What is the difference between Form 8938 and FBAR form in terms of reporting of Foreign Financial Assets?
FBAR, FATCA, these are some of the acronyms that might confuse a lot of taxpayers. Especially when it comes to foreign financial assets, which one should a taxpayer choose and why.
The HIRE Act was the triggering factor behind the FATCA or the Foreign Account Tax Compliance Act coming in to effect in 2010. As per this Act, financial institutions are required to report the assets held by US-based account holders or run into the risk of withholding on certain taxes. As per the HIRE Act, US citizen also needs to declare their foreign financial investments. This is where Form 8938 comes into the picture. Taxpayers of the United States of America use Form 8938 to fulfil the FATCA obligations. The form must be submitted along with their annual tax return.
The Bank Secrecy Act of 1970 was the deciding factor behind the introduction of Foreign Bank Account Reporting or FBAR. The intention of this Act was to discourage tax evasions by foreign investments. While the Act was ignored for a very large period of time, it has caught up quite a bit in recent years. The Government’s push towards this compliance has been a major factor. Couple that with hefty penalties and more people are filing FBAR forms as compared to previous years. The IRS also has a voluntary disclosure program for individuals who might have to file FBAR.
While on the surface it might seem that both the forms are collecting exactly the same information, there are quite a few subtle differences.
FBAR form is for US persons having an interest in foreign financial accounts. Also, they must meet the specified thresholds.
Form 8938 is for specific US persons having an interest in foreign financial assets. Also, they must meet the thresholds mentioned.
- Unmarried individuals with assets worth $50,000 or more on the last day of the fiscal year or $75,000 or more during anytime in the fiscal year.
- Married individuals with assets worth $100,000 or more on the last day of the fiscal year or $150,000 or more during anytime in the fiscal year.
- Reported Materials
For FBAR, individuals need to report the maximum value of their foreign financial accounts.
For Form 8938, individuals need to report the maximum value of their foreign financial assets.
The FBAR’s threshold value is $10,000. Thus, if the total financial value of accounts exceeds $10,000 it must be reported.
The threshold value for individuals filing Form 8938 who are living outside the country are:
- Unmarried individuals with assets worth $200,000 or more on the last day of the fiscal year or $300,000 or more during anytime in the fiscal year.
- Married individuals with assets worth $400,000 or more on the last day of the fiscal year or $600,000 or more during anytime in the fiscal year.
- Where to file
FinCEN’s BSA e-filing system is how you should file your FBAR Form and it is all electronic.
Form 8938 must be filed along with your annual federal tax return.
Failing to file FABR non-willingly results in a fine of $10,000. And the penalty for willful non-filing results in a fine of $100,000 or 50% of the balance in the accounts.
Form 8938 has a penalty of $10,000 for not filing the form. The amount increases by $10,000 for every 30 days passed, to a maximum of $60,000.
You can now decide for yourself, which form you need to file when it comes to Foreign Financial Assets reporting.