There are significant differences between the IRS form 8938 and the FBAR form. Each form is unique and must be prepared with each of their instructions in mind. The FBAR was enacted under the Bank Secrecy Act and the IRS form 8938 was enacted under the Hiring Incentives to Restore Employment Act in 2010. The FBAR is reported on FinCEN Report 114 and is a stand-alone report that is electronically filed. Form 8938 is also known as the Statement of Specified Foreign Financial Assets and is attached to the income tax return.
Who Must File the FBAR and the IRS Form 8938?
Any United States Person who has a financial interest in or signature authority over a financial account in a foreign country where the aggregate value of accounts exceeds $10,000 at any time during the calendar year must file the FBAR.
As for the form 8938, only specified individuals with an interest in specified foreign financial assets, exceeding the applicable reporting threshold must file. A specified individual is one of the following:
- A U.S. citizen.
- A resident alien of the United States for any part of the tax year (but see Reporting Period, later).
- A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return.
- A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico. See 570 for a definition of bona fide resident.
The threshold for filers who file unmarried or MFS and who live in the US is met if 1) the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or 2) $75,000 at any time during the year.
If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
For taxpayers living abroad, the thresholds are $200,000 at the end of tax year or $300,000 at any given during the year for taxpayers who single or married filing separately. For taxpayers who file a joint return and live abroad the threshold is $400,000 at the end of the year or $600,000 at any given time during the year.
What Needs to be Reported on the FBAR and IRS form 8938?
As for the FBAR, foreign financial accounts must be reported. These included, bank accounts, some types of life insurance, some types of retirement accounts, and other types of financial assets held in an account.
There are some differences with the IRS form 8938. IRS Form 8938 must include foreign financial accounts and foreign financial investment assets not held in an account, including: stocks or securities and interests in a foreign entity. Here is a helpful chart:
|Foreign Assets – Reportable?||FBAR||IRS Form 8938|
|Foreign account held at a foreign financial institution||Yes||Yes|
|Foreign account held by a foreign branch of a US financial institution||Yes||No|
|Foreign stock or securities not held in a financial account||No||Yes|
|Foreign mutual funds or similar pooled funds||Yes||Yes|
|Foreign hedge funds and foreign private equity funds||No||Yes|
|Foreign Real Estate held directly by individual||No||No|
|Foreign Real Estate held through a foreign entity||No||No (but the foreign entity itself is a specified foreign asset|
|Foreign partnership interest||No||Yes|
How Should I Calculate the Values on the FBAR and IRS form 8938?
For the FBAR, you can use periodic account statements and convert them into US dollars. If you cannot obtain the account records, document your attempts to obtain them and estimations may be acceptable.
As for the IRS form 8938, you can use fair market value and periodic account statements. The valuation is critical because the valuation determines whether the threshold is met.
Contact a Los Angeles Tax Attorney
If you have foreign financial assets, you may need to file the FBAR or form 8938. A tax attorney can help you obtain the proper guidance on how to prepare the file these forms. If you haven’t timely filed these forms, you may need relief via the streamlined filing compliance procedures or the offshore voluntary disclosure program.