U.S taxpayers are required to report and pay taxes on their worldwide income.
If you are a U.S. expat and living/working abroad, FBAR, FinCEN 114, and form 8938 will constantly circulate around your ears.
The U.S. government uses these forms to force taxpayers to declare their interests in overseas bank accounts.
These forms require taxpayers to disclose foreign accounts and foreign assets. However, taxpayers often get confused by these terms being used interchangeably.
To solve this confusion, we have explained the differences among FBAR, FinCEN 114, and form 8938 in the coming section of the article.
FBAR Vs Form 8938
The FBAR is referred to as Foreign Bank and Financial Accounts Reporting, which has been around since 1970.
It was developed by FinCEN (Financial Crimes Enforcement Network), but since 2003, it has been administered by IRS.
The FBAR is formerly a report of the foreign bank accounts, and you do it by filing FinCEN Form 114 yearly if you qualify.
However, form 8938 (FATCA) is different and more complex than FBAR.
It was formed in 2010 in response to the detection of the extensive use of undisclosed foreign bank accounts by U.S taxpayers, and Congress presented the Foreign Account Tax Compliance Act (FATCA).
It requires more deep reporting, including charges and the assets beyond it, such as stock ownership.
Similarities Between FBAR and Form 8938:
The FBAR and Form 8938 share many similarities despite the distinctions:
- The FBAR and Form 8938 employ the same valuation principles.
- The taxpayer must specify the “maximum” value in each reported overseas account for the calendar year based on periodic declarations in both the FBAR and Form 8938.
- Both forms demand that the maximum value is recorded in U.S. dollars and that those values should be converted to U.S. dollars using end-of-year calendar exchange rates.
- The value attributed to reported overseas accounts should be equal on both forms.
Differences Between FinCEN114 and FBAR
FinCEN is simply the Treasury Department’s Financial Crimes Enforcement Network, and it is the organization that enforces FBAR compliance.
It is commonly known as an FBAR. Fincen is a form, and when we file, we say it is Fbar.
There is no difference between FinCEN and FBAR. Fincen114 is a form, and filling this form is a reporting process known as FBAR.
Differences Between FBAR and Form 8938
Reporting Thresholds:
Americans owning foreign accounts should be mindful that Form 8938 and the FBAR differ in various respects.
The following reporting thresholds are the primary.
For a U.S. citizen who has foreign financial accounts with a combined high balance of $10,000 or more during the tax year, he must file FBAR.
Contrarily, the economic thresholds for Form 8938 vary depending on the taxpayer’s location and tax filing status.
If an unmarried taxpayer’s specified overseas assets aggregate more than $50,000 on the last day of the tax year or more than $75,000 at any point during the tax year, she must submit Form 8938.
For an unmarried taxpayer residing outside of the US, those thresholds rise to $200,000 and $300,000.
If the given foreign assets of a married taxpayer living in the United States and reporting a mutual tax return total more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year (but only $50,000 and $75,000, respectively, if filing completely separate tax returns), the taxpayer is required to file Form 8938.
The Form 8938 reporting threshold is $400,000 in specified foreign assets on the last day of the tax year or more than $600,000 at any period during the tax year for married taxpayers filing joint tax returns and living outside the United States (but only $200,000 and $300,000, respectively, if filing separately).
Foreign Interest Differences
The kind of interest in a foreign account that necessitates filing a Form 8938 is distinct from the type of interest that requires filing an FBAR.
Ownership interest in a statement, power of attorney over an account, or even merely signing authority are all adequate justifications for reporting an account for FBAR reasons.
A person’s FBAR must also immediately record any overseas version with an indirect but significant beneficial ownership interest (for instance, a stake larger than 50% in the company that directly owns the foreign account).
Contrarily, only overseas accounts in which the taxpayer has a direct ownership interest must be reported for Form 8938.
Form 8938 is not required to be filled out for accounts where the taxpayer only has the power of attorney or signing authority.
Additionally, Form 8938 is not required to be filled out if the taxpayer has an indirect interest in the accounts (e.g., an entity).
Filing Deadlines & Procedures
Both FBAR and form 8938 have different deadlines.
The FBAR is to be submitted by April 15 (a 6-month automatic extension on Oct 15), while Form 8938 is attached to the annual return and is presented on the return date, including any applicable attachments.
FBAR is not filed with a federal tax return, and it is filed electronically through FinCEN, while Form 8938 is filed with the income tax return according to instructions for filing the return.
Penalties Differences
Both the FBAR and Form 8938 have different penalties.
The penalties for filing Form 8938 late or not at all can still be severe. They are not as severe as those for the FBAR.
This depends on how long the non-compliance has continued.
According to the IRS, if you submit the proper Form 8938 late or underreport your tax on a designated foreign financial asset that you failed to disclose, you may be liable for penalties.
If you fail to file an FBAR timely or non-wilfully, a $10,000 fine is applied.
If wilfully, the amount is more significant than $10,000 or 50 percent of account balances; even criminal penalties may be charged too.
Contrarily, for the failure to file Form 8938, up to $10,000 is set for the failure to disclose and then again, an additional $10,000 for every 30 days of non-filling after IRS notice of failure to disclose.
The maximum penalty is still $60,000. Criminal penalties can also be applied.
Purpose Differences
There are significant discrepancies between what counts as a “foreign” account for the FBAR and Form 8938.
An account located in a U.S. territory or possession is considered a U.S. account for FBAR reporting requirements and is not required.
However, an account in a U.S. territory or possession is regarded as a foreign account for Form 8938 and must be declared.
A financial account held at a foreign branch of a U.S. financial institution is another instance of how the two differ (e.g., a Chase account at a branch in London).
Such an account is deemed foreign for FBAR reasons and is subject to reporting.
However, Form 8938 does not regard a similar account as foreign, and it does not need to be informed on that form.
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