FBAR and Form 8938: What U.S. Taxpayers with Foreign Assets Need to Know

Are you a U.S. citizen or resident with financial interests abroad? If so, you may have important reporting obligations to the U.S. government. Two crucial forms often cause confusion among taxpayers: the Foreign Bank Account Report (FBAR) and Form 8938. Let's dive into the essential details of these forms and why they matter to you.

What is FBAR and Who Needs to File It?

The Foreign Bank Account Report, commonly known as FBAR, is a critical tool in the U.S. government's arsenal against tax evasion and money laundering. It's required for:

- U.S. citizens

- Resident aliens

- Entities (including corporations, partnerships, and trusts)

You must file if you have a financial interest in or signature authority over foreign financial accounts. This requirement applies even if the account doesn't generate taxable income.

What's the Filing Threshold for FBAR?

The FBAR threshold is straightforward: if the total value of all your foreign financial accounts exceeds $10,000 at any time during the calendar year, you must file. This is an aggregate threshold, meaning if you have multiple accounts whose combined value exceeds $10,000 at any point, you must report all of them, even if no single account exceeds $10,000.

What Types of Accounts Does FBAR Cover?

FBAR casts a wide net, covering:

- Traditional bank accounts (checking and savings)

- Securities accounts (brokerage accounts and securities derivatives)

- Life insurance policies with cash value

- Mutual funds or similar pooled funds

- Other accounts maintained with foreign financial institutions

Remember, "foreign" refers to the location of the financial institution, not the currency of the account.

When and How Do You File FBAR?

FBAR must be filed electronically through the Financial Crimes Enforcement Network's (FinCEN) BSA E-Filing System. The deadline is April 15th, but there's an automatic extension to October 15th if you miss the April deadline. Importantly, FBAR is filed separately from your tax return - a common point of confusion for many taxpayers.

What is Form 8938 and How Does it Differ from FBAR?

Form 8938, officially titled "Statement of Specified Foreign Financial Assets," was introduced as part of the Foreign Account Tax Compliance Act (FATCA) in 2010. While it may seem similar to FBAR, it serves a distinct purpose and has different reporting requirements.

Who Needs to File Form 8938?

Form 8938 applies to:

- U.S. citizens

- Resident aliens

- Certain non-resident aliens?

These individuals must file if they have an interest in specified foreign financial assets and the total value of those assets exceeds the applicable reporting threshold.

What Are the Filing Thresholds for Form 8938?

The thresholds for Form 8938 are more complex than FBAR and vary based on filing status and residence:

For U.S. residents:

- Unmarried or married filing separately: $50,000 on the last day of the tax year or $75,000 at any time during the year

- Married filing jointly: $100,000 on the last day of the tax year or $150,000 at any time during the year

For U.S. taxpayers living abroad:

- Unmarried or married filing separately: $200,000 on the last day of the tax year or $300,000 at any time during the year

- Married filing jointly: $400,000 on the last day of the tax year or $600,000 at any time during the year

What Assets Does Form 8938 Cover?

Form 8938 covers a broader range of foreign financial assets than FBAR, including:

- Foreign bank accounts

- Foreign securities accounts

- Ownership interests in foreign entities

- Foreign financial contracts

- Foreign investment accounts and custodial accounts

How is Form 8938 Filed?

Unlike FBAR, Form 8938 is filed with your annual federal income tax return (Form 1040). This means the deadline aligns with your tax return due date, including extensions if applicable.

What Are the Key Differences Between FBAR and Form 8938?

While both forms deal with foreign assets, they have distinct requirements:

1. Purpose: FBAR focuses on foreign financial accounts, while Form 8938 covers a broader range of foreign financial assets.

2. Filing thresholds: FBAR has a single $10,000 threshold, while Form 8938 thresholds vary based on filing status and residence.

3. Administering agency: FBAR is filed with FinCEN, while Form 8938 is handled by the IRS.

4. Penalties: Both forms carry significant penalties for non-compliance, with FBAR penalties potentially reaching 50% of account balances for willful violations.

What Special Considerations Should You Be Aware Of?

1. Married couples: For FBAR, couples can file jointly if all reportable accounts are jointly owned. For Form 8938, each spouse may need to file separately even if filing a joint tax return.

2. Expats: While FBAR requirements remain the same, Form 8938 has higher reporting thresholds for U.S. taxpayers living abroad.

3. Green card holders: They are subject to the same reporting requirements as U.S. citizens for both forms.

4. Non-resident aliens: Generally not required to file FBAR unless doing business in the U.S. Form 8938 requirements depend on U.S. source income and tax filing obligations.

5. Signature authority: Those with signature authority but no financial interest must file FBAR but typically not Form 8938.

How Can You Ensure Compliance?

1. Gather all necessary information about your foreign financial accounts and assets well in advance of filing deadlines.

2. Use the appropriate exchange rates to convert foreign currency amounts to U.S. dollars.

3. Review all entered information carefully before submitting to ensure accuracy.

4. Keep copies of all filed forms and supporting documentation.

5. Consider consulting a tax professional, especially if you have a complex financial situation or are unsure about your reporting obligations.

Why is Compliance So Important?

Understanding and complying with FBAR and Form 8938 requirements is crucial for several reasons:

1. Avoiding penalties: Non-compliance can result in severe financial penalties.

2. Legal protection: Proper reporting helps protect you from allegations of tax evasion or financial impropriety.

3. Peace of mind: Staying compliant ensures you're in good standing with U.S. tax authorities.

4. Financial clarity: The reporting process can help you maintain a clear overview of your global financial position.

While navigating these reporting requirements can seem daunting, staying informed and seeking professional help when needed can make the process manageable. Remember, the goal of these forms is to ensure transparency in foreign holdings, not to penalize legitimate overseas investments or accounts.

For a more comprehensive understanding of FBAR and Form 8938, including detailed filing instructions and specific scenarios, we invite you to read our full article here:?https://www.nsktglobal.com/usa/blog/fbar-fincen-114-vs-form-8938-a-comprehensive-guide