US Tax Preparation for American Expats: Missed Form 8938

American expats living in Britain who have filed a US return every year can still be years behind on Form 8938. The FBAR captures foreign accounts; Form 8938 captures specified foreign financial assets — unlisted UK company shares, loan notes, LLP interests and directly held securities that no bank ever reported and no FBAR ever asked about.

That gap is the single most common defect we see in otherwise diligent filing histories. A US citizen in London engages a preparer, discloses every bank and brokerage account, files the FBAR faithfully, and never mentions the 8% stake in the private company she co-founded, the convertible loan note she subscribed for, or the LLP membership she took on when she joined a boutique advisory firm. None of those appear on a bank statement. None of them are reported to the IRS by a UK financial institution under FATCA. And all three are squarely reportable. Proper US tax preparation for american expats begins with the assets that sit outside the account perimeter entirely — which is where Jungle Tax spends most of its diagnostic time on new cross-border engagements.

Why a perfect FBAR record proves nothing about Form 8938

The two regimes were built by different agencies for different purposes. The FBAR (FinCEN Form 114) is a Bank Secrecy Act filing, administered by FinCEN and enforced by the IRS, and it is fundamentally about accounts: a financial account maintained by a foreign financial institution, over which you have a financial interest or signature authority. Form 8938 is a tax filing, created by FATCA under section 6038D, and it is about assets held for investment — a materially wider net that reaches straight through the account wrapper to the underlying instrument.

The practical consequence is that the FBAR asks a question your UK bank can answer. Form 8938 asks a question only you can answer. If you hold ordinary shares in a private UK limited company, there is no institution, no statement, and no automatic exchange of information that will ever surface that holding. The IRS learns about it when you tell them — or later, and far less comfortably, when a disposal drops seven figures into a reported account and the arithmetic no longer works.

It is also why the "I filed everything my accountant asked for" defence is so often factually true and legally irrelevant. A generalist preparer who works from bank statements and a P60 will produce a technically complete FBAR and an incomplete 1040 package. The omission is structural, not careless.

What actually counts as a specified foreign financial asset held outside an account?

The IRS guidance on Form 8938, Statement of Specified Foreign Financial Assets, treats two categories as reportable: (1) financial accounts maintained by a foreign financial institution, and (2) "other foreign financial assets" held for investment and not held in a financial account. It is the second category that produces the missed years.

The UK assets that reliably fall through the FBAR

• Unlisted UK company shares. Ordinary or preference shares in a private limited company — your own trading company, a friend's start-up, a family investment company, a property SPV — held in certificated form or on the company's register rather than through a broker. Stock issued by a foreign corporation and held outside a financial account is expressly reportable.
• Loan notes and debt instruments. Convertible loan notes subscribed in a UK start-up, vendor loan notes taken as deferred consideration on a sale, director's loans owed to you by a UK company, intercompany notes, and private bonds or debentures issued by a foreign person.
• Partnership and LLP interests. A membership interest in a UK LLP, a limited partnership interest in a UK-domiciled fund vehicle, or a general partnership share. These are reportable regardless of whether a capital account statement exists.
• Fund and carried interests held directly. Commitments to UK or Channel Islands private equity, venture and hedge vehicles subscribed in your own name, plus carried interest and co-invest entitlements held outside a custody account.
• Unwrapped portfolio holdings. Shares held directly on a UK register rather than in a nominee or platform account — legacy demutualisation shares, employer shares issued on a share-for-share exchange, shares released from a SIP or held after option exercise in certificated form.
• Options, swaps and similar contracts entered into with a foreign counterparty and held for investment, including unapproved share options and growth-share arrangements with economic substance.
• Foreign pensions and non-UK deferred compensation where you hold a beneficial interest — a category that also drives Part VI reporting and interacts with treaty positions.
• Interests in a foreign estate or a non-grantor foreign trust of which you are a beneficiary.

What is not reportable — and where people over-report

Directly held UK real estate is not a specified foreign financial asset. Nor is foreign currency held in your hand, nor tangible assets — art, classic cars, bullion, jewellery — held directly. Personal-use property does not qualify. But there is a trap in the exclusion: if UK property is held through a company, LLP or trust, the interest in that entity is reportable even though the underlying bricks and mortar would not be. A US citizen who moved a London buy-to-let portfolio into an SPV for stamp duty or financing reasons converted a non-reportable asset into a reportable one, usually without being told.

The thresholds are far higher abroad — and that is exactly why they get missed

Because the abroad thresholds are so much higher than the FBAR's flat USD 10,000, expats develop a false sense of headroom. They are also easier to breach than most people assume once illiquid private holdings are valued honestly: a founder with a modest salary and a 10% stake in a company that raised at a GBP 20 million valuation is comfortably over.

Test	FBAR (FinCEN 114)	Form 8938 — living in the US	Form 8938 — living abroad (UK)
Single / married filing separately	USD 10,000 aggregate, any time in the year	USD 50,000 at year end, or USD 75,000 at any time	USD 200,000 at year end, or USD 300,000 at any time
Married filing jointly	USD 10,000 aggregate (per person, accounts combined)	USD 100,000 at year end, or USD 150,000 at any time	USD 400,000 at year end, or USD 600,000 at any time
Scope	Foreign financial accounts only	Accounts plus non-account assets: unlisted shares, loan notes, partnership interests, options, foreign pensions
Filed with	FinCEN, separately from the 1040	Attached to Form 1040 — no return filed, no 8938 required
Valuation	Maximum account value during the year	Fair market value; maximum value during the year is disclosed
Headline penalty	Non-wilful up to c. USD 10,000 per violation (inflation adjusted)	USD 10,000, plus USD 10,000 per 30 days after IRS notice (capped), plus a 40% understatement penalty

Two details matter more than the numbers. First, the abroad thresholds require you to satisfy a residence test — broadly, the same bona fide residence or physical presence test used for the foreign earned income exclusion. An American who left the UK part-way through a year, or who spent heavily interrupted time in the US, may drop back to the domestic thresholds for that year without realising it. Second, the "at any time during the year" test is not a year-end snapshot. A private company sale that completed in March and was reinvested by December still breached the threshold in March.

If your exposure also includes unfiled FBARs, our FBAR penalty calculator gives an indicative range before you commit to a remediation route.

How do you value an unlisted UK company share or a loan note?

This is where most guides stop and most clients stall. The IRS standard is fair market value, and the instructions permit you to rely on information "publicly available from reliable financial information sources" or "from other verifiable sources". A formal appraisal is not required. What is required is a defensible, contemporaneous, consistently applied basis.

In practice, for a UK private holding, we build the valuation from the best available evidence in a defined hierarchy:

• A recent arm's-length transaction. A priced funding round, a secondary sale, or an exit offer in or near the year gives the strongest support. Apply your fully diluted percentage to the post-money equity value.
• An HMRC-agreed valuation. If a share valuation was agreed for EMI option purposes, for employment-related securities, or for inheritance tax, that figure is a credible starting point — though HMRC's "unrestricted market value" for share scheme purposes and US fair market value are not identical concepts and the difference should be documented.
• Articles-based or formula value. Many UK private companies fix a valuation mechanic in the articles or a shareholders' agreement. Where that is the only realistic exit price, it is a verifiable source.
• Face value plus accrued interest for loan notes and director's loans, adjusted where recoverability is genuinely impaired.
• Capital account balance for LLP and partnership interests, supported by the partnership's year-end statement.

Two safe harbours are worth knowing. Where you genuinely cannot establish a value for a beneficial interest in a foreign pension or deferred compensation plan and received no distributions, the instructions allow a zero to be reported. And there is no obligation to obtain a professional appraisal simply to complete the form. What you must not do is omit the asset because valuing it is inconvenient — a reported estimate with a documented basis is vastly safer than a blank.

The duplicate-reporting relief almost everyone gets backwards

If an asset is already reported on Form 3520, 3520-A, 5471, 8621 or 8865 for the same year, you do not report it again in Parts I and II of Form 8938. But — and this is the part that is routinely missed — you must still file Form 8938 and identify, in Part IV, how many of each of those other forms you filed. The relief is from duplicate detail, not from the filing itself.

So the founder who dutifully files a Form 5471 for her UK trading company, and whose preparer concluded "the company's on the 5471, so no 8938 needed", has still failed to file a required information return for every one of those years. It is a paperwork failure with a real statute-of-limitations consequence, which brings us to the reason this matters far more than the headline penalty.

What is the real cost of a missed Form 8938? The statute of limitations

The penalty numbers are unpleasant but finite: USD 10,000 for the failure, escalating by USD 10,000 for each 30-day period after the IRS issues a notice, subject to a cap, plus a 40% penalty on any understatement of tax attributable to an undisclosed specified foreign financial asset. Reasonable cause is a defence, and for a genuinely unaware taxpayer it is frequently a good one.

The exposure that should actually concern a high-net-worth filer is temporal. Two rules interact:

• The six-year assessment period. Where a return omits more than USD 5,000 of gross income attributable to a specified foreign financial asset, the assessment period extends from three years to six.
• The open-ended suspension. Where a required information return — including Form 8938 — is not filed, the limitations period for the entire return generally does not begin to run until the required information is furnished, and then runs for three years from that date.

Read together, a client who filed a clean-looking 1040 for 2013 and never attached an 8938 may have a 2013 tax year that is, in substance, still open in 2026 — not merely for the foreign asset, but for the whole return. That is the argument that persuades people to fix this. It is not the fine; it is that the door never closes. Anyone contemplating a UK company sale, a US move, an estate freeze or a residency change should treat open years as a live diligence item, not background noise. We cover the sequencing of that in our work on cross-border tax planning for high-net-worth families.

How are the missed years actually put right?

There is no single answer, and the correct route depends almost entirely on one question: was there unreported income attached to the unreported asset?

Scenario one — unreported assets and unreported income

Dividends from the private company, interest rolled up on the loan note, LLP profit share taxed in the UK but never picked up on the 1040, or PFIC income inside an unwrapped fund. Where the conduct was non-wilful, the Streamlined Foreign Offshore Procedures are usually the strongest option for someone resident in the UK. The submission comprises three years of amended or delinquent returns with all required information returns, six years of FBARs, full payment of tax and interest, and a signed Form 14653 certifying non-wilfulness and setting out the facts. For a qualifying non-resident filer the miscellaneous offshore penalty is nil, and failure-to-file, failure-to-pay, accuracy-related, information-return and FBAR penalties are waived. Our IRS streamlined filing team handles these end to end.

Two eligibility points to test carefully before assuming the programme is available: the non-residency requirement (no US abode and at least 330 full days outside the US in one or more of the relevant years), and the requirement that you are not already under examination or criminal investigation.

Scenario two — unreported assets but no unreported income

This is the classic 8938-only gap: the shares paid no dividend, the loan note accrued nothing distributable, the LLP interest was reported correctly. Here there is no tax deficiency, and a full streamlined submission may be disproportionate. The conventional route is to file the delinquent information returns with the relevant returns, accompanied by a clear statement of reasonable cause explaining why the asset was not reported. Reasonable cause is assessed on facts and circumstances, so the statement is the deliverable that matters — it should be specific, chronological, and honest about what was and was not known.

What we consistently advise against is the "quiet disclosure": amending returns to slip in the missing forms without any explanation or programme framing. It forfeits the protection of a formal procedure while doing nothing to shorten the assessment window, and it reads badly if the file is ever examined.

The remediation sequence we use

• Asset census, not account census. Companies House filings, share certificates, cap tables, subscription and shareholders' agreements, LLP deeds, loan note instruments, option grant letters, trust deeds and completion statements — read directly, not summarised from memory.
• Year-by-year threshold mapping against the correct abroad or domestic threshold, testing both the year-end and maximum-value tests, and confirming the residence test for each year.
• Valuation file with a documented basis per asset per year, converted using the year-end Treasury reporting rate.
• Overlay analysis for 5471, 8865, 8621 and 3520 obligations that the same assets frequently trigger — a UK Ltd, an LLP and a UK unit trust each pull in a different form.
• Route selection and drafting of the Form 14653 narrative or reasonable-cause statement.
• Forward compliance so year one of the fix is also year one of a defensible process.

Where does HMRC fit in?

There is no UK equivalent of Form 8938. HMRC has no annual asset-disclosure schedule for individuals; UK obligations attach to income, gains and specific events rather than to holdings. That asymmetry is the source of the whole problem — a UK adviser is not being negligent when they never mention it, because in a purely domestic frame there is nothing to mention.

Several UK regimes nevertheless generate the exact documents that make the US position provable, and they cut both ways:

• Employment-related securities. UK employers report share and option events annually, and HMRC's guidance on tax on employee share schemes sets out the framework. EMI, CSOP, SAYE and SIP events create dated valuations that are useful evidence — and shares held after exercise are frequently the unwrapped holding that should have appeared on the 8938.
• ISAs. An ISA is tax-free for HMRC and entirely transparent for the IRS. Per gov.uk guidance on Individual Savings Accounts, contributions stop when UK residence ends; for US purposes the wrapper is ignored, the income is taxable, and UK funds inside it are typically PFICs requiring Form 8621. A stocks-and-shares ISA is an account, so it is on the FBAR — but its underlying funds bring separate obligations.
• Self assessment and dividend records for private company distributions give you the UK-side figures needed to rebuild the US position accurately.
• Foreign tax credit interaction. UK tax on the same dividends, gains or partnership profits is generally creditable against US tax, which is why so many corrected years produce little or no additional US liability — the tax was always paid, just to the wrong revenue authority's paperwork.

The FATCA intergovernmental agreement between the UK and the US means HMRC passes US-person account data to the IRS automatically. It does not pass details of your shareholding in a private UK company. That should be reassuring for about five seconds, and then alarming: the assets that are invisible today are precisely the ones that generate a large, visible, reported cash movement on exit. Our US-UK tax accountants see most of these files arrive within weeks of a term sheet.

Frequently missed cross-border cases

The accidental Americans with a UK family company

A US-born individual raised in Britain, unaware of citizenship-based taxation, holding shares in a family trading company. Once the citizenship position is established, the 8938 obligation is retrospective — and so, usually, is a Form 5471. The remediation is entirely manageable, but only if it is sequenced correctly rather than triggered by a bank's FATCA questionnaire.

The founder taking loan notes on exit

A UK sale structured with rollover shares and vendor loan notes converts one reportable asset into two, extends the reporting period across several years, and creates a US-UK timing mismatch: UK capital gains treatment may be deferred while the US position is tested differently. The loan note is a specified foreign financial asset for every year it is outstanding.

The LLP partner

UK partners in law, advisory and investment firms hold a membership interest, a capital account and often a partner loan. All three are reportable in substance, and the US characterisation of the LLP itself — and the resulting Form 8865 question — needs settling before the 8938 can be completed properly.

Getting this right, once

A missed Form 8938 is rarely a story about tax owed. It is a story about a return that never closed, on an asset that is about to become valuable. The correction is well-trodden, the programmes are genuinely protective for the non-wilful, and the whole exercise is far less confronting from the taxpayer's side of the desk than from the outside.

If you have filed US returns for years and are now uncertain whether your UK shares, loan notes, partnership interests or directly held securities should have been disclosed, contact our cross-border team for a confidential, privileged conversation. We will map the years, size the exposure honestly, recommend a route, and — if you decide to proceed — prepare the entire submission. No judgement, no lecture, and no obligation.