Having assets in a foreign bank account may sound very mysterious and exotic. However, it can lead to lots of confusion practically when it comes to reporting overseas assets to the IRS.
There are many similarities between the Foreign Bank and Financial Accounts Report (FBAR) and IRS Form 8938 (required under the Foreign Account Tax Compliance Act, or FATCA), which has caused even more confusion among taxpayers. There is certain information that you must report on both FBAR and Form 8938. But Form 8938 requires information that isn’t included in an FBAR, like details on other foreign financial assets and income.
Do you have a financial account at a foreign branch of a U.S. financial institution? If so, you do not need to file FATCA Form 8938, but you do need to file an FBAR. If an FFI (Foreign Financial Institution) holds the account, then you need to file both Form 8938 and an FBAR.
Who Needs to File When Reporting Overseas Assets
Resident aliens of U.S. territories and U.S. territory entities must file FBAR, but not Form 8938. Filing Form 8938 is mandatory for U.S citizens, resident aliens, and certain non-resident aliens who have an interest in certain foreign financial assets and meet the reporting threshold set by the IRS.
The filing threshold for FBAR is $10,000. If the value of your assets during a calendar year reaches $10,000 at any time, you will need to file an FBAR when reporting overseas assets.
Form 8938 has a different filing threshold. The amount of foreign assets for a tax year must be $50,000 on the last day of the tax year or reach $75,000 at any time during the tax year. These thresholds are for those filing separately. Married filing jointly and individuals living abroad have a higher filing threshold.
What You Must Report
For FBAR, you need to report if you have sufficient interest in a financial entity and/or have the authority to control the assets. You’ll need to report the maximum value of financial accounts maintained by a financial institution that is located overseas.
For FATCA Form 8938, you must report if you have any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or assets that need to be reported on your tax return. You’ll need to report the maximum value of certain specified foreign financial assets. These include financial accounts in FIIs and certain other foreign non-account investment assets.
How to Report
You can file FBAR electronically using the BSA E-Filing System. It’s important to know that you never file an FBAR with a tax return. On the other hand, you always file Form 8938 with your income tax return.
If you have any questions about reporting overseas assets, contact us and one of our tax professionals can help you ensure a correct and compliant filing.