FBAR vs. Form 8938: Differences and pitfalls to avoid explained
This article is for informational purposes only and does not constitute legal advice.
Always consult with a tax professional for your specific circumstances.
As a US taxpayer with foreign financial assets, knowing the difference between FBAR and Form 8938 is crucial.
While these two forms might seem redundant at first glance, they serve distinct purposes, have different reporting thresholds, and involve separate filing procedures.
Getting it wrong can lead to compliance issues and potential penalties.
Let’s break down FBAR and Form 8938, explore their differences, and highlight common traps taxpayers should avoid.
Understanding the basics: What is FBAR vs. Form 8938?
FBAR
The Foreign Bank Account Report (FBAR), formally known as FinCEN Form 114, is an information report used to disclose foreign financial accounts if their cumulative balance exceeds $10,000 at any point during the year.
It’s filed directly with the Financial Crimes Enforcement Network (FinCEN) – not the IRS – and its primary goal is to prevent tax evasion and ensure transparency of overseas financial assets.
Form 8938
Also referred to as the FATCA (Foreign Account Tax Compliance Act) report, Form 8938 is used to disclose specified foreign financial assets, such as bank accounts, investments, and certain foreign-issued insurance policies.
Unlike FBAR, Form 8938 is filed with your tax return (Form 1040) and is governed by the IRS.
Key differences between FBAR and Form 8938
While both forms target foreign financial asset reporting, understanding their distinctions is essential for accurate compliance.
1. Basic differences
| Feature | FBAR (FinCEN Form 114) | Form 8938 (Statement of Specified Foreign Financial Assets) |
|---|---|---|
| Who must file? | US persons with a financial interest in or signature authority over foreign financial accounts exceeding $10,000 at any time during the year. | Specified individuals (US citizens, resident aliens, certain non-resident aliens) and domestic entities with foreign assets exceeding reporting thresholds. |
| Filing threshold | Aggregate balance of all foreign financial accounts exceeds $10,000. | Varies by filing status and residency. Single taxpayers in the US: $50,000 (year-end) or $75,000 (any time). |
| What gets reported? | Maximum value of financial accounts maintained by a foreign financial institution. | Maximum value of specified foreign financial assets, including bank accounts, investments, and securities. |
| Deadlines and procedures | Due on April 15, with an automatic extension to October 15. It is filed separately through FinCEN’s BSA E-Filing System. | Due with your annual tax return, including extensions. It’s submitted directly to the IRS as part of Form 1040. |
| Penalties for non-compliance | Non-willful: up to $10,000 per violation. Willful: greater of $100,000 or 50% of account balances. Criminal penalties may also apply. |
Up to $10,000 for initial failure to disclose, with additional penalties for continued failure. |
| Criminal liability? | Yes, in severe cases of willful non-compliance. | Yes, in cases of tax evasion or fraud. |
| Inclusion of US territories? | Yes, applies to US territories. | No, excludes US territories such as Puerto Rico and Guam. |
2. Reporting thresholds
- FBAR: Any US person with a cumulative balance exceeding $10,000 in foreign financial accounts at any point during the calendar year must file FBAR. The threshold is based on the total value across all accounts.
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Form 8938: The thresholds for Form 8938 vary depending on your residency and filing status. For single taxpayers residing in the US, the threshold is $50,000 on the last day of the year or $75,000 at any time during the year.
For those living abroad, the threshold rises to $200,000 on the last day of the year or $300,000 at any time.
| Filing Status & Residency | FBAR Threshold | Form 8938 Threshold |
|---|---|---|
| Single filer (US resident) | Aggregate foreign account balance exceeds $10,000. | Over $50,000 on the last day of the tax year, or over $75,000 at any time during the year. |
| Married filing jointly (US resident) | Aggregate foreign account balance exceeds $10,000. | Over $100,000 on the last day of the tax year, or over $150,000 at any time during the year. |
| Single filer (living abroad) | Aggregate foreign account balance exceeds $10,000. | Over $200,000 on the last day of the tax year, or over $300,000 at any time during the year. |
| Married filing jointly (living abroad) | Aggregate foreign account balance exceeds $10,000. | Over $400,000 on the last day of the tax year, or over $600,000 at any time during the year. |
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Avoiding common pitfalls: What taxpayers often get wrong
Misunderstanding the requirements for FBAR and Form 8938 can lead to non-compliance.
Here are some common pitfalls and traps to avoid:
1. Assuming it’s an “either-or” scenario
Many taxpayers mistakenly believe they need to file only one form. However, it’s entirely possible – and often necessary – to file both forms.
For example, if you have a foreign bank account that exceeds $10,000 and foreign stocks valued at $50,000, you’ll need to file FBAR for the bank account and Form 8938 for both the bank account and stocks.
2. Reporting foreign assets inconsistently between forms
Since both FBAR and Form 8938 require similar information, it’s important to report your foreign assets consistently.
NOTE! If the IRS notices discrepancies between your Form 8938 and FBAR filings, it could trigger an audit or further scrutiny.
Pro tip. Always use the end-of-year exchange rate to convert foreign currency values to US dollars. This ensures consistency across both forms.
3. Overlooking joint accounts and signatory authority
FBAR requires reporting on foreign accounts where you have joint ownership or even signatory authority, regardless of ownership interest.
If your spouse or business partner has a foreign account and you have signatory control, you must report it on your FBAR.
Form 8938, on the other hand, only requires you to report accounts in which you have a direct ownership interest. This means that if you have signatory authority but no financial interest, the account might not be reportable on Form 8938.
4. Ignoring penalties for non-compliance
“Better to report everything and risk over-compliance than to omit a single asset and risk costly penalties.” – Reid Kopald, EA
Failing to file FBAR or Form 8938 – or filing incomplete or inaccurate forms – can result in substantial penalties.
The FBAR carries penalties of up to $10,000 for non-willful violations, while willful violations can result in fines of $100,000 or 50% of the account balance.
For Form 8938, penalties start at $10,000 and can escalate up to $50,000 for continued non-compliance. The IRS may also extend the statute of limitations for audits if Form 8938 is not filed or is filed inaccurately.
| Common Pitfall | Description |
|---|---|
| Double-counting foreign assets | Filing both FBAR and Form 8938 without verifying if the same assets are being counted twice, leading to unnecessary complexity. |
| Misreporting due to currency conversion | Failing to use the correct end-of-year exchange rate when converting values to US dollars. |
| Omitting accounts with signature authority only | Forgetting to report accounts on FBAR over which you have only signature authority (even if you don’t own them directly). |
| Incorrect assumptions about US territories | Misunderstanding how US territories (like Puerto Rico) are treated differently for FBAR vs. Form 8938 purposes. |
| Failing to file due to a lack of tax liability | Believing that no tax liability means no need to fileboth forms are purely informational and required even if no tax is owed. |
When do you need both FBAR and Form 8938?
The need to file both forms often arises when taxpayers hold a diverse portfolio of foreign assets.
Consider this scenario:
Example: John, a US expat living in France, has a checking account in a local French bank with $20,000, a brokerage account in Germany with $50,000, and a foreign mutual fund valued at $40,000.
- FBAR: John needs to file an FBAR because his cumulative foreign account balance exceeds $10,000 at any point in the year. He must report both his French checking account and German brokerage account.
-
Form 8938: Since John is a single filer living abroad, he meets the reporting threshold for Form 8938 (over $200,000 in specified foreign financial assets at the end of the year).
He must report all three assets: the French checking account, the German brokerage account, and the foreign mutual fund.
Key takeaways: How to stay compliant
- Check your thresholds: Determine if you meet the thresholds for both FBAR and Form 8938 based on your account balances, filing status, and residency.
- Report consistently: Use the same exchange rates and maximum values across both forms to avoid discrepancies.
- File on time: Adhere to the filing deadlines and ensure you’re submitting to the correct authorities – FinCEN for FBAR and the IRS for Form 8938.
- Seek professional advice: If you have a complex asset portfolio or are unsure about your filing obligations, consulting a tax professional can save you from costly mistakes and penalties.
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Bottom line
Filing FBAR and Form 8938 correctly is critical for US taxpayers with foreign financial assets.
While there are overlaps between these forms, understanding their differences and avoiding common pitfalls can help you stay compliant and reduce your risk of penalties.
Remember: when it comes to offshore asset reporting, it's always better to err on the side of caution.