The FBAR and Form 8938 are used to report foreign financial assets to the U.S. government. Both the FBAR and Form 8938 trigger huge penalties for failure to file.
While the function of the FBAR and Form 8938 is very similar, there are differences between the two form. One has a higher filing threshold than the other. And one is submitted to U.S. Treasury (the FBAR) while the other is submitted to the IRS along with your tax return (Form 8938).
The purpose of this post is to summarize the differences between the FBAR and Form 8938 so that taxpayers with foreign assets will be informed about the rules and stay out of tax trouble.
FBAR Reporting Threshold
The Foreign Bank Account Reporting Rules (“FBAR”) apply to any taxpayer with an interest in a foreign financial account with an aggregate value of over $10,000 at any time during the year. The same $10,000 threshold applies for taxpayers with signature authority over a foreign financial account.
Application of the FBAR rules requires aggregation of foreign account balances. For example, if an individuals has 10 foreign bank accounts with $3,000 in each, all 10 bank account need to be reported under the FBAR rules, even though the balances in each individual accounts are less than $10,000.
Who Needs to File FBAR
The FBAR rules apply to US citizens, green card holders, US resident aliens, or dual status aliens. See our article on Nonresident Alien vs Resident Alien for an explanation of residency status for tax purposes.
Where a person lives does not matter for the FBAR. The rules apply to individuals if they are living either inside or outside the U.S.
Filing FBAR Online
FBAR is reported on a Treasury form, the FINCEN 114. It is a disclosure form only and does not trigger a tax.
The form is filed with the Financial Crimes Enforcement Network, which is a bureau of the U.S. Department of Treasury. It is is not part of the IRS.
The form must be filed electronically through FinCEN’s BSA E-Filing System. Do not attach the FBAR to your federal tax return. It is filed separately.
FBAR Deadline and FBAR Extension
The FBAR is due by April 15 of the next year.
For taxpayers on extension, the due date is pushed back to October 15.
Which Accounts Require FBAR Reporting
The FBAR rules apply to a wide range of foreign financial accounts. These include:
- Financial accounts held at foreign financial institutions
- Financial accounts held at a foreign branch of a U.S. financial institution
- Foreign financial account for which you have signature authority
- Foreign stock held in a financial account at a foreign financial institution
- Indirect interest in foreign financial assets through an entity (if ownership is greater than 50%)
- Foreign mutual funds
- Foreign-issued life insurance or annuity contract with cash value
- Foreign accounts held by a grantor trust of which you are the grantor
FBAR Penalty
FBAR late filing penalties are exceptionally severe.
Non-willful failure to file an FBAR may result in civil penalties. “Non-willful” refers to conduct that is due to negligence, mistake, ignorance or misunderstanding. Civil penalties for non-willful behavior are $10,000 “per violation.”
In 2023, the U.S. Supreme Court ruled that the $10,000 civil penalty for FBAR reporting is for all accounts per year, in total, not per foreign account. (Bittner, No. 21-1195 (U.S. 2/28/23)). The court noted that the failure to file an FBAR for multiple foreign accounts in one year should be considered as “one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis.”
Willful non-filing of an FBAR may result in both civil and criminal penalties. “Willful” refers to an intentional violation of a known legal responsibility. Civil penalties for willful behavior can be as high as the greater of $100,000 or 50% of the account balance. Criminal penalties may include prison time.
For more details on penalties, including what to do about them, see our Guide to IRS Tax Penalties.
FBAR Penalty Abatement
The IRS may abate FBAR penalties for taxpayers in certain cases. This requires the taxpayer to demonstrate that they had “reasonable cause” for failing to file an FBAR.
For a discussion on reasonable cause and penalty abatement, see our Guide to IRS Tax Penalties.
FBAR vs 8938
Form 8938, Statement of Specified Foreign Financial Assets, is yet another foreign account disclosure form. However, unlike the FBAR, Form 8938 is attached to and reported with the annual tax return.
Taxpayers who are not required to file a US income tax return are not required to file Form 8938.
Form 8938 requires more detailed information than the FBAR.
Should I file the FBAR or Form 8938? It depends on the balances in your foreign financial accounts. You may need to file both.
Form 8938 Filing Requirements
Form 8938 has its own set of filing requirements which are different than the FBAR.
For example, Form 8938 applies to shares of stock and other foreign financial assets, not just foreign accounts. Foreign real estate is not required to be reported on Form 8938.
Summary of Filing Thresholds for Form 8938
The dollar value filing requirements for Form 8938 may be summarized as follows:
Situations where Form 8938 is required for taxpayers living in the US:
- Taxpayers who are unmarried or married filing separately: Total value of assets is more than $50,000 on the last day of the year, or more than $75,000 at any time during the year
- Taxpayers who are married filing jointly: Total value of assets is more than $100,000 on the last day of the year, or more than $150,000 at any time during the year
Situations where Form 8938 is required for taxpayers living outside of the US:
- Taxpayers who are unmarried or married filing separately: Total value of assets was more than $200,000 on the last day of the year, or more than $300,000 at any time during the year
- Taxpayers who are married filing jointly: Total value of assets was more than $400,000 on the last day of the year, or more than $600,000 at any time during the year
Form 8938 Penalty
The IRS imposes a penalty of up to $10,000 for failure to file Form 8938 on time.
In addition, the IRS may also impose an additional $10,000 for each 30 days that the form is late, up to $50,000. In other words, the combined penalty may go as high as $60,000, per year. While these penalties are potentially less than FBAR penalties, they can still be a killer.
Unfiled FBAR or Form 8938?
Because of the the potential for disastrous penalties, the risk of not filing the FBAR or Form 8938 is significant. And there is also the risk of criminal prosecution.
The government provides processes to correct the problem of unfiled FBARs or Forms 8938. The rules are complicated, but they do offer the possibility of reduced penalties in certain cases. Be sure to ask your CPA about options to correct an unfiled FBAR or Form 8938.
What to Do at Tax Time?
The filing requirements for both the FBAR and Form 8938 are complex. Decisions need to be made when tax returns are being prepared about which foreign reporting forms to file. These decisions require information about both the type and value of foreign assets. Be sure to tell you CPA or tax preparer about any assets that you own, directly or indirectly, in a foreign country. With the potential for penalties so high, it is better to be safe than sorry.
The FBAR and Form 8938 impact a wide variety of people who have foreign financial accounts: U.S. citizens, green card holders and resident aliens. If you need help, call the Tax Department at Massey and Company CPA. We keep taxpayers out of tax trouble.
Massey and Company CPA is a boutique tax and accounting firm serving individuals and small businesses in Atlanta, Chicago and throughout the country. Our services include tax return preparation, tax planning for businesses and individuals, IRS tax problem resolution, IRS audit defense, sales tax, and small business accounting and bookkeeping.
You are welcome to call us in Atlanta at 678-235-5460 or in Chicago at 773-828-0551. You can also reach us by email at gary.massey@masseyandcompanyCPA.com.
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