The United States requires its citizens, residents, and certain non-residents to report their foreign financial accounts and assets. This is done primarily through the Foreign Bank Account Report (FBAR) and Form 8938. Understanding the nuances of these requirements is crucial to avoid hefty penalties.
1. Foreign Bank Account Report (FBAR):
Who Must File: US persons who have a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
Form Used: FinCEN Report 114, not filed with the regular tax return but electronically through the BSA E-Filing System.
Penalties: Non-willful violations can result in a penalty of up to $10,000 per violation. Willful violations can result in a penalty of the greater of $100,000 or 50% of the balance in the account.
2. Form 8938, Statement of Specified Foreign Financial Assets:
Who Must File: Specified individuals and specified domestic entities that have an interest in specified foreign financial assets and meet the reporting threshold.
Thresholds: For unmarried taxpayers living in the US, the total value of 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. Thresholds vary based on marital status and residence.
Penalties: Failure to report can result in a penalty of $10,000. Continued failure to report after being notified by the IRS can result in an additional penalty of up to $50,000.
Key Differences:
Types of Assets Reported: FBAR covers foreign financial accounts, including bank accounts, brokerage accounts, and mutual funds. Form 8938 covers a broader set of assets, including foreign stocks, securities, and financial instruments.
Filing Location: FBAR is filed with the Treasury, while Form 8938 is filed with the IRS as an attachment to the annual tax return.
Penalties: The penalties for not filing FBAR can be more severe than those for not filing Form 8938.
With a clear understanding of the requirements of FBAR and form 8938 taxpayers can avoid penalties and confusion. Reach out to one of Taxfully’s tax experts to learn more
