Foreign Account Reporting on the FBAR (FinCen 114) and Form 8938 (FATCA) and the Key Differences Between Them

Sep 11, 2017

This FBAR Wiz blog post will give you an overview of the main differences between the FBAR form and the Form 8938, along with exploring some of the intricacies associated with each. Recent efforts by the IRS and Department of Treasury to ensure that all US Citizens and Green Card Holders with foreign financial accounts remain compliant with FATCA (Foreign Accounts Tax Compliance Act) regulations have left many U.S. Expats with mixed feelings and lots of confusion with respect to what forms to file. Most of the questions revolve around the difference between the FBAR (Fincen 114) and Form 8938 (introduced in 2012). Not only do filing thresholds vary for different taxpayers, there are also differences in the types of accounts which need to be reported on each form and how each form needs to be filed. As such, the FBAR Wiz feels it is important to make all U.S. Citizens and Green Card Holders aware of updated filing requirements and specify the difference between FBAR (Fincen 114) and Form 8938. Lesson #1 - The FBAR Form Does Not Replace the Form 8938 Nor Vice-Versa If you have one or more foreign bank accounts or other financial accounts (investment accounts, trust accounts, mutual funds, etc) valued at $10,000 USD or more at any time during the calendar year you are required to file FBAR with the US.. Department of Treasury. If the balance of your foreign financial account(s) is significantly higher than $10,000 USD, you will be required to file Form 8938 with the IRS along with your U.S. income tax return (i.e., Form 1040 most likely). Your requirement to file Form 8938 isn’t limited to financial accounts, however; you are required to report valuable assets, as well. Depending on whether you’re a US Expat or an American Citizen living in the United States and whether you’re filing an individual income tax return or joint return, your filing thresholds will be as follows:

Expat Taxpayer Filing an Individual Tax Return: Aggregate foreign financial account balance of $200K on the last day of the year or aggregate total of $300K or more at any time during the calendar year.
Expat Taxpayer Filing a Joint Return: Aggregate foreign financial account balance of $400K on the last day of the year or aggregate total of $600K or more at any time during the calendar year.
Stateside Taxpayer Filing an Individual Tax Return: Aggregate foreign financial account balance of $50K on the last day of the year or aggregate total of $75K or more at any time during the calendar year.
Stateside Taxpayer Filing a Joint Return: Aggregate foreign financial account balance of $100K on the last day of the year or aggregate total of $150K or more at any time during the calendar year.

Lesson #2 - Understanding Who Must File the FBAR vs. Who Must File the Form 8938 U.S. Citizens and green card holders who have any interest whatsoever in one or more foreign financial accounts with balances above $10K will be required to file Form Fincen 114. Interest may either be in the form of signature authority or actual financial interest. If you have no financial interest in the foreign bank account but you have signature authority over the account, you will still need to include it in your FBAR. Only foreign financial accounts from which the proceeds (interest, withdrawals, dividends, etc.) would go directly to the taxpayer and therefore be mandatory information on a US income tax return are required on Form 8938. If you simply have signature authority over a foreign financial account and you have no financial interest in the account, you will not need to report it on Form 8938 and it will not be used to determine your filing threshold. If you have foreign assets such as investments, securities or stocks which are not held in a foreign financial institution you will also be required to report this information. Although most FATCA enforcement is intended to track down noncompliant US Citizens and Green Card Holders, they’re not the only ones required to file an FBAR. Nonresidents, for example, who are filing a joint return with an American Spouse are required to report qualifying foreign financial accounts to the Department of Treasury. There are other situations, as well, in which a Nonresident may have joint financial interest in a foreign account with an American Citizen – in which case the Nonresident would be required to file Form Fincen 114 and Form 8938 if account balance thresholds were met. If you are a Resident of a US Territory or Commonwealth you will be required to file an FBAR but you are currently not required to file Form 8938 despite the value of your foreign financial accounts. Lesson #3 - Different Due Dates for the FBAR Form and the Form 8938

FBAR (Form Fincen 114) is due by June 30th, with no extensions. Starting in 2017 (for tax year 2016), the due date will move to April 15th with an extension available until Oct 15.
Form 8938 is due when you file your US income tax return. If you qualify for a tax return filing extension on your US income tax return, you also qualify for a filing extension on Form 8938.

Lesson #4 - Penalties Associated with the FBAR vs. Penalties Associated with the Form 8938 The maximum financial penalty for failure to file an FBAR is either $100K or up to 50% of the taxpayer’s foreign assets – whichever balance is larger. Maximum penalties for failure to file an FBAR can also include criminal charges being filed. These stiff penalties are generally reserved for those who appear to have willfully disregarded their responsibility to file Form Fincen 114 and report foreign financial accounts. Even non-willful noncompliance, however, can lead to a financial penalty of up to $10K. The maximum financial penalty for failure to file Form 8938 is $60,000 for each foreign asset you failed to report. There is an initial $10,000 USD ‘Failure to Disclose’ fee and another $10,000 USD fee added for each 30 day period in which Form 8938 is not filed after having received notice from the IRS. Like Form Fincen 114, failure to report required information may result in criminal pursuit. Lesson #5 - Types of Accounts to Report on the FBAR vs. Types of Accounts to Report on the Form 8938 The following accounts must be reported on the FBAR Form:

Savings account held at a foreign branch of a US domiciled bank
Savings account held in a foreign domiciled bank
Checking account held in a foreign domiciled bank
Checking account held at a foreign branch of a US domiciled bank
Foreign financial account over which you have signature authority
Foreign securities or stock held in a foreign financial institution
Foreign accounts owned by a foreign entity in which you have least 50% financial interest
Foreign mutual funds
Foreign accounts held by either a foreign or domestic trust with which you are associated
Foreign life insurance policy with cash value
Foreign annuity contract

The following accounts must be reported on the Form 8938:

Foreign mutual funds
Foreign financial accounts held by either a foreign or domestic trust with which you are associated
Foreign hedge funds
Foreign private equity funds
Foreign life insurance policy with cash value
Foreign annuity contract
Checking account held in a foreign domiciled bank
Savings account held in a foreign domiciled bank

A good place to begin is checking out the free FBAR Wiz app for a quick summary of your personal IRS filing obligations. The app will quickly and anonymously summarize your offshore filing obligations and tell you what forms you need to file for which tax years. Check out the FBAR Wiz app today to get ahead of your filing obligations! For an in-depth look at the FBAR quiet disclose process check out this blog post - the most you know your rights against the IRS, the better.