FBAR vs 8938 – Foreign Accounts & Assets Reporting Guide 2021

fbar vs 8938

FBAR vs Form 8938 – A Complete Guide to Foreign Accounts & Assets Reporting

Many taxpayers tend to be confused about reporting their financial accounts and assets offshore during the tax season. The said confusion may come from choosing which is the right form to file and submit. So it’s about FBAR vs 8938. You may all know that all taxpayers in the United States need to report their worldwide income and include it in their tax returns. Because of that, the Internal Revenue Service and the U.S. Treasury have decided to step up their effort to track down those taxpayers with delinquent taxes and enforce them to settle their overdue tax bills. 

So part of their initiatives is establishing the Foreign Account Tax Compliance or FATCA and the Report of Foreign Bank and Financial Accounts or FBAR. Hence, if you’re one of them who gets confused about what form to use in filing, here’s a complete guide to foreign accounts and assets reporting that you need to know. 

What is Form 8938 (FATCA)?

FATCA aims to force the foreign financial institution managers to report all of their U.S. citizen clients to the Internal Revenue Service. Otherwise, they will all deal with the corresponding penalties and consequences. Besides that, if the reported and submitted information is not a hundred percent complete and accurate, managers will also deal with the corresponding penalty. 

So if you are a U.S. citizen who owns foreign financial accounts, such as dividends, withdrawals, or interest, you are required to report all of the necessary information using Form 8938. Besides that, if you also have assets, such as stock, securities, or investments, that are held by any financial institutions offshore, you will also be asked to submit all required information using the same form. With that, here’s the list of accounts and items that you need to provide on Form 8938. 

  • Foreign Mutual Funds
  • Foreign Hedge Funds
  • Savings Account Held in a Foreign Domiciled Bank 
  • Foreign Private Equity Funds
  • Foreign Annuity Contract
  • Foreign Financial Account Held by Either a Domestic or Foreign Trust With Which You are Associated 
  • Foreign Life Insurance Policy With Cash Value
  • Checking Account Held in a Foreign Domiciled Bank

What is FBAR (FinCEN Form 114)?

If you have a foreign financial account or you have signature authority over foreign bank accounts, you may be required to report that account annually to the USDT or the United States Department of Treasury. It may include mutual funds, savings or checking accounts, unit trusts, brokerage accounts, and any other financial assets and investments abroad. 

So if you have any of these and it has a total amount of at least $10,000 during the entire calendar year, you have to file a FinCEN Form 114 or FBAR. It’s mandatory for all U.S. citizens who own foreign financial accounts, and noncompliance with this tax law will surely face penalties and consequences from the IRS. With that, here’s the list of accounts that you need to provide and report on FinCEN Form 114.

  • Foreign Annuity Contract
  • Foreign Mutual Funds
  • Foreign Account Held by Either a Domestic or Foreign Trust With Which You are Associated
  • Checking Account Held in a Foreign Branch of the U.S. Domiciled Bank 
  • Foreign Account Owned by a Foreign Entity in Which You Have Least 50% Financial Interest 
  • Foreign Financial Account over Which You Have a Signature Authority 
  • Savings Account Held in a Foreign Branch of the U.S. Domiciled Bank 
  • Stock or Foreign Securities Held in a Foreign Financial Institution
  • Savings Account Held in a Foreign Domiciled Bank
  • Checking Account Held in a Foreign Domiciled Bank
  • Foreign Life Insurance Policy With Cash Value
comparison of form 8938 and fbar requirements

What is the Difference Between FBAR and Form 8938?

As mentioned earlier, many taxpayers may be confused about what form they need to file to report their foreign assets and accounts when processing their tax returns. It’s because they may have little to no idea of the differences between Form 8938 and FBAR. Hence, to help you out, here’s a table below to overview the differences between these two important forms that you need to prepare during the tax season. 

Parameters

FBAR 

Form 8938

Who must file?

U.S. citizens, resident aliens, domestic entities, estates, trusts, owning foreign financial accounts, and earning interest, and who will qualify for the reporting threshold.  

Domestic entities and individuals with interest in foreign financial assets:

  • U.S. citizens, non-resident aliens, and resident aliens
  • Domestic partnerships, corporations, and trusts 

Can someone living in the U.S. Territories file?

Yes, resident aliens and entities of the U.S. territories need to file FBAR

No

What is the reporting threshold?

Total foreign assets of more than $10,000 at any time during the entire tax year. 

Living in the United States

Single/Married Filing Separately: Total foreign assets are $75,000 or more during the year or $50,000 on the last of the year.

Joint Filling for married Couples:  Total foreign assets are $150,000 during the tax year or $100,000 on the last day of the tax year

Living Outside the United States

Single/Married Filing Separately: Total foreign assets are $300,000 or more during the tax year or $200,000 on the last of the tax year

Joint Filling for married Couples:  Total foreign assets are $600,000 during the tax year or $400,000 on the last day of the tax year

Special Domestic Entities: 

Total foreign assets are $75,000 or more during the year or $50,000 on the last of the year

When do you have an interest in an account or asset to file?

You will have a financial interest if you are the legal account holder or the record owner. 

You will have a signature authority if you possess the legal ability to control over the asset disposition in the account through having direct communication with the financial institution holding the foreign financial account. 

When you hold or dispose of your asset or account, the gains, losses, income, gross proceeds, credits, or distributions should be reflected on your tax return. 

What is reported?

The financial account’s maximum value that the financial institution offshore is holding or maintaining. 

The maximum value of foreign financial assets includes financial accounts with foreign non-account investment assets and foreign financial institutions. 

How are maximum account or asset values determined and reported?

When the periodic statements of the account haven’t been issued yet, the maximum account value is the currency’s largest amount or the account’s monetary assets. The official exchange rate will be used to convert foreign currency at the end of the year. 

The maximum value of each asset and account will be determined by the U.S. fair market value based on the instructions on Form 8938. 

The value will be converted to U.S. dollars using the current exchange rate at the end of the year. 

Due Date?

On the 15th of April; extended until the 15th of October

It is due at the time you will file your normal taxes, including the extension. 

Where to file?

You can electronically file FinCEN Form 114 online. You don’t need to file it with your federal income tax return. 

File Form 8938 with your income tax return following the instructions stipulated on the form. 

Penalties

Before the 1st of August, 2016, the non-willful civil penalty is up to $10,000. If proven intentional, it’ll be up to $100,000 or equivalent to 50% of the balance on the financial account. 

Criminal penalties will also be applicable to certain situations. 

  • Failure to disclose: up to $10,000 fines 
  • Every 30 days of non-filing after the IRS warning: $10,000 penalty
  • Possible maximum penalty: up to $60,000
  • Criminal penalties 

What type of foreign assets are reportable under Form 8938 vs FBAR 

If you have various foreign assets and accounts, you may have some confusion about which one will be reportable under Form 8938 or FBAR. So to help you out, please check this table below to see what foreign assets fall under a particular form that you have to use. 

Foreign AssetsForm 8938FBAR
The financial accounts that are held at a U.S. branch of a financial institution offshoreNoNo
The domestic mutual fund investing in stocks and securities offshoreNoNo
The foreign-issued life insurance or annuity contract with a cash-valueYesYes
The foreign stock or securities that are held in a financial account at a financial institution offshore.You don’t have to report the contents of the financial account separately, but the account itself needs to be reported. You don’t have to report the contents of the financial account separately, but the account itself needs to be reported. 
The indirect interests in financial assets offshore through an entityNoYes, as long as there’s a sufficient beneficial or ownership interest in the said entity. 
The foreign private equity funds and the foreign hedge fundsYesNo
The personal property that is directly held, like antiques, cars, jewelry, piece of art, and other valuable collectibles.NoNo
The foreign mutual fundsYesYes
The financial accounts that are held at financial institutions offshore (deposit and custodial). YesYes
The foreign accounts and foreign non-account investment assets that are held by domestic or foreign grantor trust, in which you are the said grantor.Yes, for foreign non-account and foreign account investment assetsYes, for foreign accounts
The foreign financial accounts that you have signature authorityNo, if you don’t have an interest in the said account.Yes, but it will be subject to exceptions.
The ‘social Security’- type program benefits from a foreign governmentNoNo
The foreign real estate that is directly heldNoNo
The financial accounts that are held at a foreign branch of a financial institution in the United States. NoYes
The precious metals that are directly held.NoNo
The foreign stock or securities that are not held in a financial account. YesNo
The foreign real estate that is held through an entity offshore.No, as long as the foreign entity has a maximum value that includes the real estate value and it is a particular foreign financial asset. No
The foreign partnership interests.YesNo
The foreign currency that is directly held.NoNo

This is the list of foreign assets that you need to report using a particular form. It could be Form 8938 or FBAR. You can also check the IRS website for further details and information if you have an asset that you can’t find on the table above. 

What type of financial assets are not reportable under both the IRS FBAR vs 8938

Based on the table provided above, there are a few types of financial assets that you don’t need to report under both Form 8938 and FBAR. It includes your possession of valuable personal properties, such as expensive jewelry, antiques, cars, any piece of art, and many others. 

Besides that, if you also directly hold a foreign currency and real estate property, including precious metals like gold, you also don’t need to report them in either of the two forms. In addition, if you have invested in securities and stocks offshore using your domestic mutual fund and the various benefits you have in any social security-type of programs from a particular government, there’s also no need to report them using FBAR of Form 8938. 

How do I know which one to choose, FBAR or 8938?

If you’re a taxpayer in the United States, but you are not required to file your income tax return in a particular tax year, you don’t need to file Form 8938 as well. The type of information that you need to provide may look the same for Form 8938 and FBAR, but there are subtle differences that you need to know. It means that the form you should be filing doesn’t mean you also have to prepare and file the other. 

As long as you can meet the requirements, guidelines, and the required threshold of a particular form, that will be the best one you need to fill out and file during the tax season. Hence, you need to make sure to know all of the guidelines and the updates in the IRS, if there are any, so that you would know what form to use and what process to follow. 

form 114 vs 8938

FAQs

What is the difference between FBAR and Form 8938?

There are various differences between Form 8938 and FBAR, and there’s a particular set of people who may only need to file one of them. One of the differences is the reporting threshold. BFAR needs to be filed when you have a total of more than $10,000 of your foreign assets and accounts. On the other hand, Form 8938 has different reporting thresholds, depending on whether you file it as a single individual or a joint filing with your spouse. It will also matter if you’re currently living in the United States or abroad. Also, when it comes to the residents living in the U.S. territories, they will only have to use FBAR, and there’s no need to file Form 8938. So these are some of the subtle differences between these forms that you need to check to see what form you need to fill out and submit during the tax season. 

How do I know which one to choose, FBAR or 8938?

In choosing which one to prepare and submit when filing your tax return, you have to know the guidelines of Form 8938 and FBAR. It’s because each one of them has a particular set of requirements that you need to meet. For instance, when it comes to the qualifications of who will use the form as well as the required reporting threshold, both Form 8938 and FBAR have different requirements. So you have to check and gather all of your information and be aware of the guidelines of each form so that you know which one is applicable for you. 

Conclusion

As mentioned earlier, all taxpayers in the United States generally have an obligation to report all of their assets and financial accounts offshore to the Internal Revenue Service. It can be through the use of Form 8938 or the Report of Foreign Bank and Financial Accounts or FBAR. Always remember that if you are not required to process your income taxes on a particular tax year, there’s no need for you to file Form 8938. 

Besides that, when using a specific form that’s applicable for you, you have to keep in mind everything discussed above to make sure you’re doing the right thing. As previously mentioned, there will be corresponding penalties and consequences for those who provided incorrect or incomplete information. The same thing can be said for those who didn’t comply with this particular tax law. However, if you’re too busy doing your daily stuff or you may find it difficult to deal with the tax processes and reporting of your foreign assets and accounts, you can always approach any tax professionals who can further assist and help you along the way.

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