FBAR vs 8938 (IRS Summary 2020)
FBAR vs 8938: Comparing IRS Offshore Account Filing Rules: The FBAR vs FATCA Form 8938 is (unnecessarily) complex. The IRS provides some resources, but oftentimes these instructions and publications are unclear. The FBAR is the FinCEN Form 114, and the 8938 is the FATCA Form 8938. The FBAR is filed electronically with FinCEN and is separate from a tax return. The Form 8938 is included with a tax return. In recent years, the Internal Revenue Service has made foreign accounts compliance a key enforcement priority. While there are several potential offshore penalties for filing the form(s) late, the IRS has developed various FBAR and 8938 amnesty programs — collectively referred to as offshore voluntary disclosure.
FBAR vs 8938
There are many differences between the FBAR vs 8938, and comparing the different IRS requirements is a time-intensive process. The FBAR is the Report of Foreign Bank and Financial Account Form. It is primarily used to report foreign accounts, and not specifically hard assets. For example, the FBAR is used to report foreign stock accounts, but not directly owned shares of stock. It also includes foreign life insurance, pension and mutual or investment funds.
The 8938 is the Reporting of Specified Foreign Financial Assets form. It requires the reporting of specified foreign financial assets, which has a larger scope than just foreign bank and financial accounts. So in continuing from the above example, either a stock certificate or stock account would be included on an 8938 form. But, unlike the FBAR which has one single threshold for reporting, there are several reporting thresholds for the 8938. The reporting requirements for the 8938 will vary depending on the filing status and residency of the filer. Also, the Form 8938 is used to report assets in which the filer has an interest in; conversely, even a person only has signature authority over a foreign account, the FBAR may still be required.
What’s the Difference Between FBAR vs. 8938?
Both of the Form 8938 and FBAR forms require U.S. Persons to report Foreign Accounts (accounts that are located abroad) to report their offshore accounts to the IRS.
Each of these two forms are different, and each form has different reporting requirements.
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.
- If you do not file these forms, the penalties can be extreme.
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 or three) 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 and report U.S. foreign accounts called FBAR Reporting (Report of Foreign Bank and Financial Account Form). The FBAR has been around for 50 years, but with the introduction of FATCA, FBAR enforcement has been amplified.
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.
And, 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 are the Foreign Account Offshore Reporting Laws?
Under current U.S. Tax Laws, Rules and Regulations, there are significant reporting requirements for Individuals, Estates, and Businesses that have foreign accounts, aka U.S. persons — not just citizens.. 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:
FBAR (FinCEN 114)
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 a tax return, but is a separate form that is filed electronically directly to the Department of Treasury.
FATCA & 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 the 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).
Golding & Golding International FBAR & FATCA Tax Library
We have written countless articles on FBAR and FATCA, and have been featured in many publications.
Please feel free to search out free international tax library on our website for assistance with researching a specific issue.
Are you out of FBAR or 8938 Compliance?
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Recent Golding & Golding Case Highlights
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Generally, experienced attorneys in this field will have the following credentials/experience:
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.