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FBAR and Form 8938 Filing

FBAR and Form 8938 Filing

In today’s globalized world, many U.S. taxpayers hold financial assets abroad, making it essentia to understand the reporting obligations imposed by the IRS. Two of the key forms involved are the FBAR (FinCEN Form 114) and Form 8938. Both are fundamental for ensuring compliance with U.S. tax laws, but they serve different purposes and have distinct filing requirements. If you’re managing foreign financial accounts or assets, understanding these forms is vital to avoid significant penalties. Here’s a breakdown to help you successfully go through the process smoothly.

FBAR Compliance Overview

Given the diverse nationalities and global work history of our clients, many are required to file Foreign Bank and Financial Account Reports (FBARs) as part of their annual regulatory compliance. Below are key points to keep in mind about FBAR requirements:

  • Threshold: If you held any non-US account with a balance exceeding $10,000 USD at any point during the year, you must report that account along with all other foreign accounts.
  • Taxation of Earnings: While you are not taxed on the account balance itself, any interest or dividends earned must be reported on Schedule D of Form 1040. You can claim foreign taxes paid as a credit on your US tax return.
  • Joint and Controlled Accounts: Accounts jointly held or controlled, including shares, life insurance policies, and pension plans with balances over $10,000 USD, must be reported.
  • Exchange Rate Guidelines: The IRS provides flexibility with exchange rates, provided you are consistent in your reporting. Reach out to us for the approved IRS exchange rate list.
  • Trust Accounts Reporting: If your foreign account is a trust, you may also need to file Forms 3520 and/or 3520-A.
  • Cryptocurrency and Foreign Retirement Accounts: Offshore cryptocurrency holdings and foreign retirement accounts are also subject to reporting. To avoid potential IRS issues, it’s advisable to report these assets proactively.

IRS Form 8938 Compliance for Foreign Asset Reporting

In addition to the FBAR, which is filed with FinCEN, you may also need to report your foreign assets to the IRS using Form 8938. Here are key considerations:

  • Threshold: If you held a foreign account with a balance exceeding $50,000 USD at the end of the year, or over $75,000 USD at any point during the year, you are required to report it along with all other foreign accounts.
  • Variety of Account Types: This requirement applies to various account types, including brokerage accounts, interests in foreign entities, financial contracts and more. If your ownership interest in a foreign entity exceeds 10%, you may also need to file Form 5471.
  • Support for Late Filings: If you are behind on filing Form 8938 or other required disclosures, we have the expertise to help you address these delinquent filings and ensure compliance.

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