FBAR is the Report of Foreign Bank and Financial Accounts. Its purpose is the inform the U.S. government of financial assets held in foreign countries. Form 8938 is very similar to the FBAR, although with a higher filing threshold. FBAR is submitted to the U.S. Treasury. Form 8938 is submitted to the IRS along with your tax return.
Both the FBAR and Form 8938 trigger huge penalties for failure to file.
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. Reporting is also required if a taxpayer has signature authority over a foreign financial account with an aggregate value of over $10,000 at any time during the year.
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. You don’t file the FBAR with your federal tax return.
FBAR Deadline and FBAR Extension
The FBAR is due by April 15 for the prior 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 account types. 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 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 FBAR rules treat “failure to file a legally compliant report 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.
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
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, Statement of Specified Foreign Financial Assets, is another important foreign account disclosure form. Unlike the FBAR, Form 8938 is attached to and reported with the annual tax return. Form 8938 requires more information than the FBAR.
Form 8938 Filing Requirements
Form 8938 has its own set of filing requirements. These can be summarized as follows:
For taxpayers living in the US:
- If they are unmarried or married filing separately: Total value of assets was more than $50,000 on the last day of the year, or more than $75,000 at any time during the year
- If they are married filing jointly: Total value of assets was more than $100,000 on the last day of the year, or more than $150,000 at any time during the year
For taxpayers living outside of the US:
- If they 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
- If they 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 is $60,000, per year.
Unfiled FBAR or Form 8938?
The risk of not filing the FBAR or Form 8938 are significant. The potential penalties can be disastrous. 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 rather complicated, but they do offer the possibility of reduced penalties in certain cases.
FBAR and Form 8938 impact many people: U.S. citizens, green card holders and resident aliens. If you need help, Massey and Company is here for you.
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.
We will be happy to help you with your tax matter. We deal with the IRS so you do not have to.
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