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Knowledge Center Financial Accounts & Investing Abroad
Every year, Americans living abroad find themselves scratching their heads. Tax season can be stressful for everyone—and for expats, things only get more complicated. The alphabet soup doesn’t help anything either, with FATCAs and FBARs and FinCENs to wade through.
Don’t worry. We’re here to help make sense of it all. In this guide, we’re going to look at two common forms for Americans abroad: the FBAR and Form 8938. These two forms are similar, but with some noteworthy differences.
Americans who have $10,000 deposited in one or more non-US bank accounts are required to file FinCEN Form 114, also known as a Foreign Bank Account Report (FBAR). The FBAR was designed to combat tax evasion by making it harder for US citizens to hide money in offshore accounts.
FBAR reporting requirements have been in place since 1970. However, those requirements only became enforceable in 2010 with the passing of the Foreign Account Tax Compliance Act (FATCA). FATCA requires virtually all foreign banks to disclose the details of any account holders who are US citizens. That means that the IRS generally knows which expats are failing to file an FBAR when required.
Americans who shirk their tax obligations won’t get away with it for long. If the IRS contacts you about your failure to file an FBAR, you could face severe penalties.
The good news is that the FBAR is a purely informational tax form. Expats aren’t automatically taxed on the money they have stored in a foreign bank account. You simply have to report it to the IRS for the purpose of transparency.
In short, you won’t lose anything by filing an FBAR when required—and you could lose plenty if you refuse. It’s always best to file.
FinCEN is the Financial Crimes Enforcement Network, a bureau of the US Treasury Department tasked with combating financial crimes such as money laundering, tax evasion, and fraud.
Their mission is to “enhance U.S. national security, deter and detect criminal activity and safeguard financial systems from abuse by promoting transparency in the U.S. and international financial systems.”
One of FinCEN’s responsibilities is ensuring that US citizens are fulfilling their FBAR filing obligations. (They do this in cooperation with the IRS.)
To submit an FBAR, you will need to complete FinCEN Form 114 and file it with FinCEN’s BSA E-Filing System.
Like the FBAR, Form 8938 is an informational form used to report foreign assets. Those assets include:
Form 8938 is similar to the FBAR, so many expats fail to understand that they are two separate forms —and understanding the key differences is important to filing your Expat Taxes accurately.
To start with, Form 8938 is issued by the IRS rather than FinCEN. Form 8938 is also more complex and in-depth than the FBAR.
The reporting requirements for Form 8938 are also more complex. While the FBAR applies when any taxpayer has at least $10,000 stored in a foreign bank account, the reporting thresholds for Form 8938 vary by your residency and filing status.
For specified individuals living inside the US, the thresholds for filing Form 8938 are:
For specified individuals living abroad, the thresholds for filing Form 8938 are:
Yes, the FBAR and Form 8938 are different. While both forms may seem to be collecting the same information, there are some subtle—and not-so-subtle—differences of which every taxpayer needs to be aware. The requirement to file one form does not automatically mean you are required to file the other.
Some expatriates must file both an FBAR and Form 8938, while others are only required to file an FBAR. Some expats may not need to file either form.
To help you understand the differences between the FBAR and Form 8938 better, we’ve put together a table comparing them below.
Remember, not all accounts and/or financial assets need to be reflected when determining your filing obligation for each form. A financial asset that is reported on Form 8938 (FATCA) does not necessarily need to be reported on your FBAR form and vice versa.
The table below outlines what needs to be considered for each when verifying your obligation.
If you failed to file an FBAR or Form 8938 when required, don’t panic. Many Americans living abroad are unaware of their US tax obligations. To help solve this problem, the IRS has created two tax amnesty programs that might help you get caught up:
Both will let you come into compliance with US tax law without paying any penalties.
These tax amnesty options are only available if you reach out to the IRS and start the process yourself. If the IRS contacts you about your delinquency first, you may lose the privilege of using these programs. In that case, you would be subject to the standard penalties.
We hope this guide has helped you understand the differences between FBAR vs. Form 8938 (FATCA).
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