FBAR and Form 8938: Reporting Foreign Accounts to the US

Which reports might I have to file?

Two different reports, sent to two different places. The FBAR (FinCEN Form 114) goes to FinCEN, a Treasury bureau, on its own. Form 8938 goes to the IRS inside your income tax return. Filing one does not replace the other, and you may have to file both (IRS comparison).

Who counts as a US person?

For the FBAR, a US person is a US citizen, a US resident, or an entity formed under US law (31 CFR 1010.350). Children count too; a parent files for a child who cannot (FBAR instructions). A resident is someone who meets the income tax residency tests, such as holding a green card or meeting the substantial presence test (a count of your days in the US over the current year and the two before). For the FBAR, days in US territories count as days in the US (IRS Publication 5569). Choosing to file a joint return with a US spouse does not by itself make a nonresident a US person for the FBAR, though it can bring them under Form 8938 (FinCEN final rule). Entities include corporations, partnerships, LLCs, trusts and estates. A single-member LLC that is ignored for income tax still files its own FBAR (FBAR instructions).

For Form 8938, the filer is a "specified individual" (Form 8938 instructions):

• A US citizen.
• A resident alien for any part of the tax year.
• A nonresident alien who chooses to be treated as a resident to file a joint return.
• A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico.

If you do not have to file an income tax return for the year, you do not file Form 8938, whatever your assets are worth. The FBAR does not depend on a tax return: it can be due even if you file none (IRS comparison). If you were a US resident for only part of the year, Form 8938 covers only that part. A dual resident (someone both the US and another country treat as a resident) who files as a nonresident under a tax treaty, with a timely Form 1040-NR and Form 8833 (the form that discloses a treaty position), does not report on Form 8938 for the part of the year that position covers. The FBAR has no such rule: tax treaties do not affect FBAR filing (IRS Publication 5569).

When must I file an FBAR?

You must file if you had a financial interest in, or signature authority over, at least one financial account outside the US, and the highest values of those accounts during the calendar year, added together, were more than $10,000. Each account's peak counts, even if the peaks fell on different days (FinCEN; FBAR instructions).

How do I add up the accounts?

Find each account's highest value during the year. Convert each to US dollars at the Treasury's exchange rate for the last day of the year. Add them. If the total is over the threshold, report every account, even the small ones (FBAR instructions). A joint account counts at its full value for each US owner, whoever the co-owner is (IRS Publication 5569).

What counts as a foreign financial account?

• Bank accounts: checking, savings, time deposits.
• Brokerage and securities accounts.
• Mutual funds and similar pooled funds open to the public.
• Life insurance or annuity policies with a cash value.
• Commodity futures or options accounts.
• Foreign retirement and pension accounts, such as a Canadian RRSP or a Mexican AFORE (IRS Publication 5569). The IRA and plan exceptions below cover only US plans (31 CFR 1010.350).

The account's location decides it, not the bank's home country. A US bank's branch abroad is a foreign account. A foreign bank's branch in the US is not. Accounts in US territories, such as Puerto Rico and Guam, are not foreign for the FBAR (IRS Publication 5569). Whether the account earned taxable income does not matter (IRS).

A foreign account that holds only virtual currency is not reportable for now. FinCEN has said it intends to change that rule (FinCEN Notice 2020-2). The notice covers only the FBAR, not Form 8938.

What is a financial interest, and what is signature authority?

You have a financial interest if you are an owner of the account, alone or jointly. You also have one if the owner is your agent or nominee, certain trusts, or a corporation, partnership or other entity you own more than 50% of (31 CFR 1010.350).

You have signature authority if you can move the money by instructing the bank directly, alone or with someone else. A relative's, employer's or client's account you can sign on can count, including a power of attorney over a parent's account, even if you never use it (IRS Publication 5569). Officers and employees with no financial interest in an account need not report their employer's account if the employer is a bank or financial firm examined by US regulators, or has shares listed on a US stock exchange or registered with the SEC. A foreign regulator or a foreign-only listing does not qualify (31 CFR 1010.350).

What does not need to be reported?

These accounts need not be reported (IRS; 31 CFR 1010.350):

• Accounts held inside a US IRA you own or inherit.
• Accounts held by a US tax-qualified retirement plan you participate in.
• A trust's accounts, if you are a beneficiary and a US trustee reports them.
• An account at a US military banking facility, even one on a base abroad.

Spouses: if all of your accounts are held jointly with your spouse, your spouse can report them on one FBAR, with both of you signing Form 114a. Otherwise each spouse files and reports the full value of joint accounts. Filing jointly on your tax return does not change this (IRS).

How and when is it filed?

File online through FinCEN's BSA E-Filing System. Individuals do not need to register. A tax preparer can file for you once you sign Form 114a, which you keep rather than send (IRS).

The FBAR is due April 15 after the calendar year, with an automatic extension to October 15. You do not need to ask for it. If the date falls on a weekend or holiday, the next business day counts (FinCEN notice). FinCEN sometimes extends the date further after disasters.

Keep records for 5 years from the due date: the name on each account, the account number, the bank's name and address, the account type and its highest value (IRS).

What if the account belongs to my business?

It still counts. A sole proprietor's business account is yours. If your US LLC or corporation holds the account, the company may have to file its own FBAR under the same test, and you have a financial interest too if you own more than 50% of it (31 CFR 1010.350).

When must I file Form 8938?

You file it with your tax return if the total value of your specified foreign financial assets is more than either threshold for your situation (Form 8938 instructions).

You count as living abroad if your tax home is in a foreign country and either:

• you are a US citizen who has been a bona fide resident of another country for an uninterrupted period that includes a full tax year, or
• you were in a foreign country or countries for at least 330 full days in any 12-month period ending in the tax year (Form 8938 instructions).

What counts as a specified foreign financial asset?

• Financial accounts at foreign financial institutions, including foreign retirement and pension accounts.
• Accounts at financial institutions organized under the law of a US territory, such as Puerto Rico, unless you are a bona fide resident of that territory (Form 8938 instructions).
• If held for investment and not in an account: foreign stock and securities, interests in foreign partnerships and other foreign entities, bonds or notes from foreign issuers, interests in foreign trusts or estates, and contracts with a foreign counterparty.

Not included: accounts at US financial institutions (even their foreign branches), foreign real estate you own directly, foreign currency or precious metals you hold directly, personal items like art, jewelry and cars, and foreign government social security benefits (IRS comparison). Investments inside a reported account are not listed separately.

Value each asset at fair market value and convert at the Treasury's year-end exchange rate. A joint return counts a jointly owned asset once. If spouses file separately and both are specified individuals, each counts half. If you own an asset with someone other than your spouse, or with a spouse who is not a specified individual, count its full value. You have an interest in assets held by an LLC that is ignored for tax, but generally not in assets of a corporation or partnership you own (Form 8938 instructions).

What does the Schedule B foreign account question ask?

If you had a financial interest in or signature authority over a foreign account in the year, you file Schedule B with your Form 1040 and answer Part III (Schedule B instructions):

• Line 7a, question 1: did you have a financial interest in or signature authority over a foreign account at any time? Answer yes even if you are under the FBAR threshold or a signature-authority exception applies.
• Line 7a, question 2: must you file an FBAR?
• Line 7b: if so, name the countries.
• Line 8: did you receive a distribution from, create, or transfer property to a foreign trust?

What other forms often come with foreign accounts?

• Form 3520: you received more than $100,000 in gifts or inheritances from a nonresident alien or foreign estate (gifts from related people are combined), or you transferred property to, own, or received a distribution from a foreign trust. It is filed separately from your return, by your return's due date including extensions. Canadian RRSPs and RRIFs, and some tax-favored foreign retirement trusts, are exempt from Form 3520; that exemption does not change other reports, such as the FBAR and Form 8938 (Form 3520 instructions).
• Form 3520-A: if you own a foreign trust under the grantor trust rules, make sure the trust files it by the 15th day of the 3rd month after its year ends, or attach a substitute to your Form 3520. Otherwise you can face a penalty of the greater of $10,000 or 5% of the trust assets you are treated as owning (Form 3520 instructions).
• Form 5471: you are a US officer, director or shareholder of certain foreign corporations (Form 5471 instructions).
• Form 8621: you own shares of a passive foreign investment company (PFIC), a foreign corporation that meets a passive income test or a passive asset test. Owning PFIC shares generally means filing a Form 8621 each year, one per company, unless a small-holding exception applies. Distributions, sales and elections add more to report (Form 8621 instructions).

An asset reported on a timely filed Form 3520, 3520-A, 5471, 8621 or 8865 (foreign partnerships) is not repeated on Form 8938. It still counts toward your threshold, and you list those forms in Form 8938 Part IV (Form 8938 instructions).

What are the penalties?

Both reports carry civil penalties, and criminal penalties can apply.

Which FBAR tier applies depends on the facts. The IRS treats a failure as willful if you knew of the duty, recklessly ignored it, or deliberately avoided learning of it, and it counts a wrong or blank Schedule B answer as a significant fact (IRM 4.26.16). Non-willful means negligence, mistake or a good-faith misunderstanding of the law (IRS).

FBAR maximums are adjusted for inflation (31 CFR 1010.821; 31 U.S.C. 5321):

• Non-willful: up to $16,536. The Supreme Court held that this maximum applies per report, not per account (Bittner v. United States). The penalty should not apply if the failure was due to reasonable cause and you file accurate late or amended FBARs. Whether a reason counts depends on the facts (IRM 4.26.16).
• Willful: up to the greater of $165,353 or 50% of the account balance at the time of the violation.

Form 8938 (Form 8938 instructions):

• $10,000 for not filing a complete, correct form on time.
• If you still have not filed 90 days after an IRS notice, another $10,000 for each 30 days, up to $50,000 more.
• A 40% penalty on tax underpaid because of an undisclosed asset.
• The IRS can assess more tax for that year until 3 years after you file the missing form.
• If you leave out more than $5,000 of income from foreign financial assets, the IRS has 6 years to assess tax for that year, even if you were under the Form 8938 threshold.

Reasonable cause can excuse a Form 8938 penalty. A foreign law that punishes disclosure does not count as reasonable cause.

What if I missed past years?

If the IRS has not contacted you and you are not under investigation, the IRS says to file late FBARs as soon as possible, with an explanation of why they are late. It also offers compliance programs for people who missed returns and forms (IRS). Which route fits depends on whether income from the accounts went unreported and whether the failure was willful (IRS options). See catching up on missed US returns.

Example

An illustrative US citizen lives in the US, files single, and has two bank accounts in one foreign country. Figures are in US dollars, converted at the Treasury's year-end rate. Their balances during the year were:

• FBAR: the highest balances add up to $13,000, more than $10,000. They file one FBAR listing both accounts by April 15, or by October 15 under the automatic extension.
• Form 8938: $9,000 at year end is not more than $50,000, and $13,000 is not more than $75,000. No Form 8938.
• Schedule B: they answer yes to both line 7a questions and name the country on line 7b.

If the two highest balances had added up to exactly $10,000, no FBAR would be due. The test is "more than."

Different for you?

• You are a US citizen living in Canada: see Americans living in Canada.
• You hold an RRSP, RRIF, TFSA or RESP: see Canadian registered accounts on a US return.
• You missed FBARs or returns: see catching up on missed US returns.
• You are a Canadian who spends winters in the US and may count as a US resident: see snowbirds and US residency.
• You live in Canada and hold property outside Canada: see foreign property and affiliate reporting.
• You are a foreign owner of a US LLC with a bank account abroad: see filing for a foreign-owned single-member LLC.
• You own part of a foreign company or foreign funds: cross-border tax.