IRS Foreign Account Reporting Requirements

The United States employs a citizenship-based taxation system, meaning a U.S. person’s worldwide income is subject to U.S. tax laws, regardless of where they reside. This principle extends to reporting requirements for financial accounts held outside the country. U.S. taxpayers with international financial interests must disclose these assets to the U.S. Department of the Treasury. These requirements are designed to promote transparency and combat the use of offshore accounts to conceal income and assets.

Determining Your Reporting Obligation

A reporting obligation is based on your status as a “U.S. person” and the foreign accounts you own. The term “U.S. person” includes U.S. citizens, even those residing permanently abroad, and U.S. residents. Residency is established by holding a Lawful Permanent Resident card (green card) or by meeting the Substantial Presence Test, which is based on days physically present in the United States over a three-year period.

The definition of a U.S. person also extends beyond individuals to include domestic entities. Corporations, partnerships, limited liability companies, trusts, and estates formed under U.S. law must also report their foreign financial holdings.

A “foreign financial account” is one maintained by a financial institution located outside the United States, regardless of the account’s currency. This includes institutions in U.S. territories like Puerto Rico, Guam, the U.S. Virgin Islands, and American Samoa.

Reportable accounts include foreign bank accounts (checking and savings), securities accounts, and commodity futures or options accounts. The definition also captures assets like foreign mutual funds, certain foreign-issued life insurance or annuity policies with a cash-surrender value, and some foreign retirement arrangements held in a financial account.

Required Information and Key Forms

Report of Foreign Bank and Financial Accounts (FBAR)

FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), is filed with the Financial Crimes Enforcement Network (FinCEN), not the IRS. The FBAR is required if a U.S. person has a financial interest in or signature authority over foreign financial accounts with an aggregate value exceeding $10,000 at any point during the calendar year. To determine if this cumulative threshold is met, the highest values of all foreign accounts must be added together.

To complete the FBAR, you must provide specific details for each account. This includes the legal name on the account, the account number, the full name and mailing address of the foreign financial institution, and the type of account. You must also report the maximum value of each account during the calendar year.

Determining the maximum value requires reviewing account statements to identify the highest balance. This value must then be converted into U.S. dollars using the Treasury’s Financial Management Service exchange rate for the last day of the calendar year. If this rate is not available, another verifiable exchange rate can be used.

Statement of Specified Foreign Financial Assets (Form 8938)

Form 8938, Statement of Specified Foreign Financial Assets, is an IRS form filed with your annual income tax return. The reporting thresholds vary by filing status and residency. For taxpayers in the U.S., the threshold for single filers is a total asset value over $50,000 on the last day of the tax year or over $75,000 at any time during the year. These amounts are $100,000 and $150,000, respectively, for married couples filing jointly.

For taxpayers residing abroad, the filing thresholds are higher. A single filer abroad must file if their specified foreign assets exceed $200,000 on the last day of the year or $300,000 at any time during the year. For married couples filing jointly from abroad, these thresholds are $400,000 and $600,000, respectively. These higher thresholds acknowledge the need for individuals living overseas to hold more assets in foreign institutions.

The term “specified foreign financial assets” is broader than the FBAR’s definition. It includes foreign bank and brokerage accounts but also covers assets not held in an account, such as stock issued by a foreign corporation, certain financial instruments, and interests in foreign entities like partnerships or trusts. The required information overlaps with the FBAR but also includes details about any income the assets generate.

The Filing Process

The FBAR and Form 8938 are filed separately, and filing one does not satisfy the requirement for the other. In many cases, a taxpayer must file both forms.

Submitting the FBAR is a mandatory electronic process. The form must be filed through the BSA E-Filing System, which is managed by FinCEN. The annual deadline for the FBAR is April 15, but an automatic extension to October 15 is granted without a request.

Form 8938 is an integral part of your annual income tax return. It is attached directly to your Form 1040 or other annual return and submitted to the IRS. Because it is part of the tax return, its deadline is the same as your tax return’s deadline, including any extensions you have filed for.

Penalties for Non-Compliance

Failure to comply with foreign account reporting can lead to financial penalties and, in some cases, criminal charges. The penalties for the FBAR and Form 8938 are distinct and can be applied concurrently if a taxpayer fails to file both.

For the FBAR, a non-willful failure to file can result in a penalty of over $16,500 per unfiled report, an amount adjusted for inflation. If the failure is found to be willful, the penalty can be the greater of over $165,000 or 50 percent of the total balance of the foreign accounts. Willful violations can also lead to criminal prosecution, including fines and imprisonment.

For Form 8938, a failure to file can trigger an initial penalty of $10,000. If the failure continues for more than 90 days after IRS notification, additional penalties of $10,000 can be assessed for each 30-day period, up to a maximum of $50,000. An accuracy-related penalty of 40 percent can also be applied to any tax underpayment from undisclosed foreign financial assets.