FBAR vs. 8938 – Reporting Foreign Accounts vs. Disclosing Foreign Assets
Four main issues to remember:
- The FBAR & 8938 Forms are not the same
- The FBAR & 8938 Forms are not mutually exclusive.
- You may have to file both forms.
- There may be Penalties for not filing the forms.
FBAR vs. 8938
The FBAR is The Report of Foreign Bank and Financial Account Form. The Form 8938 is Reporting of Specified Foreign Assets. Both of these forms require U.S. Persons to report Foreign Money (Accounts and/or Assets) that are located abroad, to the IRS.
Each of these forms are different, and each form has different reporting requirements.
Remember to Breathe…
When people first learn that they are required to report their Foreign Bank Account, Retirement Account, Investment Account, or Business Account to the IRS and U.S. Government — the first thing that happens is usually a glass of wine (or two) and a night spent Google Searching (Read: Unnecessary Panic).
By the end of their midnight search, they have come to the conclusion that if it wasn’t for FATCA (Foreign Account Tax Compliance Act), they would have not reporting requirement – but this is false.
Even before FATCA, there was in IRS rule and requirement to file a report US foreign accounts called FBAR Reporting (Report of Foreign Bank and Financial Account Form)
The introduction and enforcement of FATCA is more of a catalyst for the IRS and U.S. Government’s renewal of interest to penalize undisclosed foreign accounts.
The failure to properly file an FBAR report of FATCA Form annually may result in excessive fines and penalties – which is how the IRS and U.S. government motivates you to get into compliance. With the introduction of Customs Holds, Passport Revocations and worse, it is best to remain in compliance with U.S. Law, no matter where you reside.
What is the Foreign Account Reporting Law?
Under current U.S. Tax Laws, Rules and Regulations, there are significant reporting requirements for Individuals, Estates, and Businesses that have foreign accounts. These are individuals who generally fall into the category of being either a U.S. Citizen (accidental or not), Legal Permanent Resident (aka Green Card Holder), or Foreign National subject to US tax under the Substantial Presence Test.
If a person falls into one of these common categories (there are others) and meets certain threshold reporting requirements, then under current U.S. tax law, he or she is required to report their foreign accounts and other foreign money to the US government.
There are two main reporting requirements as follows:
If it any point during the year a U.S. Person has more than $10,000 in annual aggregate total in foreign accounts (aka accounts outside of the United States) on any day the year, they are reported to report that information annually on an FBAR. It does not matter if the person owns the money, is a joint account holder with a non-US person, or merely has signature authority over the account – they are still required to report. This form is not filed directly with your tax return, but is a separate form that is filed electronically directly to the Department of Treasury.
FATCA Form 8938
In addition, starting in 2011 under the new FATCA (Foreign Account Tax Compliance Act) law, individuals may also have a reporting requirement directly on their tax return with Form 8938. Unlike the FBAR, the FATCA form has different threshold requirements that vary depending on whether a person is Married Filing Jointly (MFJ), Married Filing Separate (MFS), or Single. It will also vary depending on whether a person is a U.S. Resident for Foreign Resident. In fact, the threshold requirements for reporting are much higher (aka you must have more money to report) when you reside abroad (outside of the United States).
Getting into Compliance with IRS Voluntary Disclosure
If you have unreported foreign accounts or offshore income, it is important to get into compliance. One of the fastest and most effective methods for compliance is through one of the IRS Offshore Voluntary Disclosure Programs.
Golding & Golding, A PLC
We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.