FBAR vs. 8938 & the IRS
FBAR vs 8938: The FBAR vs 8938 comparison is a very important analysis. The IRS may require the U.S. person taxpayer to file either the FBAR, 8938 or both forms, depending on the types and values of the foreign accounts, assets, and investments. Oftentimes, when a U.S. person submits to the Streamlined Program, it is at the point of the submission when he or she begins researching FBAR vs. 8938 and other international reporting requirements that the person decides to call it quits.
We will summarize the difference in FBAR vs 8938, including in IRS Reporting Requirements
Summary of FATCA & FinCEN
We will summarize the FBAR vs 8938 comparison of these two forms, and when each form is required by the IRS. Overall, the Form 8938 is more complex than the FBAR, because it requires more analysis — along with a summary of the income generated.
The FBAR vs 8938 comparison also requires distinctions between custodial vs. deposit, and other asset breakdowns.
Before comparing the FBAR vs 8938, it is important to have a bit of context about the forms and their history.
The FBAR was developed in accordance with AML (Anti-Money Laundering). Technically, it has nothing to do with taxes, beyond the fact that it is enforced by the Internal Revenue Service.
FATCA Form 8938 is different. FATCA is an IRS tool used to enforce foreign account and asset reporting. It requires account, asset and income disclosure, and it is enforced by the IRS.
FBAR (aka FinCEN Form 114)
It is more accurately referred to as the Foreign Bank and Financial Account Reporting form, and technically referred to as FinCEN Form 114. The form is filed electronically, directly with FinCEN. The form is not included in your tax return. A prior version of the Form TD 90-22.1 was filed directly with your tax return.
When was the Form developed?
There is a misconception that the FBAR is new; it is not. FATCA Form 8938 is new, and was first introduced on the 2011 1040 tax return, but the FBAR has been around since 1970. It was developed by FinCEN (Financial Crimes Enforcement Network), but since 2003, it has been enforced by the IRS.
FBAR is all about reporting – not tax. It is handled under Title 31 (Anti-Money Laundering) of the U.S.C. and not title 26. Therefore, the enforcement and collection rules are also different.
When is it Due Deadline?
The FBAR Filing Due Date and Deadline is the same as the tax return, including extensions. The FBAR is (currently) on automatic extension through October. Therefore, no additional forms are filed with the IRS if an FBAR extension is requested.
What is the Threshold for Filing?
The threshold is relatively low. If a person has more than $10,000 in annual aggregate total (not per account) on any day of the year, then they may be required to file the FBAR and report ALL their accounts. This includes dormant, inactive, and zero balance accounts.
What if the FBAR is Filed Late, Incomplete or is Just Not Filed?
If the FBAR is late, incomplete or not filed, the penalties are all the same. The FBAR penalties can be pretty brutal. They are broken down into civil and criminal penalties. And, the civil penalties are broken down further into non-willful and willful. Here is a comprehensive resource on FBAR penalties we developed (and recently updated).
Can I Avoid or Reduce Penalties?
Yes. You can use any of the FBAR Amnesty programs (including Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures to try to reduce or avoid penalties).
Form 8938 (FATCA)
The Form 8938 is different and more comprehensive than the FBAR. The Form 8938 was created less than 10-years ago. It was developed in accordance with FATCA, which is the Foreign Account Tax Compliance Act. It requires more in-depth reporting, and also includes assets beyond accounts, such as Stock ownership.
The form is filed alongside the tax return. It is developed by, and enforced by the IRS.
When is the Form 8938 Due?
The form is filed with your tax return, and is due to be filed in April or October. If a person applies for an extension of time to file a tax return, the Form 8938 is also on extension.
One main difference with the 8938 vs. FBAR, is that the Form 8938 is only filed when a person meets the threshold for filing AND has to file a tax return. So, if a person does not have to file a tax return (because for example, they are below the threshold) than the 8938 is not required in the current year either.
Filers Residing in the United States
The rules for Taxpayers living in the U.S.:
If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
Married Taxpayers Filing a Joint Income Tax Return
If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
Married Taxpayers Filing a Separate Income Tax Return
If you are married and file a separate income tax return from your spouse, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
Filers Residing Outside in the United States
The rules for Taxpayers living outside the U.S.:
If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.
Married Taxpayers Filing a Joint Income Tax Return
If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.
The FBAR vs 8938 penalties are different. While the penalties for late or non-filing of Form 8938 are not as bad as the FBAR, they can still get pretty bad – depending on the length of the non-compliance.
As summarized by the IRS:
You may be subject to penalties if you fail to timely file a correct Form 8938 or if you have an understatement of tax relating to an undisclosed specified foreign financial asset.
If you are required to file Form 8938 but do not file a complete and correct Form 8938 by the due date (including extensions), you may be subject to a penalty of $10,000.
Continuing Failure To File
If you do not file a correct and complete Form 8938 within 90 days after the IRS mails you a notice of the failure to file, you may be subject to an additional penalty of $10,000 for each 30-day period (or part of a period) during which you continue to fail to file Form 8938 after the 90-day period has expired. The maximum additional penalty for a continuing failure to file Form 8938 is $50,000.
Married Taxpayers Filing A Joint Income Tax Return
If you are married and you and your spouse file a joint income tax return, the failure to file penalties apply as if you and your spouse were a single person. You and your spouse’s liability for all penalties is joint and several. Presumption of maximum value. If the IRS determines that you have an interest in one or more specified foreign financial assets and asks you for information about the value of any asset, but you do not provide enough information for the IRS to determine the value of the asset, you are presumed to own specified foreign financial assets with a value of more than the reporting threshold that applies to you.
IRS Comparison of FBAR vs 8938
The IRS developed the FBAR vs 8938 graph to assist taxpayers. The Internal Revenue Service prepares its own graph to compare the two forms, which may be of assistance to you. It has been reproduced below for you:
|Form 8938, Statement of Specified Foreign Financial Assets||FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)|
|Who Must File?||Specified individuals and specified domestic entities that have an interest in specified foreign financial assets and meet the reporting threshold|
-Specified individuals include U.S citizens, resident aliens, and certain non-resident aliens
-Specified domestic entities include certain domestic corporations, partnerships, and trusts
|U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold|
|Does the United States include U.S. territories?||No||Yes, resident aliens of U.S territories and U.S. territory entities are subject to FBAR reporting|
|Reporting Threshold (Total Value of Assets)||Specified individuals living in the US:|
-Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.
-Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.
Specified individuals living outside the US:
-Unmarried individual (or married filing separately): Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.
-Married individual filing jointly: Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year.
Specified domestic entities:
Total value of assets was more than $50,000 on the last day of the tax year, or more than $50,000 at any time during the tax year.
|Aggregate value of financial accounts exceeds $10,000 at any time during the calendar year. This is a cumulative balance, meaning if you have 2 accounts with a combined account balance greater than $10,000 at any one time, both accounts would have to be reported.|
|When do you have an interest in an account or asset?||If any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return|
|Financial interest: you are the owner of record or holder of legal title; the owner of record or holder of legal title is your agent or representative; you have a sufficient interest in the entity that is the owner of record or holder of legal title.|
Signature authority: you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account.
See instructions for further details.
|What is Reported?||Maximum value of specified foreign financial assets, which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets||Maximum value of financial accounts maintained by a financial institution physically located in a foreign country|
|How are maximum account or asset values determined and reported?||Fair market value in U.S. dollars in accord with the Form 8938 instructions for each account and asset reported|
Convert to U.S. dollars using the end of the taxable year exchange rate and report in U.S. dollars.
|Use periodic account statements to determine the maximum value in the currency of the account.|
Convert to U.S. dollars using the end of the calendar year exchange rate and report in U.S. dollars.
|When Due?||Form is attached to your annual return and due on the date of that return, including any applicable extensions|
|Received by April 15 (6-month automatic extension to Oct 15)|
|Where to File?||File with income tax return pursuant to instructions for filing the return.|
|File electronically through FinCENs BSA E-Filing System. The FBAR is not filed with a federal tax return.|
|Penalties||Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply||Civil monetary penalties are adjusted annually for inflation. For civil penalty assessment prior to Aug 1, 2016, if non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply|
Types of Foreign Assets and Whether They are Reportable
|Financial (deposit and custodial) accounts held at foreign financial institutions||Yes||Yes|
|Financial account held at a foreign branch of a U.S. financial institution||No||Yes|
|Financial account held at a U.S. branch of a foreign financial institution||No||No|
|Foreign financial account for which you have signature authority||No, unless you otherwise have an interest in the account as described above||Yes, subject to exceptions|
|Foreign stock or securities held in a financial account at a foreign financial institution||The account is subject to reporting, but the contents of the account do not have to be separately reported||The account itself is subject to reporting, but the contents of the account do not have to be separately reported|
|Foreign stock or securities not held in a financial account||Yes||No|
|Foreign partnership interests||Yes||No|
|Indirect interests in foreign financial assets through an entity||No||Yes, if sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in the entity. See instructions for further detail.|
|Foreign mutual funds||Yes||Yes|
|Domestic mutual fund investing in foreign stocks and securities||No||No|
|Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor||Yes, as to both foreign accounts and foreign non-account investment assets||Yes, as to foreign accounts|
|Foreign-issued life insurance or annuity contract with a cash-value||Yes||Yes|
|Foreign hedge funds and foreign private equity funds||Yes||No|
|Foreign real estate held directly||No||No|
|Foreign real estate held through a foreign entity||No, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate||No|
|Foreign currency held directly||No||No|
|Precious Metals held directly||No||No|
|Personal property, held directly, such as art, antiques, jewelry, cars and other collectibles||No||No|
|‘Social Security’- type program benefits provided by a foreign government||No||No|
*Note – This table is current through the publication date. Please check the instructions for each form for information regarding any future developments.
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