U.S. taxpayers with financial assets overseas are subject to specific IRS and Treasury Department reporting requirements. Two of the most critical forms in this context are Form 8938 and FBAR (Foreign Bank Account Report), officially known as FinCEN Form 114. Though both are used to report foreign financial accounts, they serve different purposes, are filed with different agencies, and have separate thresholds, asset definitions, and penalties. This blog provides a comprehensive comparison between Form 8938 and FBAR to help taxpayers understand when and why each is required.
Understanding Form 8938
Form 8938 is a tax form used to report specified foreign financial assets under the Foreign Account Tax Compliance Act (FATCA). It was introduced in 2011 to combat tax evasion through foreign accounts and assets. The form must be filed with the IRS as part of a taxpayer’s annual federal tax return (Form 1040).
Form 8938 requires disclosure of various foreign assets, not just financial accounts. These include foreign stocks, mutual funds, partnerships, trusts, and certain financial instruments — even if they do not generate any income during the year.
Understanding FBAR (FinCEN Form 114)
FBAR is a separate reporting requirement, governed by the Bank Secrecy Act (not the Internal Revenue Code). It is designed to detect and deter tax evasion by requiring U.S. persons to report foreign financial accounts if their aggregate value exceeds a certain threshold. The form is filed electronically with the Financial Crimes Enforcement Network (FinCEN), not the IRS.
Unlike Form 8938, FBAR is focused solely on foreign financial accounts, such as bank, brokerage, and mutual fund accounts held overseas. It does not include ownership in foreign companies or financial instruments unless those holdings are within reportable accounts.
Comparison Table: Form 8938 vs. FBAR
| Aspect | Form 8938 (FATCA) | FBAR (FinCEN Form 114) |
|---|---|---|
| Governing Authority | IRS (Internal Revenue Code) | FinCEN (Bank Secrecy Act) |
| Filing Method | Attached to IRS Form 1040 | Electronically via BSA e-Filing System |
| Who Must File | Specified individuals and certain domestic entities | U.S. persons (individuals, corporations, partnerships, trusts, estates) |
| Filing Thresholds |
Living in U.S.: – $50,000 (S/MFS year-end), $75,000 max during year – $100,000 (MFJ year-end), $150,000 max during year Living Abroad: – $200,000 (S/MFS year-end), $300,000 max – $400,000 (MFJ year-end), $600,000 max |
Aggregate value of accounts exceeds $10,000 at any time during the calendar year |
| Types of Assets Reported | Broad: financial accounts, foreign stocks, mutual funds, interests in partnerships/trusts | Only foreign financial accounts (e.g., bank, brokerage) |
| Valuation Requirement | Reasonable fair market value in U.S. dollars | Maximum account value during the year in U.S. dollars |
| Due Date | With tax return (April 15 or extended to October 15) | April 15 (automatic extension to October 15) |
| Penalty for Non-Filing |
$10,000 per failure Up to $50,000 for continued non-filing 40% penalty on underreported income |
$10,000 for non-willful violations Greater of $100,000 or 50% of account balance for willful violations |
Key Differences Explained
1. Reporting Thresholds
The threshold for FBAR filing is significantly lower than that of Form 8938. If your total foreign account balances exceed $10,000 at any time in the year, you must file FBAR. In contrast, Form 8938 applies only when your specified foreign financial assets exceed thresholds ranging from $50,000 to $600,000 depending on your filing status and residency.
2. Scope of Assets
Form 8938 requires reporting of a broader range of assets, including foreign stocks and financial instruments held outside financial accounts. FBAR only requires reporting of foreign accounts. For example, if you own shares in a foreign corporation not held in a financial account, it is reportable on Form 8938 but not on FBAR.
3. Filing Authority and Method
Form 8938 is filed with your tax return to the IRS, while FBAR is submitted separately to FinCEN using the BSA e-Filing System. Missing one does not excuse you from the other.
4. Penalties
Both forms carry severe penalties. However, FBAR penalties can be particularly harsh for willful violations — reaching up to 50% of the account balance or $100,000 per violation. Form 8938 penalties are also steep but differ based on whether underreported income is involved.
When Are Both Required?
Many taxpayers must file both Form 8938 and FBAR. If you own foreign bank accounts exceeding $10,000 in total, and the value of all your specified foreign financial assets also exceeds the Form 8938 threshold, you must file both forms. However, the information and reporting format are different for each, so duplication is not a substitute.
For example:
- If you have $15,000 in a foreign checking account and $60,000 in foreign mutual funds held in a brokerage account, you’ll likely need to file both FBAR and Form 8938.
- If you only own $20,000 in foreign partnership interests held outside of any financial account, you might only need to file Form 8938 — not FBAR.
Common Mistakes to Avoid
- Assuming FBAR and Form 8938 are interchangeable
- Missing FBAR due to lower threshold
- Reporting assets on one form but not the other when both are required
- Failing to convert foreign currency values into U.S. dollars
- Overlooking foreign pension plans or life insurance policies with cash value
How to Ensure Compliance
Given the complexity of foreign asset reporting and the risk of penalties, it’s advisable to:
- Maintain organized records of all foreign accounts and assets
- Convert all amounts into U.S. dollars using the IRS’s yearly exchange rates
- File both FBAR and Form 8938 if required — don’t assume one covers the other
- Consult a tax professional, especially if you have foreign trusts, partnerships, or complex investment structures
Conclusion
Form 8938 and FBAR are two essential tools used by U.S. authorities to ensure transparency and compliance regarding foreign financial assets. While they may appear similar at first glance, each has distinct reporting criteria, asset scopes, thresholds, and penalties. U.S. taxpayers with overseas financial interests must understand the requirements of both and comply with the appropriate filings to avoid substantial penalties and potential legal consequences. When in doubt, always seek guidance from a qualified international tax expert to ensure full compliance and peace of mind.
