Form 8938 and FBAR (Foreign Bank Account Report) are two tax forms that may be required to be filed by US taxpayers with foreign financial assets. While these forms may seem similar, there are some key differences that taxpayers should be aware of. Here’s a closer look at Form 8938 vs. FBAR:
Definition
Form 8938 is a form that taxpayers use to report certain foreign financial assets to the IRS. The form is required under the Foreign Account Tax Compliance Act (FATCA), which was enacted in 2010. The purpose of the form is to help prevent offshore tax evasion by requiring taxpayers to disclose their foreign financial assets.
FBAR, on the other hand, is used by taxpayers to report their bank accounts (foreign) to the Financial Crimes Enforcement Network (FinCEN) of the US Treasury Department. The form is required under the Bank Secrecy Act (BSA), which was enacted in 1970. The purpose of the form is to combat money laundering and other financial crimes.
Filing Requirements
The filing requirements for Form 8938 and FBAR are different. Form 8938 is required to be filed with the taxpayer’s annual income tax return if the taxpayer meets certain asset thresholds. The asset thresholds are:
- Unmarried taxpayers living in the US: The total value of foreign financial assets is more than $50,000 on the final day of the tax year or more than $75,000 at any time during the tax year.
- Married taxpayers living in the US: The total value of foreign financial assets is more than $100,000 on the final day of the tax year or more than $150,000 at any time during the tax year.
- Taxpayers living abroad: The total value of foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.
Contrarily, any US individual who has a financial interest in or signatory authority over one or more overseas financial accounts and the total value of those accounts exceeds $10,000 at any point during the calendar year is obliged to file an FBAR.
Types of Assets Reported
The types of assets that are reported on Form 8938 and FBAR are different. Form 8938 requires taxpayers to report a broader range of assets than FBAR. In addition to foreign bank accounts, Form 8938 requires taxpayers to report:
- Foreign stock or securities held in a financial account at a foreign financial institution.
- Any interest in a foreign entity, such as a corporation or partnership.
- Any financial instrument or contract held for investment purposes with a foreign counterparty.
- Any interest in a foreign trust or estate.
Meanwhile, FBAR only requires taxpayers to report foreign bank accounts.
Penalties for Non-Compliance
The penalties for non-compliance with Form 8938 and FBAR are different. The maximum fine for failing to file Form 8938 on time or at all is $60,000. The penalties for failing to file include up to $10,000 for failing to disclose and an additional $10,000 for every 30 days that pass after the IRS notifies the taxpayer of their failure to file. In addition, under certain circumstances, the penalties can be up to 40% of the understated tax liability.
In general, FBAR sanctions are more severe. The maximum fine for failing to file an FBAR on time or at all can be up to $12,921 per offense, or 50% of the account’s highest balance, whichever is higher. In some circumstances, criminal penalties may also be applicable.
Deadlines
The filing deadlines for Form 8938 and FBAR are also different. Form 8938 must be filed with the taxpayer’s annual income tax return, which is due on April 15th of each year. However, taxpayers living abroad are allowed an automatic extension until June 15th and can request an additional extension until October 15th.
In contrast, FBAR must be filed separately from the taxpayer’s income tax return and is due on April 15th of each year. However, taxpayers are allowed an automatic extension until October 15th to file the form.
Enforcement Agencies
The enforcement agencies for Form 8938 and FBAR are different. Form 8938 is enforced by the IRS, which has the authority to impose penalties for non-compliance. FBAR, on the other hand, is enforced by the Financial Crimes Enforcement Network (FinCEN), which is part of the US Treasury Department. FinCEN has the authority to impose civil and criminal penalties for non-compliance.
While Form 8938 and FBAR may seem similar, they have key differences that taxpayers should be aware of. Taxpayers with foreign financial assets need to understand the filing requirements and deadlines for each form, as well as the potential penalties for non-compliance. Taxpayers who are unsure whether they need to file either form should consult with a qualified tax professional offering tax resolution/consultation services to avoid any potential issues with the IRS or FinCEN.