FinCEN Form 114 – Report of Foreign Bank and Financial Accounts (FBAR)
Form 114 (FBAR) is used to report a financial interest in a foreign financial account, or signature authority over a foreign financial account. A United States person including a citizen, resident, corporation, partnership, LLC, trust and estate are required to file this form if the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year. The FBAR is an annual return that is due on April 15th of the following calendar year, with an automatic extension to October 15th if not filed in April. Records must be kept for each account that requires an FBAR, such as:
- Name on the account
- Account number
- Name and address of the foreign bank
- Type of account (bank, brokerage, mutual funds, life insurance, etc.)
- Maximum value during the year
The above records (such as bank statements) should be kept for at least 5 years from the filing of the FBAR. Filing an FBAR late or not at all could mean you may be subject to penalties. Please see the filing requirements and additional FBAR information here: FBAR Information and filing requirements
Form 8938 – Statement of Specified Foreign Financial Assets
Individual taxpayers and specified domestic entities with significant foreign financial assets might find that not only are they subject to the FBAR filing requirements, but more intensive reporting as well. The Form 8938, the Statement of Specified Foreign Financial Assets, is for owners of certain foreign assets who have $150,000 in foreign assets at any point in the tax year, or more than $100,000 at the end of the year if married filing joint, with halved requirements if unmarried, filing separately, or a specified domestic entity. The thresholds are increased 4x if you live outside of the United States. A specified domestic entity is one of the following:
- Closely-Held Domestic Corp with at least 50% of Gross Income is Passive, or at least 50% of assets produce passive income
- Closely-Held Domestic Partnerships with similar percentages
- Domestic Trust that has specified persons as current beneficiaries
Passive Income includes the following:
- Rents & royalties
- Other income
Note that ownership in foreign assets is considered even if owned indirectly, and all foreign assets must be converted into U.S. Dollar amounts for the calculation of any thresholds.
Unlike the FBAR, the Form 8938 is part of your individual income tax return and is due on the same day (including extensions). If you do not normally need to file an income tax return for the year, you are released from the Form 8938 filing requirement, even if your foreign assets are above the threshold.
Note: The reporting for Form 8938 requirements is separate from the reporting requirement for the FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) (formerly TD F 90-22.1). An individual may have to file both forms and separate penalties may apply for failure to file each form. Please see the filing requirement comparison between the Form 8938 and the Form 114 FBAR here: https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirement.
The Foreign Account Tax Compliance Act (FATCA) requires that foreign financial institutions (FFIs) and some non-financial foreign entities (NFFEs) report on the foreign assets held by their U.S. account holders. The goal of FATCA is to ensure tax compliance and prevent tax evasion abroad. Failure to comply with FATCA requirements can result in withholding requirements of up to 30% of certain payments.
Because FATCA applies to both U.S. residents and citizens, it is a leading consideration in foreign residents with dual citizenship renouncing their U.S. citizenship.
Examples of “specified foreign financial assets” include:
- Financial accounts (deposit and custodial) held at foreign financial institutions;
- Foreign stock or securities held in a financial account;
- Foreign partnership interests;
- Foreign mutual funds;
- Foreign issued life insurance or annuity contract with a cash value; and
- Foreign hedge funds and foreign private equity funds.
Even with the passage of the 2017 Tax Cuts and Jobs Act (TCJA) changing much of the current tax regime, there are still new proposals from the IRS and Congress for changing the regulatory requirements under FATCA. Please contact us with any questions you might have regarding your foreign asset filing requirements and we would be happy to set up a time to discuss your situation.
IRS summary on FACTA for US taxpayers: https://www.irs.gov/businesses/corporations/summary-of-fatca-reporting-for-us-taxpayers
2019 Form 8938 instructions https://www.irs.gov/instructions/i8938