FBAR & FATCA
Foreign Bank Account Reports (Form 114) and the Foreign Account Tax Compliance Act (Form 8938)
Over the past several decades, the US Congress has made substantial efforts to eliminate the use of foreign financial assets to evade applicable US taxes.
Since 1970, there has been a requirement for US persons with bank accounts held in foreign countries to disclose these accounts on the Foreign Bank Account Report, or FBAR ("eff-bar", formerly Form TD F 90-22.1, now FinCEN Form 114). For nearly 40 years the FBAR was a largely unknown and forgotten compliance requirement, but in the post-financial-crisis anti-tax-evasion world the US government has increased efforts to enforce the law. Indeed, in 2008 the IRS issued a press release reminding those US taxpayers with foreign bank accounts of the reporting obligations, as well as the consequences of not reporting (which can be severe).
At present, an FBAR must be filed by any US person with foreign financial accounts that exceed $10,000 in aggregate maximum value at any time during the year. For example, if you have a foreign checking account with a maximum balance during the year of $5,000, and a foreign pension account with a maximum balance of $8,000, you are required to file the FBAR (even though none of your foreign financial accounts singularly exceeded a balance of $10,000).
In 2010, Congress introduced the Foreign Account Tax Compliance Act (FATCA) and its associated Form(s) 8938, Statement of Specified Foreign Financial Assets. FATCA is designed to force foreign financial institutions to report information to the IRS in the same way as domestic US ones. It has a broader remit than the FBAR and requires disclosure to the IRS of foreign financial accounts and other financial assets not held in an account. This means not only currency and assets held in foreign bank/custodial accounts, but also assets such as shares and bonds not held in custodial accounts (e.g. share certificates). The reporting thresholds for filing the FATCA Form(s) 8938 are much higher than the FBAR, and depend on whether the taxpayer lives abroad or in the US. The FATCA rules for individuals are applicable from Tax Year 2011 onwards.
The primary difference between the FBAR and the Form 8938 is that the FBAR is an information return that is reported to the Treasury Department’s Financial Crimes Enforcement Network ("FinCEN"), while the FATCA Form(s) 8938 are additional scheduled items that are individually reported within the individual's Form 1040 tax return. The FBAR is not filed with the Form 1040 and is sent separately to FinCEN. FinCEN wants to make sure you are not hiding any foreign assets; while the IRS wants to make sure you are paying all the tax you owe on income and gains from your foreign assets.
There is a large amount of overlap between the FBAR and FATCA Form 8938 reporting requirements, but not all of the terminology and definitions are the same, resulting in substantial confusion. The majority of people who must file a Form 8938 will also be required to file the FBAR, but many FBAR filers do not have to file a Form 8938.
Note that the potential penalties for non-compliance for both the FBAR and the FATCA Form(s) 8938 can be onerous and severe.
Please phone us to obtain the password for access to our full TY 2021 FBAR & FATCA information pack in the Downloads section.
Over the past several decades, the US Congress has made substantial efforts to eliminate the use of foreign financial assets to evade applicable US taxes.
Since 1970, there has been a requirement for US persons with bank accounts held in foreign countries to disclose these accounts on the Foreign Bank Account Report, or FBAR ("eff-bar", formerly Form TD F 90-22.1, now FinCEN Form 114). For nearly 40 years the FBAR was a largely unknown and forgotten compliance requirement, but in the post-financial-crisis anti-tax-evasion world the US government has increased efforts to enforce the law. Indeed, in 2008 the IRS issued a press release reminding those US taxpayers with foreign bank accounts of the reporting obligations, as well as the consequences of not reporting (which can be severe).
At present, an FBAR must be filed by any US person with foreign financial accounts that exceed $10,000 in aggregate maximum value at any time during the year. For example, if you have a foreign checking account with a maximum balance during the year of $5,000, and a foreign pension account with a maximum balance of $8,000, you are required to file the FBAR (even though none of your foreign financial accounts singularly exceeded a balance of $10,000).
In 2010, Congress introduced the Foreign Account Tax Compliance Act (FATCA) and its associated Form(s) 8938, Statement of Specified Foreign Financial Assets. FATCA is designed to force foreign financial institutions to report information to the IRS in the same way as domestic US ones. It has a broader remit than the FBAR and requires disclosure to the IRS of foreign financial accounts and other financial assets not held in an account. This means not only currency and assets held in foreign bank/custodial accounts, but also assets such as shares and bonds not held in custodial accounts (e.g. share certificates). The reporting thresholds for filing the FATCA Form(s) 8938 are much higher than the FBAR, and depend on whether the taxpayer lives abroad or in the US. The FATCA rules for individuals are applicable from Tax Year 2011 onwards.
The primary difference between the FBAR and the Form 8938 is that the FBAR is an information return that is reported to the Treasury Department’s Financial Crimes Enforcement Network ("FinCEN"), while the FATCA Form(s) 8938 are additional scheduled items that are individually reported within the individual's Form 1040 tax return. The FBAR is not filed with the Form 1040 and is sent separately to FinCEN. FinCEN wants to make sure you are not hiding any foreign assets; while the IRS wants to make sure you are paying all the tax you owe on income and gains from your foreign assets.
There is a large amount of overlap between the FBAR and FATCA Form 8938 reporting requirements, but not all of the terminology and definitions are the same, resulting in substantial confusion. The majority of people who must file a Form 8938 will also be required to file the FBAR, but many FBAR filers do not have to file a Form 8938.
Note that the potential penalties for non-compliance for both the FBAR and the FATCA Form(s) 8938 can be onerous and severe.
Please phone us to obtain the password for access to our full TY 2021 FBAR & FATCA information pack in the Downloads section.
Our motto: "Never ignore a letter from the IRS (or HMRC)"