Table of contents:
- What is a Financial Account for FBAR & Form 8938 Reporting?
- Who must file FBAR?
- Who must complete form Form 8938 on their Tax return?
- What’s the penalty for not filing Form 8938 and FBAR ?
- Key Points
COMPARISON OF FORM 8938 AND FBAR
WHAT IS FBAR & FORM 8938 ?
Introduction
FBAR stands for (Foreign bank account report) also known as FinCen 114 for reporting of your Foreign bank accounts and financial interests. FATCA Form 8938 is for reporting of specific Financial assets in addition to the Foreign bank accounts and financial interests reported on FinCen form 114. Both are separate forms and not mutually exclusive. Form 8938 has a wider scope than FinCen 114 reporting. Both the forms are only for reporting requirements with the main purpose being – avoid evasion of taxes by US taxpayers staying abroad. In this blog, let us do a comparison of Form 8938 and FBAR.
What is a Financial Account for FBAR & Form 8938 reporting?
As per the IRS Guide, a Foreign financial account is
- Foreign bank
- Foreign securities, debt instruments.
- Insurance policy with cash value
- Foreign pension and retirement accounts
- Mutual funds (Form 8621)
Signature authority over Foreign account (needed for FBAR reporting)When it comes to the comparison of Form 8938 and FBAR, both have very similar definitions/reporting needs of financial accounts, financial interests, financial assets, it can get very confusing and time tedious for figuring out your financial interests.
However, in reality, both forms are separate, exclusive, have different penalties, both are reported to different agencies. FBAR is filed with the department of treasury and Form 8938 includes on your tax return, filed with IRS. You may need to file one of them or both for the tax year.
The key difference between FinCen114 and Form 8938 is that form 8938 is used for reporting of interest in a foreign asset, whereas for FBAR even a signature authority or financial interest over several foreign bank accounts needs to be reported on your FBAR Fincen 114. FATCA form 8938 mainly refers to an interest in foreign assets whereas FBAR Fincen 114 refers to an interest in the financial account(s). Apart from this, there is a difference in the threshold requirements for reporting both these accounts.
WHO MUST FILE FBAR?
A US tax person ( Resident, Dual status resident, Green Card holder) whose total balance of all Foreign bank accounts (not US banks located in the US), foreign financial interests which exceed the amount of $10,000 at any time of the year, even for a minute! must be reported on the FBAR form (aka Fincen 114).
WHO MUST COMPLETE FORM 8938 ON THEIR TAX RETURN?
8938 is part of the Tax Return, is an informational report (for Foreign Financial Assets), but has different thresholds for reporting based on filing status and US/Foreign Presence as of 31st December of the Tax Year.
The below are the thresholds for filing Form 8938 with your tax return.
Filing Status | Taxpayer living in the US | Taxpayer living outside the US. |
Single/Unmarried | $50k on the last day of the tax year, or $75k any time during the year(whichever higher) | $200k on the last day of the tax year, or $300k any time during the year(whichever higher) |
Married Filing Jointly | $100k on the last day of the tax year, or $150k any time during the year(whichever higher) | $400k on the last day of the tax year, or $600k any time during the year(whichever higher) |
Married Filing Separate | $50k on the last day of the tax year, or $75k any time during the year(whichever higher) | $200k on the last day of the tax year, or $300k any time during the year(whichever higher) |
What's the penalty for not filing Form 8938 and fbar ?
The penalty for not filing FBAR can invite civil or criminal penalty or even both. Penalty for non-willful violation carries a civil penalty of $10,000. For willful violations, the penalty may be greater than $100,000 or 50 percent of the balance in the account at the time of the violation, for violation.
The penalty for not completing form 8938 is $10,000, if not completed by the due date or incorrectly filing the form 8938. Additional penalties up to $50,000 would be applied if the taxpayer does not respond to the Notice from the IRS in 90 days.
Key Points
Most assignee’s in the 1st year of arrival to the US aren’t aware of these forms and can land in trouble with the IRS for failure to comply. Anybody coming to the United States will have at least $10,000 in their home country to meet their basic needs.
The FATCA act was passed in 2010, to keep track of off-shore bank accounts of US Citizens, Residents in “ Tax havens “ across the globe in a bid to avoid tax evasion. The foreign account tax compliance act (FATCA), generally requires that foreign financial institutions and certain other non-financial foreign entities report on the foreign assets held by their U.S. account holders or be subject to withholding on withholdable payments. Every Foreign bank has to comply with the FATCA regulations, regardless of its location/operations – have a Unique ID for reporting. Through this ID, the IRS or the Department of Treasury can find out your Foreign Financial Interests. Form 8938 does not require the reporting of your Foreign homes and rental properties.
As you can see, reporting of Form 8938 and FinCen 114 are very important for US Tax Compliance. If you still have any doubt over it, feel free to get in touch with us.
DISCLAIMER: The above info should only be considered for the knowledge of US Tax. Every Taxpayer’s situation is unique, strongly advise you to consult a Tax Professional.