For U.S. taxpayers with foreign financial assets, navigating the world of international tax compliance can be complex. Two critical forms often come into play: Form 8938, Statement of Specified Foreign Financial Assets, and FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). While both relate to reporting foreign holdings, they serve distinct purposes and have different requirements. Understanding the nuances between these forms is crucial to ensure compliance and avoid penalties. This comparison clarifies the key aspects of Form 8938 and FBAR, helping you determine your reporting obligations when dealing with foreign exchange and assets.
The obligation to file Form 8938 is separate from and does not replace the requirement to file FinCEN Form 114 (FBAR). It’s important to note that unlike Form 8938, the FBAR (FinCEN Form 114) is not submitted to the IRS. Instead, it must be filed directly with the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the Department of the Treasury, operating independently from the IRS.
Individuals and domestic entities are responsible for reviewing the specific requirements and reporting thresholds for each form. This assessment will determine whether they are obligated to file Form 8938, FinCEN Form 114, or potentially both. Detailed information and instructions for Form 8938 can be accessed at About Form 8938, and for FinCEN Form 114 through FinCen’s BSA E-Filing System.
To clearly differentiate between these two crucial forms, let’s examine their key aspects side-by-side:
Key Differences Between Form 8938 and FBAR
| Feature | Form 8938, Statement of Specified Foreign Financial Assets | FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) |
|---|---|---|
| Who Must File? | Specified U.S. individuals and specified domestic entities with an interest in specified foreign financial assets meeting certain thresholds. – Specified individuals: U.S. citizens, resident aliens, and certain non-resident aliens. – Specified domestic entities: Certain domestic corporations, partnerships, and trusts. | U.S. persons with an interest in foreign financial accounts who meet the reporting threshold. – U.S. persons: U.S. citizens, resident aliens, trusts, estates, and domestic entities. |
| U.S. Territories Inclusion | No. For Form 8938 purposes, U.S. territories are considered foreign. | Yes. Resident aliens and entities of U.S. territories are subject to FBAR reporting. |
| Reporting Thresholds (Asset Value) | Specified Individuals Living in the US: – Unmarried/Married Filing Separately: Assets exceeding $50,000 on the last day of the tax year, or $75,000 at any point during the year. – Married Filing Jointly: Assets exceeding $100,000 on the last day of the tax year, or $150,000 at any point during the year. Specified Individuals Living Outside the US: – Unmarried/Married Filing Separately: Assets exceeding $200,000 on the last day of the tax year, or $300,000 at any point during the year. – Married Filing Jointly: Assets exceeding $400,000 on the last day of the tax year, or $600,000 at any point during the year. Specified Domestic Entities: Assets exceeding $50,000 on the last day of the tax year, or $75,000 at any point during the tax year. | Aggregate value of all foreign financial accounts exceeding $10,000 at any time during the calendar year. This is cumulative across all accounts. |
| Interest in Account/Asset | Interest exists if income, gains, losses, deductions, credits, gross proceeds, or distributions from the asset are required to be reported on your income tax return. | Financial Interest: Owner of record/legal title, agent/representative holding title, or sufficient interest in the entity holding title. Signature Authority: Authority to control asset disposition in the account via direct communication with the financial institution. (See instructions for detailed criteria). |
| What is Reported? | Maximum value of specified foreign financial assets, including financial accounts at foreign institutions and certain other foreign non-account investment assets. | Maximum value of financial accounts maintained by a financial institution physically located in a foreign country. |
| Valuation and Currency Conversion | Fair market value in U.S. dollars according to Form 8938 instructions. Convert to USD using the taxable year-end exchange rate. | Maximum account value in the account’s currency. Convert to USD using the calendar year-end exchange rate. |
| Filing Deadline | Attached to your annual income tax return, due date is the return’s due date (including extensions). | Received by April 15th (6-month automatic extension to Oct 15th). |
| Where to File | Filed with your income tax return, as per return filing instructions. | Filed electronically through FinCEN’s BSA E-Filing System. Not filed with a federal tax return. |
| Penalties for Non-Compliance | Up to $10,000 for failure to disclose, and an additional $10,000 for each 30 days of non-filing after IRS notice, up to a maximum of $60,000. Criminal penalties may also apply. | Non-willful violation (pre-Aug 1, 2016): Up to $10,000. Willful violation: Greater of $100,000 or 50% of account balances. Civil penalties are inflation-adjusted annually. Criminal penalties may also apply. |
Understanding these distinctions is critical for taxpayers engaged in foreign exchange transactions and holding foreign assets. The different thresholds, reporting requirements, and penalties highlight the importance of correctly identifying which form, or forms, you are obligated to file.
Types of Foreign Assets and Reportability
The types of foreign assets also dictate which form is relevant for reporting. Here’s a breakdown of common foreign assets and their reportability under Form 8938 and FBAR:
Note: This table reflects information current as of the original publication date. Always refer to the latest instructions for each form for any updates.
| Type of Foreign Asset | Form 8938 Reportable? | FBAR Reportable? |
|---|---|---|
| Financial accounts (deposit, custodial) at foreign financial institutions | Yes | Yes |
| Financial account at a foreign branch of a U.S. financial institution | No | Yes |
| Financial account at a U.S. branch of a foreign financial institution | No | No |
| Foreign financial account with signature authority (but no other interest) | No, unless you have another interest in the account | Yes, subject to certain exceptions |
| Foreign stock/securities in a financial account at a foreign financial institution | The account is reportable, contents not separately reported | The account is reportable, contents not separately reported |
| Foreign stock/securities not held in a financial account | Yes | No |
| Foreign partnership interests | Yes | No |
| Indirect interests in foreign financial assets through an entity | No | Yes, if >50% interest in the entity (see instructions) |
| Foreign mutual funds | Yes | Yes |
| Domestic mutual fund investing in foreign stocks/securities | No | No |
| Foreign accounts and non-account investment assets held by grantor trust (grantor is you) | Yes, both accounts and non-account assets | Yes, foreign accounts |
| Foreign-issued life insurance/annuity with cash value | Yes | Yes |
| Foreign hedge funds and private equity funds | Yes | No |
| Foreign real estate held directly | No | No |
| Foreign real estate held through a foreign entity | No, but the foreign entity itself may be reportable under Form 8938 | No |
| Foreign currency held directly | No | No |
| Precious Metals held directly | No | No |
| Personal property (art, antiques, jewelry, cars, collectibles) | No | No |
| Foreign government ‘Social Security’-type program benefits | No | No |
As demonstrated, the scope of reportable assets varies significantly between Form 8938 and FBAR. FBAR tends to focus more narrowly on financial accounts held at foreign financial institutions, while Form 8938 encompasses a broader range of foreign financial assets, including certain non-account assets.
Conclusion: Navigating Foreign Exchange and Asset Reporting
Effectively comparing foreign exchange reporting requirements necessitates a clear understanding of both Form 8938 and FinCEN Form 114. While both aim to ensure transparency regarding foreign financial holdings of U.S. taxpayers, their distinct rules and scopes require careful attention. Taxpayers with foreign assets, especially those involved in foreign exchange, must diligently assess their filing obligations for each form to maintain full compliance with U.S. tax law and avoid potential penalties. When in doubt, consulting with a qualified tax advisor specializing in international taxation is always recommended to ensure accurate and timely reporting.
