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Understanding FBAR and Form 8938: A Guide to Offshore Asset Reporting

Table of Contents
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    Key Takeaways:

       

        • FBAR vs 8938
        • Form 8938 and FBAR are both reporting forms used to provide information about certain types of foreign-held financial assets

        • Form 8938 is filed with the IRS, and FBAR is filed with the Financial Crimes Enforcement Network 

        • There are key differences to these forms, and you may have to file both

        • Here are eight ways Form 8938 and FBAR differ:

             

              1. How the form is filed

              1. When the form is filed

              1. What the form is used for

              1. Who must file the form

              1. Asset value thresholds

              1. U.S. territories inclusion

              1. Penalty amounts

              1. Foreign branch filing requirements

           

            • Pitfalls to watch out for include accidentally substituting these forms for other foreign asset reporting forms, missing deadlines, and not acting quickly if you miss a deadline

          Preparing and filing taxes is already complicated. Tax obligations become even more convoluted for expats and U.S. taxpayers with foreign assets. Two forms you need to know are Form 8938 and FBAR (Report of Foreign Bank and Financial Accounts). 

          Both forms may be required in some cases. Only one form may need to be filed annually, however, which can help you avoid unnecessary paperwork when you may already have extensive financial obligations from having overseas holdings in multiple countries around the world.

          It is essential to understand which form you must use and when to ensure compliance with these regulations and protect yourself from costly penalties. This guide to offshore asset reporting can help you learn the key distinctions between IRS forms FBAR vs 8938 and what you need to know before filing either one or both forms.

          What Is Form 8938?

          Form 8938, State of Specified Foreign Financial Assets, is a federal tax form used by U.S. taxpayers to report certain foreign financial assets to the IRS. It was first introduced for 2011 tax returns as part of the Foreign Account Tax Compliance Act and applies to individuals, estates, and trusts that meet certain criteria.

          IRS Form 8938 requires individuals and entities to report their foreign assets if their total value exceeds an established threshold amount. The threshold varies depending on the taxpayer’s filing status; whether they live inside or outside of the U.S.; and whether it is an individual, estate, or trust filing. 

          The form is due along with the taxpayer’s federal income tax return by April 15 each year, or by the extension deadline the taxpayer has been granted. This tax form includes information about financial accounts, such as: 

             

              • Bank and brokerage accounts

              • Stocks, bonds, and other investments

              • Interests in foreign entities

              • Certain foreign real estate holdings

            Form 8938 is not designed to be a substitute for reporting foreign financial assets on other forms required by the IRS, such as Form 3520 or Form 5471. It is still a requirement from the IRS, however, and failing to file it can lead to penalties or even charges.

            What Is FBAR?

            FBAR is the Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts. U.S. citizens and other taxpayers with foreign financial accounts are required to file this form annually to report their offshore holdings. 

            FBAR covers bank accounts, mutual funds, brokerage accounts, trusts, and other types of foreign financial assets.

            FBAR must be filed electronically with FinCEN by April 15 each year, or no later than Oct. 15 if an extension was granted. This form requires individuals to provide details on the type of account held abroad, account balances, and names and addresses of the banks where accounts are held. 

            The form also asks for certain information about foreign entities that taxpayers own or control such as legal name, type of business, and address.

            FBAR is not optional if you are required to file it. Failure to file this form can lead to harsh penalties including fines up to $10,000 per violation and even criminal charges in extreme cases. 

            It is important for taxpayers filing taxes in the U.S to understand their FBAR obligations and stay compliant with federal requirements.

            Form 8938 vs. FBAR: 8 Ways They Are Different

            You may have to file both Form 8938 and FBAR, and the information you include on them may be the same or similar. These forms serve different purposes, however, and have different requirements. Here is a list of eight ways Form 8938 and FBAR differ:

            1. How the Form Is Filed

            Form 8938 is filed with the IRS, whereas FBAR is filed directly with FinCEN, which is part of the Department of Treasury but is distinct from the IRS. FBAR must be filed electronically through FinCEN’s BSA E-Filing System, but Form 8938 can be filed either electronically or by mail with your federal tax return.

            2. When the Form Is Filed

            FBAR must be filed annually by April 15 or Oct. 15 if an extension has been granted. Form 8938 should accompany your tax return, and the due date will depend on when you file your individual income tax return.

            3. What the Form Is Used for

            FBAR is used to share information with FinCEN, and you won’t automatically be taxed on what you report. Form 8938 is also used to provide information, but it is a more complex form. It is used to report:

               

                • Assets within brokerage or bank accounts

                • Stocks or securities from foreign issuers

                • Foreign hedge fund and private equity fund shares

                • Foreign financial instruments

                • Life insurance issued in a foreign country

                • Annuity contracts that have cash value

              Form 8938 requires reporting specified foreign financial assets, including accounts with foreign institutions. FBAR requires reporting financial accounts held by an institution located in another country. 

              4. Who Must File the Form

              The IRS states that Form 8938 must be filed by “specified individuals and specified domestic entities that have an interest in specified foreign financial assets and meet the reporting threshold.” These individuals include U.S. citizens, resident aliens, and some nonresident aliens. 

              Domestic entities are some domestic corporations, partnerships, and trusts. U.S. citizens, resident aliens, trusts, estates, and domestic entities must file FBAR if they have an interest in foreign financial accounts and meet the reporting threshold. You must file FBAR if you have $10,000 in one or more accounts outside the U.S.

              5. Asset Value Thresholds for Filing the Form

              FBAR must be filed if a taxpayer has a foreign bank account with at least $10,000 in it. Thresholds vary for Form 8938, however, based on your tax filing status. Here are those thresholds:

                 

                  • Taxpayers living in the U.S. with single or married filing separately status, or for specified domestic entities: Your foreign asset value must be more than $50,000 on the last day of the tax year, or more than $75,000 at any time in the year

                  • Taxpayers living in the U.S. with married filing jointly status: The total value of foreign assets between you and your spouse must be over $100,000 on the last day of the year or over $150,000 at any date in the year

                  • Taxpayers living abroad with single or filing separately status: Your foreign assets value must be more than $200,000 on the last day of the year or over $300,000 at any time throughout the year.

                  • Taxpayers living abroad with married filing jointly status: The total value of foreign assets must be more than $400,000 on the last day of the year or over $600,000 at any time during the year.

                6. U.S. Territories Inclusion

                U.S. territories aren’t included in the definition of the United States for Form 8938. It is important to note, however, that resident aliens of U.S. territories and territory entities must take part in FBAR reporting.

                7. Penalty Amounts

                Form 8938 has a potential $10,000 penalty if you fail to disclose, and a potential extra $10,000 for each 30-day period you don’t file, up to a maximum of $60,000. FBAR has a $10,000 penalty per violation if you fail to file. 

                Failure to file that is found to be willful may incur a penalty of $100,000, or 50% of your account balance, whichever is greater. Disclosure or filing violations for either form may involve criminal charges as well.

                8. Foreign Branch of U.S. Banks Filing Requirement

                You are required to file FBAR if you have a financial account that’s held by a foreign branch of a U.S. bank, or if your account is held by a foreign bank in a U.S. branch. You are not, however, required to file Form 8938 if either of these describes your situation.

                Carefully review all requirements for each of these forms. You can’t only submit one of them if you meet the requirements for both, even though some information may overlap. They are submitted to different entities. 

                FBAR vs. 8938: Common Pitfalls

                Reporting foreign assets and dealing with offshore asset reporting in general can be complicated. You already have the typical U.S. tax process to deal with for your income. These common pitfalls can help you avoid common mistakes when filing FBAR or Form 8938: 

                   

                    • You may need to file other tax forms: Neither Form 8938 or FBAR should be a substitute for reporting foreign financial assets on other forms required by IRS, including Form 3520 and 5471.
                      Form 3520 is related to foreign gift and trust transactions you need to report for the tax year, and Form 5471 is filed by officers, directors, or shareholders of some kinds of foreign corporations who are U.S. citizens or residents.

                     

                      • Don’t miss reporting deadlines: Try to avoid penalties and even criminal charges by reporting the assets you have overseas using these forms by their respective deadlines. 

                      • Act quickly if you missed a deadline or form: Many Americans living abroad or who have assets abroad may not realize their requirements and will miss deadlines. The IRS aims to help you with the Streamlined Filing Compliance Procedures, which provides amnesty to taxpayers for coming forward and getting up to date with penalties.
                        FinCEN also has a delinquent FBAR submission program where you can provide a statement about why you are filing late and try to have them waive your penalty.

                      • Know when to report: You are considered to have an interest in an asset for Form 8938 reporting purposes if you have any income, gains, losses, deductions, credits, gross proceeds, or distributions from the applicable account that you would report on your tax return.
                        You are considered to have an interest in an asset for FBAR reporting purposes if you own the record or hold the legal title, or if you have signature authority.

                    Avoiding these pitfalls can help make the process much smoother. Working with a tax professional on your approach to foreign assets and taxes is a good idea when you are dealing with these types of forms. 

                    Contact Silver Tax Group to Learn More

                    Holding foreign assets means you have a few additional tax hoops to jump through. There are a variety of complex regulations that can be difficult to navigate without the help of an experienced professional.
                    A tax expert can provide guidance and advice on investments, taxes, and other financial issues related to owning foreign assets.

                    Working with a tax professional also increases your chances of successfully managing foreign assets without incurring financial penalties or unexpected costs. The team at Silver Tax Group is here to help you through it all. We can talk through which forms you need to file and how to do it.
                    We also help with situations like IRS seizure of assets, audits, tax debt resolution, emergency tax services, and much more.

                    Reach out to Silver Tax Group to speak to a tax expert about IRS Form 8938 and FBAR today.

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