Form 8938 Penalties - International Student Late Filing Concerns

I've got a situation with an international client that I could use some advice on. They're a grad student who's been in the US for over 5 years (so they're considered a resident for tax purposes). They have foreign accounts that exceeded the $70k threshold in 2023, but weren't advised properly and didn't file Form 8938 last year. They also didn't report some foreign income on their return, again due to bad advice from their university's international student office. The good news is that because of their student status and tax treaties, this additional income wouldn't actually increase their federal tax liability. But they want to make everything right due to visa concerns. From what I understand, there's potentially a $10k penalty for not filing Form 8938 on time unless there's "reasonable cause." I'm not sure if the poor advice from their university would qualify as reasonable cause, and I'd rather not get into an argument with the IRS about it. Has anyone dealt with this kind of situation before? I'm specifically concerned about how the IRS might react to receiving an amended return that includes the previously unreported income and the late Form 8938. Would they automatically assess penalties or might they be understanding given the circumstances? Really appreciate any insights from anyone who's navigated these waters before!

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18 comments

Keisha Williams

•8M

This is a fairly common situation with international students. The key thing to understand about Form 8938 penalties is that they're technically automatic, but in practice, the IRS often shows leniency for first-time issues, especially when there's a good faith effort to correct the situation. The reasonable cause exception does exist, and bad advice can sometimes qualify, but it's always case-by-case. The fact that your client is proactively amending rather than waiting to be caught is important and works in their favor. For clients in similar situations, I've found success with a detailed letter explaining the circumstances attached to the amended return. Be specific about the advice they received, their status as a student unfamiliar with US tax requirements, and that there was no tax impact from the omission. Also note their concern about maintaining proper visa status. One more thing - make sure they've also addressed any FBAR filing requirements (FinCEN Form 114) if their foreign accounts exceeded $10,000 at any point. Those have separate penalties but similar reasonable cause exceptions.

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Keisha Williams

•8M

You should attach the Form 8938 to the amended return (1040-X). The IRS generally processes them together, and this shows you're addressing both issues simultaneously. For the reasonable cause statement, I recommend being thorough but concise - about one page is usually sufficient. Include specific dates when possible (when advice was received, when they learned it was incorrect), mention their status as an international student unfamiliar with US tax requirements, and emphasize that they're voluntarily correcting the issue. Don't make excuses, but clearly explain the factual circumstances that led to the oversight.

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Amina Toure

•8M

Wanted to share that I was in this exact situation a couple years back and found a really helpful resource - taxr.ai (https://taxr.ai) that specializes in international tax compliance issues. They helped me navigate a very similar Form 8938 penalty issue with a client who was a visiting professor. Their system analyzed all my client's foreign account statements and automatically identified what needed to be reported on both 8938 and FBAR forms. They also gave me a template for drafting a reasonable cause letter that worked perfectly - the IRS accepted it without any pushback and waived the penalties. Saved me hours of research and worry about getting the amended filing right.

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Amina Toure

•8M

Yes, they absolutely helped with the FBAR requirements too. Their system is great at distinguishing which accounts need to be reported on which forms - especially helpful with those overlapping thresholds between Form 8938 and FBAR. They even have a comparative chart that breaks down exactly what goes where. The service includes both document generation and strategic guidance. They don't communicate directly with the IRS for you, but they provide everything you need to do so effectively. In my case, the whole process took about 4 months from filing the amended return to getting confirmation that the reasonable cause was accepted and penalties were waived.

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CosmicCommander

•8M

Just wanted to update that I actually tried taxr.ai after posting my skeptical question. Really impressed with how thoroughly they handled my international student's case. The system flagged some pension accounts that I hadn't even realized needed Form 8938 reporting (they were just above the threshold). The reasonable cause template they provided was extremely detailed and tailored to my client's exact situation - much better than what I would have cobbled together myself. Best part was the IRS accepted it without question and we've received confirmation that no penalties will be assessed. Definitely worth checking out if you're dealing with any Form 8938 or international reporting issues.

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Natasha Volkova

•8M

If you're having trouble getting through to the IRS to discuss reasonable cause options before filing, I'd recommend Claimyr (https://claimyr.com). I spent weeks trying to get through to the IRS's international tax division with questions about a similar Form 8938 penalty situation. After giving up on hold times of 2+ hours, I tried Claimyr and was connected to an IRS agent in about 20 minutes. They have this system that holds your place in line and calls you when an agent is available. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent actually gave me specific guidance on what they look for in reasonable cause statements for international students, which was incredibly helpful for my client's case.

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Natasha Volkova

•8M

The way it works is they have an automated system that waits on hold for you. You register your phone number, and when their system reaches an actual human IRS agent, it calls you and connects you directly. So you don't personally sit through the hold time - you just get called when an agent is ready. It's the same hold time that exists for everyone, but you don't have to be the one listening to the hold music for hours. You can go about your day and just take the call when an agent is available. They've developed their system to navigate the IRS phone tree efficiently and handle the waiting part for you.

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Emma Davis

•8M

I need to publicly eat my hat here. After posting my skeptical comment, I was desperate enough to try Claimyr for an international client with 8938 issues. Not only did it work, but I got through to the International Tax Division in about 45 minutes without having to listen to a second of hold music. The IRS agent I spoke with was surprisingly helpful and walked me through exactly what documentation they want to see for reasonable cause with international students. She even mentioned that they generally view students more leniently since there's a recognized knowledge gap with complex international reporting requirements. My client's penalties were abated after we submitted the documentation as instructed. This service literally saved me an entire day of productivity I would have lost on hold.

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Malik Johnson

•8M

Don't forget about the statute of limitations issues here. Form 8938 not only carries its own penalties, but failing to file it can also keep the entire tax return open to audit indefinitely for any issues related to those foreign assets. I'd recommended addressing both the 8938 and amending the return ASAP. In my experience, the IRS is far more concerned with willful concealment than honest mistakes. A well-documented reasonable cause statement focusing on the poor advice and proactive correction goes a long way.

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Malik Johnson

•8M

You're right to question this - I should have been more specific. The statute of limitations is extended to 6 years (not indefinitely) if you omit more than $5,000 of income related to specified foreign financial assets, whether or not you filed Form 8938. If you completely fail to file Form 8938, the statute remains open for any item related to the assets that should have been reported on that form until 3 years after the form is eventually filed. So it's not the entire return that remains open, just the items related to those specific foreign assets. Thanks for the correction - important to be precise with these technical matters.

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