Account Reporting Requirements for Taxpayers

Account reporting is a component of U.S. tax and financial compliance. Federal government agencies, like the Internal Revenue Service (IRS), mandate that U.S. individuals report specific information concerning various financial accounts. This system of disclosure is designed to promote transparency and ensure that all taxable income is correctly reported. The requirements are not uniform; they differ based on the location and type of the financial account. These obligations are a direct effort by the government to identify financial activities that could result in tax evasion.

Reporting Foreign Financial Accounts

A focus for federal reporting involves financial accounts held outside of the United States. The requirements are governed by two separate regulations, resulting in two distinct filings. One is the Report of Foreign Bank and Financial Accounts, commonly known as the FBAR, which is filed with the Financial Crimes Enforcement Network (FinCEN). The other is the Statement of Specified Foreign Financial Assets, or Form 8938, which is filed with the IRS as part of a taxpayer’s annual income tax return. A “U.S. person” required to consider these filings includes U.S. citizens, resident aliens, trusts, and estates.

The FBAR filing requirement is triggered by a monetary threshold. A U.S. person must file an FBAR if the aggregate value of all their foreign financial accounts exceeds $10,000 at any point during the calendar year. This is not an account-by-account test; the highest values of all foreign accounts are added together to determine if the threshold is met. For example, if a person has one foreign account with a maximum value of $6,000 and a second with a maximum of $5,000 during the year, the $11,000 aggregate total necessitates an FBAR filing that lists both accounts.

The types of accounts reportable on an FBAR are broad and include bank accounts such as savings and checking accounts, securities or brokerage accounts, and certain foreign retirement arrangements. It also extends to accounts over which an individual has signature authority but no direct financial interest. For each reportable account, the filer must provide the name of the financial institution, the address of the institution, the account number, and the maximum account value during the year, converted to U.S. dollars using the Treasury’s official exchange rate.

The filing requirements for Form 8938 are different. Unlike the FBAR’s $10,000 threshold, the mandate to file Form 8938 depends on the taxpayer’s filing status and where they reside. For a single individual living in the U.S., the threshold is met if their specified foreign financial assets are more than $50,000 on the last day of the tax year or more than $75,000 at any time during the year. These amounts are higher for married couples filing jointly and for taxpayers who reside abroad.

Form 8938 also covers a broader category of assets than the FBAR. While it includes foreign bank and brokerage accounts, it also requires the disclosure of “specified foreign financial assets” that are not held in an account. This can include foreign stock or securities held directly in certificate form, foreign partnership interests, and foreign mutual funds. The information required is similar to the FBAR, demanding details about the asset and its value. It is possible for a taxpayer to be required to file both an FBAR and Form 8938, or only one of them, depending on their specific financial situation.

Reporting Domestic Investment and Interest-Bearing Accounts

Reporting for domestic accounts is initiated by the financial institutions themselves. These banks and brokerage firms issue informational returns to both the taxpayer and the IRS, detailing income generated throughout the year. This system ensures the IRS has a record of the income, which it can then match against the amounts reported on an individual’s tax return.

The most common of these informational returns are the Form 1099 series. A taxpayer with a savings account or certificate of deposit will receive a Form 1099-INT from their bank, which specifies the total interest income earned. For those who own stocks or mutual funds, a Form 1099-DIV is issued, detailing ordinary dividends, qualified dividends, and capital gain distributions. Investors who sell stocks, bonds, or other securities will receive a Form 1099-B, which reports the proceeds from those sales transactions.

The information from these forms must be accurately transferred to the taxpayer’s annual income tax return. Interest and ordinary dividend income from Forms 1099-INT and 1099-DIV are reported on Schedule B, Interest and Ordinary Dividends. This schedule is required if a taxpayer has over $1,500 of taxable interest or ordinary dividends. Even if Schedule B is not required, the income amounts must still be reported directly on Form 1040.

Proceeds from broker transactions, detailed on Form 1099-B, are used to complete Schedule D, Capital Gains and Losses. The Form 1099-B provides the sales proceeds, but the taxpayer is responsible for reporting the cost basis—the original purchase price of the asset—to calculate the resulting capital gain or loss. This calculation is first performed on Form 8949, Sales and Other Dispositions of Capital Assets, and the totals are then carried over to Schedule D.

Reporting Digital Asset Transactions

The IRS has made it clear that digital assets, such as cryptocurrencies, are treated as property for tax purposes. This means that transactions involving these assets can create taxable events, similar to the sale of stock. To increase compliance in this area, the Form 1040, U.S. Individual Income Tax Return, now includes a question at the top of the form asking whether the taxpayer engaged in any transactions involving digital assets during the year.

A reportable digital asset transaction is not limited to simply selling cryptocurrency for U.S. dollars. A taxable event occurs when a taxpayer exchanges one type of cryptocurrency for another, such as trading Bitcoin for Ethereum. Using digital assets to pay for goods or services is also a disposition of property and constitutes a reportable transaction. The difference between the fair market value of the asset when it is used and its original cost basis represents a capital gain or loss.

To properly report these transactions, taxpayers must maintain records. For each transaction, it is necessary to track the date the digital asset was acquired, the cost basis (the purchase price in U.S. dollars), the date it was sold or exchanged, and the proceeds received from the sale.

The reporting mechanism for digital asset transactions mirrors that of traditional securities. These sales or exchanges must be detailed on Form 8949, with the totals summarized on Schedule D and included with the taxpayer’s Form 1040.

The Filing Process for Required Reports

The FBAR is not filed with a tax return and follows a distinct procedure. It must be submitted electronically through the BSA E-Filing System, which is managed by the Financial Crimes Enforcement Network (FinCEN), not the IRS. Users must create an account on the FinCEN website to access the system and complete the online version of FinCEN Form 114.

The process for filing Form 8938 and Form 8949 is directly linked to the annual income tax return. When a taxpayer uses tax preparation software for electronic filing, these forms are integrated into the return package. The software generates and attaches the completed forms to the electronic submission of the Form 1040.

For those who choose to file a paper tax return, the process involves physically attaching the printed forms. A completed Form 8938 and a completed Form 8949, along with its corresponding Schedule D, must be placed in the correct order behind the Form 1040. The entire package is then mailed to the IRS service center designated for the taxpayer’s geographic location.

Consequences of Non-Compliance

The penalties associated with FBAR non-compliance are severe and are enforced by FinCEN. A non-willful failure to file an FBAR can result in a civil penalty of up to $16,536 per violation. If the failure is determined to be willful, the penalties increase. Willful violations can lead to a civil penalty of up to $165,353 or 50% of the balance in the unreported account at the time of the violation, whichever is greater, for each year of non-compliance. In addition to monetary fines, willful failure can also result in criminal charges.

The penalties for failing to file Form 8938 are administered by the IRS. The initial penalty for not filing the form is $10,000. If the taxpayer receives a notice from the IRS about the failure and continues to not file the form, an additional penalty of $10,000 can be assessed for each 30-day period of non-compliance, up to a maximum of $50,000.

Incorrectly reporting transactions from domestic investment or digital asset accounts can trigger accuracy-related penalties on the underpayment of tax. This penalty is 20% of the portion of the underpayment attributable to negligence or a substantial understatement of income tax.