Comparison of Form 8938 and FBAR Requirements
Understand the overlapping yet separate foreign asset reporting rules for Form 8938 and the FBAR to ensure full compliance with both the IRS and FinCEN.
U.S. persons with assets held outside the country may have two separate reporting obligations. The first is the Report of Foreign Bank and Financial Accounts (FBAR), filed as FinCEN Form 114. The second is the Statement of Specified Foreign Financial Assets, or Form 8938. These requirements stem from different federal laws; the FBAR is from the Bank Secrecy Act, while Form 8938 is from the Foreign Account Tax Compliance Act (FATCA). This means the forms serve different purposes, are submitted to separate agencies, and have different rules.
Who is Required to File
The requirement to file an FBAR applies to a broad category defined as “U.S. persons.” This includes U.S. citizens and resident aliens, as well as domestic entities such as trusts, estates, corporations, and partnerships. A U.S. person must file if the aggregate value of all foreign financial accounts exceeded $10,000 at any point during the calendar year.
The filing requirement for Form 8938 applies to “specified individuals” and certain domestic entities. A specified individual is a U.S. citizen, a resident alien, a nonresident alien who elects to be treated as a resident alien for filing a joint return, or a nonresident alien who is a bona fide resident of American Samoa or Puerto Rico. Certain “specified domestic entities,” like a closely held corporation or trust, must also file if they hold foreign financial assets exceeding the thresholds.
For specified individuals living in the U.S., filing thresholds are met if the total value of specified foreign financial assets is more than $50,000 on the last day of the tax year ($100,000 for married filing jointly) or more than $75,000 at any time during the year ($150,000 for married filing jointly). For taxpayers living abroad, these thresholds are higher. An unmarried individual must file if assets exceed $200,000 on the last day of the year or $300,000 at any time. For a married couple filing jointly abroad, the thresholds are $400,000 on the last day of the year or $600,000 at any point.
Reportable Foreign Assets
The FBAR reporting requirement is focused on “foreign financial accounts.” This includes accounts maintained at a financial institution physically located in a foreign country, such as bank accounts, securities or brokerage accounts, and commodity futures accounts. The definition also extends to foreign mutual funds and certain foreign-issued life insurance or annuity policies that have a cash-surrender value. The asset must be held within an account structure.
Form 8938 requires the disclosure of “specified foreign financial assets,” a broader category that encompasses all assets reportable on an FBAR. It also extends to financial assets not held in an account at a financial institution. These additional assets can include stock or securities issued by a foreign corporation that are held directly by the taxpayer rather than through a brokerage account.
Other examples of assets reportable on Form 8938 but not an FBAR include notes, bonds, or debentures issued by a foreign person. It also covers financial contracts held for investment with a non-U.S. counterparty. Furthermore, an interest in a foreign entity, like a foreign partnership, foreign trust, or foreign estate, must be reported on Form 8938.
Filing Procedures and Due Dates
The process for submitting the FBAR is separate from an individual’s income tax filing. FinCEN Form 114 must be filed electronically through the BSA E-Filing System, which is managed by the Financial Crimes Enforcement Network. This form is not mailed to the IRS or attached to a tax return.
The official due date for the FBAR is April 15. However, an automatic extension is granted to October 15 for anyone who does not file by the April date, and this extension does not require a separate request.
In contrast, Form 8938 is an integral part of a taxpayer’s annual income tax return. It must be attached to the relevant return, such as Form 1040 for individuals, and submitted to the IRS. The due date for Form 8938 is the same as the due date for the income tax return to which it is attached. This includes any extensions which would typically push the deadline to October 15.
Penalties for Failure to File
Penalties for failing to file an FBAR are categorized based on whether the violation was non-willful or willful. For a non-willful failure, the civil penalty can be up to $16,536 per violation but may be waived for reasonable cause.
If the failure to file is determined to be willful, the civil penalty is the greater of $165,353 or 50 percent of the total balance of the foreign accounts. Willful FBAR violations can also be subject to criminal prosecution, which may result in fines and imprisonment.
The penalty for failing to file Form 8938 is $10,000. If the taxpayer receives an IRS notice and continues to not comply for more than 90 days, additional penalties are assessed. This continuation penalty is $10,000 for each 30-day period of non-compliance, capped at a maximum of $50,000.
An accuracy-related penalty may also apply if an understatement of tax is attributable to an undisclosed foreign financial asset. This penalty is 40 percent of the underpayment of tax. Criminal penalties may also apply for failure to file a complete and correct Form 8938.