If you’re a U.S. taxpayer or expatriate with financial accounts abroad, you may need to file additional forms each year to stay compliant with U.S. tax law. Two critical forms that taxpayers often need to know about are Form 114 (also known as the FBAR or Foreign Bank Account Report) and Form 8938 (the Statement of Specified Foreign Financial Assets). While both serve to report foreign assets, they have different thresholds and requirements. In this article, we’ll explore the purpose of each form, the criteria for filing, and the penalties for non-compliance.
What is Form 114 (FBAR)?
Form 114, or the Report of Foreign Bank and Financial Accounts (FBAR), is required by the Financial Crimes Enforcement Network (FinCEN). The FBAR serves to report foreign financial accounts when a taxpayer’s combined foreign account balances exceed a certain threshold at any time during the calendar year. The aim is to prevent money laundering, tax evasion, and illegal activity.
Who Must File FBAR?
You must file an FBAR if:
- You are a U.S. citizen, resident, or any person with U.S. tax obligations (including expatriates).
- You have a financial interest in or authority over one or more foreign accounts.
- The aggregate value of all your foreign accounts exceeded $10,000 at any time during the calendar year.
Examples of reportable accounts include:
- Bank accounts (savings, checking)
- Brokerage accounts
- Mutual funds or pooled funds
- Trusts with financial interests abroad
How and When to File FBAR?
The FBAR is filed electronically through FinCEN’s online platform, separate from your income tax return. The deadline aligns with the federal tax deadline, typically April 15, but an automatic extension to October 15 is available.
Penalties for Not Filing FBAR
Failure to file an FBAR when required can result in severe penalties, including:
- Non-willful violations: up to $10,000 per violation.
- Willful violations: penalties as high as $100,000 or 50% of the account balance, whichever is greater.
What is Form 8938?
Form 8938, or the Statement of Specified Foreign Financial Assets, is filed with the Internal Revenue Service (IRS). Unlike the FBAR, Form 8938 is focused on reporting foreign financial assets as part of your federal tax return and applies only if the asset value surpasses a set threshold. Form 8938 was introduced under the Foreign Account Tax Compliance Act (FATCA) in 2010 to help the IRS prevent offshore tax evasion.
Who Must File Form 8938?
The need to file Form 8938 depends on filing status and residency (whether you live in the U.S. or abroad). You must file Form 8938 if you are:
- A U.S. taxpayer (citizen, resident alien, or certain non-resident aliens)
- Owning specified foreign financial assets exceeding the IRS thresholds.
Filing Thresholds for Form 8938
The filing thresholds for Form 8938 differ based on your filing status and whether you live in the U.S. or abroad:
- Taxpayers Living in the U.S.:
- Single or married filing separately: $50,000 on the last day of the tax year or $75,000 at any time during the year.
- Married filing jointly: $100,000 on the last day of the tax year or $150,000 at any time during the year.
- Taxpayers Living Abroad:
- Single or married filing separately: $200,000 on the last day of the tax year or $300,000 at any time during the year.
- Married filing jointly: $400,000 on the last day of the tax year or $600,000 at any time during the year.
Examples of Reportable Assets for Form 8938
Reportable assets under Form 8938 include:
- Foreign bank and brokerage accounts
- Foreign stock or securities
- Foreign partnership interests
- Foreign pension funds and other retirement assets
Filing and Deadline for Form 8938
Form 8938 is filed along with your annual federal income tax return (Form 1040), with the same deadlines and extensions.
Penalties for Not Filing Form 8938
Non-filing penalties for Form 8938 can also be steep:
- A base penalty of $10,000 for failing to file by the deadline.
- An additional $10,000 for each 30-day period of continued failure after receiving an IRS notice (up to a maximum of $50,000).
- Potential criminal charges for intentional non-compliance.
Final Tips for U.S. Taxpayers and Expatriates
Navigating foreign financial asset reporting can be complex, and failing to file can lead to severe penalties. Here are a few tips to help you stay compliant:
- Understand the thresholds: Different thresholds apply depending on residency and filing status, so carefully review your foreign financial assets each year.
- Stay aware of due dates: FBAR has a separate filing platform and deadline from Form 8938, so plan accordingly.
- Seek professional guidance: An international tax professional can help ensure your compliance and help you navigate the nuances of foreign asset reporting.
Filing Forms 114 and 8938 can be a hassle, but it’s a necessary step in protecting your finances and staying on the right side of tax regulations. Understanding these forms will help you meet your obligations confidently and avoid penalties.
