the triggers, filing destinations, and penalties are different.

 

Many foreign bank accounts appear on both forms, but some assets do not. Foreign stock held directly can be reportable on Form 8938 and not on the FBAR, while mere signature authority can trigger an FBAR without creating Form 8938 reporting.

Fintech accounts like Wise and Revolut generally trigger both filings – our guide on reporting Wise and Revolut on FBAR explains the rules for multi-currency accounts.

For a detailed side-by-side comparison, see our FBAR vs. Form 8938 guide.

What triggers IRS FATCA enforcement

The IRS can identify FATCA issues through data matching with foreign financial institutions, cross-checking international tax forms, and information-sharing agreements with other countries.

The process works in three stages:

1. Data collection. Foreign financial institutions report US account holders to the IRS under FATCA intergovernmental agreements. The IRS receives account holder names, TINs, account balances, and income data from participating institutions worldwide.
2. Matching and mismatch detection. The IRS cross-references incoming FFI data against filed Forms 8938, FBARs, and income tax returns. A foreign account that appears in the FFI data but not on the taxpayer’s Form 8938 or return creates a potential mismatch.
3. Notice and penalty assessment. When a mismatch is identified, the IRS can issue a notice, propose penalties, or open an examination. The $10,000 (2025) initial penalty can be assessed upon receipt of a late or missing Form 8938, and continuation penalties begin running after the 90-day notice window.

This is why timely correction matters. The IRS has data on accounts you may not have disclosed, and the matching process does not require an audit to start.

What to do if you missed FATCA reporting

If you missed Form 8938, do not ignore it, do not assume “no tax due” means “no penalty risk,” and do not rush into a quiet disclosure without understanding the facts.

The basic FATCA penalty for failure to report starts at $10,000 (2025), but the best correction path depends on whether the failure was non-willful, whether income was omitted, and whether FBAR or other international forms were also missed.

Immediate-action checklist:

• Identify the tax years involved and whether the Form 8938 thresholds were actually crossed for each year
• Determine the asset types – which foreign accounts and investments are at issue
• Check whether foreign income was omitted from the returns
• Confirm whether FBAR – FinCEN Form 114 – was also required and whether it was filed
• Preserve account statements, maximum-balance records, and foreign-income documentation
• Do not wait for IRS contact – any penalty for FATCA non-compliance is far easier to resolve before the IRS sends a notice than after continuation penalties and extended audit windows are in play

The correction path depends on how many years are involved, whether income was omitted, and whether the failure was non-willful.

 

For a clearer background on correcting return errors, see our guide on how to fix common FBAR mistakes.

Missed a filing? We can review your returns and correct the gap.

Learn more

Records checklist:

• Account statements for each year, showing the highest balance reached at any point
• Year-end account values
• Foreign-income records – dividends, interest, capital gains, rental income
• Prior US tax returns – filed or unfiled
• FBAR filing confirmations, if any were submitted
• Correspondence from foreign banks, including FATCA letters or W-9 requests

Considering streamlined filing? Our CPAs handle the full process.

Learn more

Streamlined Filing Compliance Procedures for non-willful cases

The IRS Streamlined Filing Compliance Procedures remain one of the main cleanup options for non-willful foreign reporting failures.

The result depends on whether the taxpayer qualifies as residing outside the United States or in the United States.

Foreign offshore procedures – for qualifying taxpayers abroad:

• File three years of delinquent or amended tax returns and six years of delinquent FBARs
• Submit Form 14653 certifying that the failures were non-willful
• Meet the non-residency test: no US abode and physically outside the US for at least 330 full days in one of the three most recent tax years
• Result: no failure-to-file, failure-to-pay, accuracy-related, information-return, or FBAR penalties – tax and interest are still due

Domestic offshore procedures – for qualifying taxpayers in the US:

• File three years of amended tax returns and six years of delinquent FBARs
• Submit Form 14654 certifying non-willful conduct
• You must have filed original returns for the covered years – this track uses amended returns only
• Result: a 5% miscellaneous offshore penalty covering FATCA and FBAR issues – effectively a reduced penalty for FATCA non-compliance – based on the highest aggregate year-end balance or value of covered foreign financial assets

Eligibility limits:

• The IRS says streamlined procedures are only for taxpayers whose failures were non-willful
• Taxpayers already under civil examination or criminal investigation are not eligible
• A quiet disclosure – filing corrected returns outside a formal program – can create complications, because prior penalty assessments generally will not be abated
• An accurate non-willfulness statement is central to a successful submission – a false certification can itself become evidence in a criminal case

Our guides on Streamlined Foreign Offshore Procedures and Streamlined Filing Compliance Procedures cover the full mechanics of each track, including Form 14653 and Form 14654 requirements.

Can reasonable cause help reduce a FATCA non-compliance penalty?

Yes, a FATCA non-compliance penalty may be avoidable if you can show reasonable cause and not willful neglect, but the exception is fact-specific and never automatic.

The Form 8938 instructions say you must affirmatively show the facts supporting reasonable cause. They specifically say that foreign jurisdiction secrecy or disclosure laws by themselves are not reasonable cause.

Concrete examples of circumstances that may support reasonable cause include:

• Reliance on incorrect advice from a licensed tax professional, documented in writing
• Serious illness or incapacitation during the filing period
• Inability to obtain required account records despite timely and diligent efforts
• Recently learning of the filing obligation and taking prompt corrective action

Evidence checklist for a reasonable cause request:

• A written statement explaining the facts and circumstances
• Timeline showing when you became aware of the filing requirement
• Documentation of any professional advice received
• Records showing corrective action and the date it was taken
• Proof of the foreign institution’s cooperation or non-cooperation with record requests

In practice, reasonable cause arguments are strongest when they are documented and consistent with the full record – including how the account was used, whether income was reported, when the taxpayer learned of the filing requirement, and how quickly corrective action was taken.

For a detailed look at how to build a reasonable cause case, see our guide on reasonable cause penalty abatement relief.

FATCA penalty examples

The following three scenarios are based on TFX client cases for the 2025 tax year.

Each one establishes the taxpayer’s filing status, the applicable threshold, and the resulting penalty exposure.

Example 1 – Missing form, no tax due

 

Example 2 – Continued non-filing after IRS notice

 

Example 3 – Underreported income from an undisclosed account

 

FREE

Unsure if your foreign accounts trigger Form 8938?

We can walk you through it.

Schedule my free call

When to get help with a FATCA non-compliance penalty

You should get help with a FATCA non-compliance penalty issue as soon as the facts involve an IRS notice, multiple years of missed filings, possible streamlined eligibility, uncertainty about whether an asset was reportable, or parallel FBAR filing exposure.

These five situations usually justify professional FATCA help:

1. You received an IRS notice about a missing or incomplete Form 8938.
2. You missed more than one year of Form 8938 filings.
3. You may need streamlined procedures or want to assess reasonable cause.
4. You are not sure whether a foreign pension, business interest, or investment asset was reportable.
5. You may also have FBAR, Form 3520, Form 5471, Form 8621, or other international filing exposure.

Documents to bring to an advisor:

• IRS notices, if any
• Prior US tax returns for all open years
• Foreign account statements with maximum balances
• Foreign-income records
• FBAR filing confirmations
• Correspondence from foreign banks or government agencies

The first consultation typically reviews filing history, foreign assets, income, notices, and available correction paths. Early help can reduce penalty exposure – the IRS Streamlined Filing Compliance Procedures remain available, but only before examination or criminal investigation begins.

This article is educational, not legal or tax advice. Your outcome depends on the assets involved, the years involved, whether any income was omitted, and whether the IRS has already contacted you.

If you need next-step help, TFX can review both the Form 8938 side and the overlapping FBAR or streamlined issues.

See our FBAR filing service, streamlined filing procedure help, and FATCA reporting help.

FREE

Need a Form 8938 check?

Let us review whether your assets are reportable and cross the 2025 threshold.

Schedule my free call