Form 8938 Penalties for Foreign Financial Accounts - Amending Previous Returns

This is a situation I've encountered several times with international students. The key thing to remember is that the IRS generally treats honest disclosure favorably, especially when it comes to foreign account reporting. For your client, I'd recommend filing an amended return that includes both the previously unreported income and a late Form 8938. Include a detailed statement explaining the circumstances - that she received incorrect advice from her university's international student office, that she's voluntarily coming forward as soon as she learned of the requirement, and that no tax was actually due. The reasonable cause exception can absolutely apply here. Poor advice from a trusted source (university advisors) that a student would reasonably rely on is a valid argument. Make sure to document who gave the advice and when. The fact that no tax was evaded strengthens her case considerably. I've seen the IRS be quite reasonable in similar situations, particularly with students who are making good faith efforts to comply once they discover their mistake.

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I wanted to follow up about my experience with taxr.ai that was mentioned above. I decided to try it with my international client case despite my initial skepticism, and I'm genuinely impressed. The system analyzed my client's foreign bank statements and immediately identified the specific reporting thresholds that applied to their situation. It even flagged that we needed to file FBARs (FinCEN Form 114) in addition to Form 8938, which I hadn't realized had different requirements. What really blew me away was how it helped craft a reasonable cause statement with citations to specific IRS Internal Revenue Manual sections that address when penalties should be abated. It pulled relevant language from actual cases where the IRS accepted "reliance on advisor" arguments - perfect for my student who relied on university advice. Definitely saved me hours of research and gave me solid backing for our amended return approach.

For what it's worth, another problem with these foreign reporting cases is actually getting someone at the IRS to review your reasonable cause statement. I spent WEEKS trying to reach someone to discuss a client's 8938 penalty issue last year. Called every day, waited on hold for hours, and kept getting disconnected. I finally found Claimyr (https://claimyr.com) which is this service that gets you through to an actual IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they use technology to navigate the IRS phone system and then call you once they have an agent on the line. I was able to speak directly with someone in the international tax department who reviewed our situation and provided guidance on exactly what needed to be included in our reasonable cause statement. Having that direct conversation made all the difference in getting the penalty waived.

I have to admit I was completely wrong about Claimyr. After expressing my skepticism in my earlier comment, I decided to give it a try when I got desperate with a client's penalty abatement case that needed urgent attention. Within 18 minutes of signing up, I was talking to an actual IRS representative in the International Department. I explained my client's situation with the Form 8938 penalties and reliance on incorrect advice, and the agent walked me through exactly what documentation they would need to consider waiving the penalty. The agent even told me about a specific IRS unit that handles reasonable cause statements for international information returns and gave me a direct fax number to send our documentation (which I never would have found otherwise). I'm still in shock at how much time this saved me. My client's case is now being properly reviewed instead of sitting in a general mailbox somewhere.

Just a heads up - your client might also need to file an FBAR (FinCEN Form 114) if the aggregate value of her foreign accounts exceeded $10,000 at any point during the year. The FBAR is separate from Form 8938 and has its own (even more severe) penalties. The good news is that there's a specific procedure for filing late FBARs when there's reasonable cause, and the IRS has been pretty lenient with first-time violations, especially for students who weren't aware of the requirement.

Anybody know if there's a specific IRS form for requesting penalty abatement for Form 8938 penalties? Or do you just write a letter explaining the reasonable cause?

I've handled several similar cases with international students, and your approach sounds solid. One thing I'd add - make sure to document the timeline carefully. When did she receive the bad advice, when did she discover the requirement, and when is she coming forward? The IRS likes to see that taxpayers acted promptly once they became aware of their obligations. Also consider having her write a personal statement (in her own words) explaining her situation as a student, her reliance on university advisors, and her good faith intent to comply. Sometimes these personal narratives carry more weight than just the technical reasonable cause arguments. The fact that there's no actual tax due is huge in your favor. The IRS is generally much more forgiving when it's purely a reporting issue without tax avoidance. I'd be optimistic about getting the penalties waived, especially if you present it well.