February 27, 2014

Outline: Bank Account Reporting Requirements FBAR and Form 8938

Main points
Form 8938 and the FBAR are two different forms that many expats need to file to report foreign accounts.
o Form 8938 is submitted to the IRS with your US expat taxes; it is a separate reporting requirement.
If required to file Form 8938, you are also going to need to file the FBAR with US
Department of the Treasury (if your assets are in financial accounts).
However, filing the FBAR does not mean you need to send Form 8938 with your US expat
taxes.
o Form 8938 is the Statement of Specified Foreign Financial Assets and is required by the Foreign
Account Tax Compliance Act (FATCA) and must be filed with the IRS with US taxes. It is required for
certain foreign financial assets held by individuals.
As a result of FATCA, the information reported by Form 8938 is also reported by foreign
financial institutions directly to the IRS.
o FBAR is the Report of Foreign Bank and Financial Accounts. It is FinCEN Form 114 (Prior to Sept 30
2013, it was the TD F 90-22.1.) It is filed with the Treasury Department rather than the IRS.
o With overlapping but different requirements, both Form 8938 and the FBAR can leave US expats
confused or unintentionally non-compliant. They are similar, but do ask for some different
information.
o To be safe, those who meet the thresholds should have filed FBARs from 2008 onwards due to 6 year
statute of limitation and the form 8938 from 2011 onwards (when FACTA went into effect)
How to know what to file and significant differences
Depending on the specific situation, a taxpayer may need to file one or both. There are some account types that
are required to be listed on both forms.
Both Form 8938 and the FBAR are required for US citizens and resident aliens with an interest in foreign
accounts meeting assigned thresholds. Additionally, the FBAR must be completed for trusts, estates and
domestic entities that meet the reporting requirements.

For Form 8938, the taxpayer is reporting the maximum value of foreign financial assets, including financial
accounts and specified foreign non-account investment assets.

For the FBAR, the taxpayer is reporting the maximum value of financial accounts maintained by a financial
institution physically located in a foreign country (10k +)
o Bank (savings, checking or deposit) and securities accounts
o Accounts from which cash can be withdrawn regardless of its description
o Mutual funds and other funds in which the US person has an equity interest
o Bonds, stock, promissory notes are NOT reportable accounts for FBAR

Among the most significant differences between Form 8938 and the FBAR involves filing deadlines and
instructions:
o Form 8938 is filed with the taxpayers US expat tax return- the same deadlines and extensions
apply. The IRS accepts returns by the date postmarked.
February 27, 2014


o On the other hand, the FBAR is filed with the Treasury Department with a deadline of June 30th
and no extensions are allowed. The form must be received by the Treasury Department by that
date (not simply postmarked).
File Form 8938 if
A specified individual and
Have an interest in specified foreign financial assets required to be reported and
The aggregate value of specified foreign financial assets is more than the reporting thresholds that applies
to you (see table 2- for people living abroad the thresholds are higher non-joint filers its 200k on last day
or more than 300k at any time during the year. For joint filers its 400k and 600k )
The specified foreign financial assets that need to be reported on Form 8938
If required to file Form 8938, taxpayer must report financial accounts maintained by a foreign financial
institution. Examples of financial accounts include:
o Savings, deposit, checking, and brokerage accounts held with a bank or broker-dealer.
And, to the extent held for investment and not held in a financial account, specified foreign non-account
investment assets include:
o Stock or securities issued by a foreign corporation; A note, bond or debenture issued by a foreign
person;
o An interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor,
commodity swap, equity swap, equity index swap, credit default swap or similar agreement with
a foreign counterparty;
o An option or other derivative instrument with respect to any of these examples or with respect
to any currency or commodity that is entered into with a foreign counterparty or issuer;
o A partnership interest in a foreign partnership;
o An interest in a foreign retirement plan or deferred compensation plan;
o An interest in a foreign estate;
o Any interest in a foreign-issued insurance contract or annuity with a cash-surrender value.

Common concerns
An interest in a foreign pension or deferred compensation plan must be reported on Form 8938 if the
value of the specified foreign financial assets is greater than the applicable reporting threshold
Foreign stocks and securities through a foreign branch of a U.S.-based financial institution do not need
to be reported on Form 8938--If a financial account, such as a depository, custodial or retirement
account, is held through a foreign branch or foreign affiliate of a U.S.-based financial institution, the
foreign account is not a specified foreign financial asset and is not required to be reported on Form 8938.
Alsoa financial account maintained by a U.S. branch or U.S. affiliate of a foreign financial institution
does not have to be reported on Form 8938 and any specified foreign financial assets in that account also
do not have to be reported.
Precious Metals
o Directly held precious metals, such as gold, are not specified foreign financial assets and do not
need to be reported.
o Selling gold or precious metals that are held for investment to a foreign person, must be
reported. The contract with the foreign person to sell assets held for investment is a specified
foreign financial asset investment asset that has to report on Form 8938.

February 27, 2014


Other Forms
Form 8621 regarding certain passive foreign investment companies (PFICs)
Form 5471 regarding certain foreign corporations
Form 8865 regarding certain foreign partnerships
Form 8858 regarding certain foreign disregarded entities
Form 5472 regarding certain 25% foreign-owned U.S. corporations and certain foreign corporations
engaged in a U.S. trade or business
Form 926 regarding certain transfers of property to foreign corporations
Form 3520-A regarding certain foreign trusts with U.S. owners
People required to file a Form 8938 and have a specified foreign financial asset reported on Form 3520,
Form 3520-A, Form 5471, Form 8621, Form 8865, or Form 8891, they do not need to report the asset on
Form 8938. However, must identify on Part IV of Form 8938 which and how many of these form(s) report
the specified foreign financial assets.
o Even if a specified foreign financial asset is reported on a form listed above, they must still
include the value of the asset in determining whether the aggregate value of the specified
foreign financial assets is more than the applicable reporting threshold
Penalties, Compliance Notes
There are considerable penalties involved with both FATCA (requiring Form 8938) and the FBAR.
o Failing to disclose accounts via Form 8938 can result in a $10,000 fine plus an additional $10,000
for every 30 days of non-filing with a maximum penalty of $60,000.
o The requirement, part of FACTA signed into law on March 18, 2010, applies for tax years
beginning after that date (e.g., the 2011 tax return for calendar-year individual taxpayers).
o Value and currency conversion. Special rules apply in determining the value of foreign financial
assets for purposes of the reporting rules. Assets denominated in foreign currency must first be
valued in the foreign currency and then converted to U.S. dollars using the currency exchange
rate on the last day of the tax year. Note that the currency exchange rate on the last day of the
year is used to calculate both the year-end value and the maximum value of the assets during the
year.
If the FBAR non-filing is determined to be non-willful, the taxpayer can be fined up to $10,000. However,
if the non-compliance is found to be willful, the fine can be up to the greater of $100,000 or 50% of
account balance.
o The statute of limitations on unfiled FBARs is six years from when it should have been filed, i.e.,
FBARs that should have been filed for 2007 are now statute barred
o Very few, if any, U.S. expats will face significant penalties if they file FBARs for 2008 through
2013 soon
o The FBAR regulations make it clear that even if the U.S. person is not the owner of record, if the
owner of record is that persons agent or the U.S. person can control the account directly or
indirectly, the financial account is to be reported
Failure to file in either case can result in criminal penalties.
Expats have not been penalized in the past for failure to file if they did not know about the filing
requirement, but this may change.
For individuals who are behind on their tax filing or who have not previously disclosed foreign accounts,
current programs like the streamlined process and Offshore Voluntary Disclosure Program (OVDP) may
help
February 27, 2014


Table 1
Types of Foreign Assets and Whether They are Reportable
Form 8938, Statement of
Specified Foreign Financial
Assets
FinCEN Form 114, Report of
Foreign Bank and Financial
Accounts (FBAR)
Financial (deposit and custodial)
accounts held at foreign financial
institutions
Yes Yes
Financial account held at a foreign
branch of a U.S. financial
institution
No Yes
Financial account held at a U.S.
branch of a foreign financial
institution
No No
Foreign financial account for which
you have signature authority
No, unless you otherwise have an
interest in the account as
described above
Yes, subject to exceptions
Foreign stock or securities held in a
financial account at a foreign
financial institution
The account itself is subject to
reporting, but the contents of the
account do not have to be
separately reported
The account itself is subject to
reporting, but the contents of
the account do not have to be
separately reported
Foreign stock or securities not held
in a financial account
Yes No
Foreign partnership interests Yes No
Indirect interests in foreign
financial assets through an entity
No Yes, if sufficient ownership or
beneficial interest (i.e., a greater
than 50 percent interest) in the
entity. See instructions for
further detail.
Foreign mutual funds Yes Yes
Domestic mutual fund investing in
foreign stocks and securities
No No
Foreign accounts and foreign non-
account investment assets held by
foreign or domestic grantor trust
for which you are the grantor
Yes, as to both foreign accounts
and foreign non-account
investment assets
Yes, as to foreign accounts
Foreign-issued life insurance or
annuity contract with a cash-value
Yes Yes
Foreign hedge funds and foreign
private equity funds
Yes No
Foreign real estate held directly No No
Foreign real estate held through a
foreign entity
No, but the foreign entity itself is
a specified foreign financial asset
and its maximum value includes
the value of the real estate
No
Foreign currency held directly No No
Precious Metals held directly No No
Personal property, held directly,
such as art, antiques, jewelry, cars
and other collectibles
No No
Social Security- type program
benefits provided by a foreign
government
No No
February 27, 2014


Table 2
Form 8938, Statement of Specified
Foreign Financial Assets
FinCEN Form 114, Report of Foreign Bank
and Financial Accounts (FBAR)
Who Must File? Specified individuals, which include U.S
citizens, resident aliens, and certain
non-resident aliens that have an
interest in specified foreign financial
assets and meet the reporting threshold
U.S. persons, which include U.S. citizens,
resident aliens, trusts, estates, and
domestic entities that have an interest in
foreign financial accounts and meet the
reporting threshold
Does the United
States include U.S.
territories?
No Yes, resident aliens of U.S territories and
U.S. territory entities are subject to FBAR
reporting
Reporting Threshold
(Total Value of
Assets)
$50k on the last day of the tax year or
$75k at any time during the tax year
(higher threshold amounts apply to
married individuals filing jointly and
individuals living abroad $200k/300k for
individual and $400k/600k for joint)
$10,000 at any time during the calendar
year
When do you have
an interest in an
account or asset?
If any income, gains, losses, deductions,
credits, gross proceeds, or distributions
from holding or disposing of the
account or asset are or would be
required to be reported, included, or
otherwise reflected on your income tax
return
Financial interest: you are the owner of
record or holder of legal title; the owner
of record or holder of legal title is your
agent or representative; you have a
sufficient interest in the entity that is the
owner of record or holder of legal title.
Signature authority: you have authority to
control the disposition of the assets in the
account by direct communication with the
financial institution maintaining the
account.
What is Reported? Maximum value of specified foreign
financial assets, which include financial
accounts with foreign financial
institutions and certain other foreign
non-account investment assets
Maximum value of financial accounts
maintained by a financial institution
physically located in a foreign country
How are maximum
account or asset
values determined
and reported?
Fair market value in U.S. dollars in
accord with the Form 8938 instructions
for each account and asset reported
Convert to U.S. dollars using the end of
the taxable year exchange rate and
report in U.S. dollars.
Use periodic account statements to
determine the maximum value in the
currency of the account.
Convert to U.S. dollars using the end of
the calendar year exchange rate and
report in U.S. dollars.
When Due? By due date, including extension, if any,
for income tax return
Received by June 30 (no extensions of
time granted)
Where to File? File with income tax return pursuant to
instructions for filing the return
File electronically through FinCENs BSA E-
Filing System. The FBAR is not filed with a
federal tax return.
Penalties Up to $10,000 for failure to disclose and
an additional $10,000 for each 30 days
of non-filing after IRS notice of a failure
to disclose, for a potential maximum
penalty of $60,000; criminal penalties
may also apply
If non-willful, up to $10,000; if willful, up
to the greater of $100,000 or 50 percent
of account balances; criminal penalties
may also apply


February 27, 2014


Form 8938 Reporting Thresholds
Category Value of Specified Foreign Financial
Assets

On Last Day of
Year
At Any Time During
Year
Specified Taxpayer and Living in United
States
$50,000 $75,000
Married Filing Jointly & Living in
United States
$100,000 $150,000
Qualified Taxpayer Living Abroad
$200,000 $300,000
Qualified Individual Filing Joint Return
Living Abroad
$400,000 $600,000