Form 8938 §6038D Penalties: Failure-to-File and Continuation Penalties

Author: Chenchen Liu, CPA ｜ YCL Tax, Accounting & Advisory

Bottom line

If you omitted, filed late, or filed an incomplete Form 8938 (Statement of Specified Foreign Financial Assets) for a year when it was required, you may face IRC §6038D disclosure penalties: commonly an initial $10,000 failure-to-file amount; after an IRS notice, if you still have not complied following roughly 90 days, an additional $10,000 per 30-day period (or fraction) may apply, with continuation amounts commonly capped at $50,000. Separately, underpayments tied to undisclosed specified foreign financial assets may face the §6662 40% accuracy-related rate in the undisclosed-foreign-asset context. Figures and notice wording are subject to current IRS published amounts. For Cary / RTP green-card (GC) and H-1B households with China accounts, this article is compliance planning and penalty-mechanics education only. It does not promise an outcome. Threshold and how-to-file details live in existing Form 8938 packs—cross-link concepts here; do not treat this as a filing guide.

Background

Form 8938 implements IRC §6038D and related regulations for “specified individuals” (including many U.S. citizens, green-card holders, and bona fide resident-test residents) and certain domestic entities that must disclose specified foreign financial assets with the income-tax return. The IRS International information reporting penalties page and the Form 8938 Instructions summarize the civil structure: initial $10,000; if noncompliance continues after IRS notice beyond about 90 days, $10,000 per 30 days, with continuation often described as capped at $50,000 (confirm the live statute and IRS page).

Unlike FBAR (FinCEN Form 114), Form 8938 sits in the income-tax return system—thresholds, asset categories, and penalties are independent. Filing FBAR does not complete 8938, and vice versa. In practice, GC / H-1B taxpayers along the Cary / Wake corridor who keep PRC deposits, wealth-management products, brokerage, or certain cash-value insurance often know FBAR but miss 8938, or misread thresholds. A parallel risk: if foreign-asset-related income is missing from the return, §6038D information penalties may sit alongside a possible §6662 40% rate on underpayments attributable to undisclosed foreign financial assets (distinct from the general 20% accuracy-related penalty). This article does not compute your threshold or walk line-by-line filing; it explains penalty and notice logic. Amounts are subject to current IRS published amounts.

What changed / options compared

Note: The comparison below contrasts common misconceptions with compliance framing. Dollars and continuation timing are subject to current IRS published amounts.

1. What this article covers

- Common misconception: Another “what is the 8938 threshold / which box to check” tutorial.

- Compliance framing: §6038D penalty and continuation mechanics, plus a high-level “who may need to file” note; threshold detail stays in existing packs.

2. Initial penalty

- Common misconception: Missing 8938 brings “only a warning.”

- Compliance framing: Under the published framework, failure to file as required can support a $10,000 initial assessment (per statute and IRS pages).

3. Continuation clock

- Common misconception: Filing eventually means no periodic add-ons.

- Compliance framing: After IRS notice, continued noncompliance beyond about 90 days can add $10,000 per 30 days, with continuation commonly capped at $50,000.

4. Link to §6662 40%

- Common misconception: Paying the information penalty blocks any accuracy-related penalty.

- Compliance framing: §6038D targets the disclosure duty; a related underpayment may separately implicate the 40% §6662 undisclosed-foreign-asset prong—different mechanisms that can both be discussed.

5. Not the same as FBAR penalties

- Common misconception: An FBAR assessment “covers” 8938, or the dollar tables match.

- Compliance framing: FBAR is BSA/FinCEN (nonwillful/willful; §1010.821 inflation table); Form 8938 is IRC §6038D. See the FBAR penalty article in this series.

6. Who must file (high level)

- Common misconception: Only U.S. citizens file—or any China account automatically requires 8938.

- Compliance framing: Specified individuals/entities plus the public thresholds that vary by filing status and residence jointly decide. GC/H-1B filers may or may not clear the threshold—check that year’s Instructions. This article does not decide your case.

7. Reasonable cause

- Common misconception: “Limited English” alone automatically erases $10,000 and continuation.

- Compliance framing: Statute and IRS materials leave room for reasonable-cause discussions; approval depends on diligence and facts. This article does not promise an outcome.

Self-check: are you affected?

1. You are a U.S. citizen, green-card holder, or resident under the substantial-presence test and may have met Form 8938’s public thresholds without attaching the form — Focus on §6038D initial and continuation education.

2. You received an IRS notice about missing or incomplete international information reporting / Form 8938 — Keep every page; mark the notice date and response window (continuation often ties to notice timing).

3. GC / H-1B living in Cary / RTP with PRC banks, wealth products, brokerage, or cash-value policies — Compare to your FBAR list, but judge 8938 separately.

4. Your return shows foreign interest, dividends, or gains but you have never seen Form 8938 — Check whether disclosure and income reporting align (education level).

5. You filed FBAR and assumed foreign-account duties were finished — Re-check §6038D; the regimes run in parallel.

6. You worry about a 40% accuracy add-on — If an underpayment ties to undisclosed foreign assets, learn the published §6662 special rate and gather income/asset evidence.

7. Family in Shanghai manages accounts and your interest or signature authority is unclear — Clarify “specified asset” facts before penalty-path talks; bilingual bank statements may help.

Simplified example (illustrative only)

Example — RTP H-1B / green-card household with China financial assets

Assume Mr. Zhang, a North Carolina return filer, held specified assets at several PRC institutions that may have met Form 8938’s public thresholds for a tax year, but Form 1040 was filed without Form 8938. IRS later sends a notice related to nondisclosure.

- Initial layer: The published framework may support a $10,000 failure-to-file assessment (subject to current IRS published amounts)—mechanics education, not an automatic bill for your case.

- Continuation layer: If noncompliance continues after the notice’s roughly 90-day window, $10,000 per 30 days may accrue, with continuation commonly capped at $50,000. Earlier correction/response along the notice path can limit how far continuation discussions run (no relief promise).

- Underpayment layer: If the same facts also created a tax underpayment meeting the undisclosed-foreign-asset rules, a separate ~40% §6662 accuracy-related discussion may arise (understood apart from the §6038D information penalty).

- If he ignores the notice: Continuation and later assessment/collection options may shrink while costs rise.

These dollars do not calculate any real case. Your duties and penalties follow that year’s facts, your notice text, and current IRS published amounts. This article does not promise abatement, that continuation will stop, or that the 40% prong applies or does not apply.

Action plan and timeline

1. Today: Check whether Form 8938 was attached for the years at issue; save the full IRS notice and its date.

2. High-level “who may need to file” check: Skim that year’s Instructions concepts for specified individuals and residence-based thresholds (no line-by-line walkthrough here).

3. Asset inventory (education): PRC banks, brokers, certain insurance, and other specified categories; align with—but file separately from—your FBAR list.

4. If you are inside a notice window: Correct or write per the letter; calendar “notice date → ~90 days → each 30 days” so continuation is not a surprise.

5. Income consistency: Confirm foreign interest/dividends/dispositions hit the return; information penalties and underpayment penalties can be two tracks.

6. Reasonable-cause materials: Timeline, reliance on advisors, cross-border document hurdles—educational packaging only. This does not promise an outcome.

7. When unsure: Book a YCL Free Consultation with CPA Chenchen Liu and Gloria for notice reading and a compliance roadmap—no promised penalty or continuation result.

How YCL can help

YCL Tax, Accounting & Advisory (Cary / RTP + Shanghai), with CPA Chenchen Liu and Gloria, supports Chinese-speaking individuals and businesses with bilingual compliance planning:

1. 8938 / §6038D notice walkthrough — Separate the initial $10,000, continuation clock, and possible §6662 discussion.

2. High-level filing-likelihood mapping — Compare public threshold concepts by tax year (not a promised full-prep engagement).

3. Link to FBAR packs — Cross-reference conceptually without turning this into a filing manual.

4. Document and timeline packaging — Notices, asset explanations, and income traces for your IRS response path.

5. Reasonable-cause framing — When facts support it, organize educational points (no IRS abatement promise).

6. Two-office support — Cary for U.S. returns and notices; Shanghai for PRC asset and balance explanations.

7. Free Consultation — Clarify documents and calendars—no promised penalty relief or closing result.

FAQ

Q: Is a missing Form 8938 only a one-time $10,000 penalty?

A: The published framework often starts with $10,000; if noncompliance continues after IRS notice beyond about 90 days, $10,000 per 30 days may add on, with continuation commonly capped at $50,000. Rely on your notice and current IRS published amounts.

Q: Is this the same as FBAR willful / nonwillful penalties?

A: No. FBAR civil penalties sit in the BSA/FinCEN system (including nonwillful maxima and willful “fixed amount or 50% of balance”). Form 8938 follows §6038D. Both can matter in the same years.

Q: If I attach Form 8938 now, does the 40% §6662 penalty disappear automatically?

A: Not necessarily. §6038D addresses disclosure; §6662 addresses qualifying underpayments. Catch-up disclosure can support a compliance path, but it does not promise that any penalty vanishes.

Book a consultation

YCL Tax, Accounting & Advisory

Web: yclcpa.com ｜ Email: info@yclcpa.com

Phone: 919-802-8376 / 980-202-0666 ｜ WeChat: YCLUSA

U.S. office: 1140 Kildaire Farm Rd. STE 208, Cary, NC 27511

Shanghai office: 上海佳通路 31 弄中冶祥腾城市广场 2-516

Free Consultation: please bring the full Form 8938–related IRS notice (all pages), tax years at issue with Form 1040 first page and schedule list, and a summary of foreign asset categories with approximate balance ranges (you may mask sensitive digits).

Disclaimer

This article is general information only. It is not personalized tax, legal, collection-representation, or investment advice. Notice rights, penalty rates, interest, and inflation-adjusted amounts change by tax year and assessment date—verify your letter and current IRS pages. For advice about your situation, consult a licensed professional.