Do you have any money invested overseas, or any other foreign account? Then you need to understand your tax reporting requirements. Specifically, you need to understand whether to file a Foreign Bank Account Report (FBAR) or FATCA Form 8938 (or both).
While these forms are similar, they have distinct filing requirements. And if you file incorrectly, you risk incurring significant penalties. To help you stay compliant, here’s an overview of how the FBAR and FATCA forms work, the key differences, and how to know which forms you must file this tax season.
What Is FBAR?
The Foreign Bank Account Report, or “FBAR,” is a form used to report certain types of foreign accounts to the Treasury Department. It’s used by US residents, citizens, and entities formed in the US. Note that you may also see the FBAR called FinCEN Form 114, so be aware that it’s the same thing!
Unlike other tax forms, the FBAR is sent to FinCEN rather than the IRS, but the IRS still enforces any penalties.
Who Must Complete an FBAR?
Not everyone must complete an FBAR for a given tax year. Those who must file an FBAR with FinCEN are:
- US citizens
- US residents
- Entities formed in the US, or in a US territory
These persons must file an FBAR if they meet the reporting threshold of $10,000 for qualifying foreign accounts. These accounts are:
- Trusts
- Life insurance policies (which accrue interest)
- Retirement accounts
- Brokerage accounts
- Bank accounts
You must complete an FBAR if the aggregate value of qualifying accounts goes over $10,000 at any point in a given tax year. It doesn’t matter whether you file jointly or singly. There’s only one threshold––$10,000.
And remember, there’s no need to own the account. You need only have signature authority––or even a financial interest—in the account to file.
What Is the FBAR Filing Deadline?
Typically, you should file by April 15 if you live in the US, and June 15 if you live abroad. You have an automatic extension until October 15 if you miss the deadline; however, it’s always advisable to pay on time rather than filing FBARs late.
What Are the Penalties for Failing to File an FBAR?
Failing to file leads to significant penalties. For example, you may be charged $10,000 per accidental violation, but substantially more for deliberate violations. Some violations may even result in criminal charges!
Facing FBAR penalties? Contact the Gordon Law team immediately for help and to discuss your options for handling FBAR penalties.
What Is FATCA Form 8938?
Form 8938, also known as the “Statement of Specified Foreign Financial Assets,” is an IRS form for reporting assets in certain foreign accounts. Form 8938 stems from the Foreign Account Tax Compliance Act (FATCA). The goal is to ensure US taxpayers report all income from foreign sources such as accounts and investments.
Who Must Complete FATCA Form 8938?
You must file Form 8938 with the IRS if you are a US taxpayer with foreign assets such as:
- Foreign bank accounts
- Pensions
- Hedge funds
- Stock holdings
- Partnerships
While the FBAR only has one filing threshold, the threshold for Form 8938 depends on your filing status and location.
Whether you’re single or married, if you file separately, your thresholds are:
- US Resident: $50,000 on the last day of tax year or $75,000 at any point in the tax year.
- US Living Abroad: $200,000 on the last day of the tax year, or $300,000 at any point in the tax year.
If you’re filing jointly, your thresholds are:
- US Resident: $100,000 on the last day of the tax year, or $150,000 at any point in the tax year.
- US Living Abroad: $400,000 on the last day of the tax year, or $600,000 at any point in the tax year.
What Is the FATCA Filing Deadline?
As with FBAR, the filing deadline is April 15. However, unlike FBAR, there are no automatic extensions. You must request a tax filing extension, which gives you an extra 6 months to file.
What Are the Penalties for Failing to File FATCA Form 8938?
Failure to file penalties are typically $10,000 per violation. This applies if you miss the deadline or, if you requested an extension, you fail to pay on time. Penalties increase for continuing failures to file. This may result in significant tax debt.
FATCA Form 8938 vs. FBAR
Given how confusing FATCA Form 8938 and the FBAR can be, here’s a helpful summary of the main differences between them.
- Where It’s Filed: The FBAR is an information return filed with FinCEN. Form 8938 (FATCA) is an IRS form that makes up part of your income tax return.
- Types of Accounts: FBAR is for reporting foreign financial accounts. FATCA Form 8938 is for reporting foreign accounts and assets like foreign partnership interests.
- Filing Thresholds: There’s only one threshold for FBAR reporting requirements: $10,000. The reporting threshold for Form 8938 is higher, starting at $50,000, and far more variable.
- Filing Extensions: Extensions are automatic for missed FBAR filings. FATCA Form 8938 extensions must be requested.
- Penalties: Civil FBAR penalties are up to $10,000 per non-willful violation. Form 8938 has a $10,000 initial penalty and up to $50,000 for continued noncompliance.
Have Questions About Foreign Income Reporting? Contact Gordon Law!
Unsure what your reporting requirements are if you have foreign assets or income? Don’t stress any longer. Instead, call or message the Gordon Law team. As experienced offshore tax attorneys, we’ve helped numerous clients with highly complex tax requirements file their taxes with confidence.
We’ll explain your reporting obligations, complete the relevant forms, and answer any questions you have about foreign income reporting. So, to get the support you deserve with your tax planning this year, contact Gordon Law by phone or online to speak with an experienced attorney.
