WHO must file 8938/FBAR, WHAT are the minimum reporting thresholds and PENALTIES for noncompliance
First, let’s recall the difference between these two filings – highlighted by the fact 8938 is included in a 1040 return whereas FBAR is not a tax reporting and is separately directly e-filed with Treasury online. Yes, there is a Y/N FBAR compliance question on Schedule B of the 1040, but think of that as a big-brother Y/N question as to whether or not you’ve been paying parking tickets or changing the oil in your car, just that Treasury doesn’t care about those.
Form 8938 requests greater detail and serves a different purpose than the FBAR. The purpose of Form 8938 is to facilitate compliance with an internal revenue law (FATCA) and can be compared to IRS checking your 1040 for completeness against payroll W-2 slips and other income 1099 slips.
The Form 8938 was designed to aid in tax administration, while the FBAR was designed to aid in law enforcement. The purpose of the FBAR is compliance with the Bank Secrecy Act, is not part of the tax return, and is not considered confidential tax return information. FBARs can be and are shared among governmental agencies and are used primarily by the Treasury Department's Financial Crimes Enforcement Network to track and combat international money laundering. Form 8938 is designed to be used by the Internal Revenue Service for combating international tax evasion.
Also, Form 8938 requests information about foreign assets, which includes foreign accounts that hold assets, while the FBAR requests information only about foreign accounts. Taxpayers who have a requirement to file Form 8938 probably also have an obligation to report substantially the same information on the FBAR, which is filed separately with the Treasury Department.
Who Must File Form 8938, Statement of Specified Foreign Financial Assets?
Specified individuals and specified domestic entities that have an interest in specified foreign financial assets and meet the reporting threshold. Specified individuals include U.S citizens, resident aliens, and certain non-resident aliens. Specified domestic entities include certain domestic corporations, partnerships, and trusts.
Who Must File FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)?
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.
8938 Reporting Threshold (Total Value of Assets)
Specified individuals living in the US:
Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.
Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.
Specified individuals living outside the US:
Unmarried individual (or married filing separately): Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.
If you jointly own an asset with someone else, the value that you use to determine the total value of all of your specified foreign financial assets depends on whether the other owner is your spouse and, if so, whether your spouse is a specified individual and whether you file a joint or separate return.
For joint ownership with a spouse who is not a specified individual, one includes the entire value of the jointly owned asset to determine the total value of all of that joint owner's specified foreign financial assets.
One is a specified individual if the person is one of the following: a U.S. citizen, a resident alien of the United States for any part of the tax year, 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.
Married individual filing jointly: Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year.
Specified domestic entities: Total value of assets was more than $50,000 on the last day of the tax year, or more than $50,000 at any time during the tax year.
FBAR Reporting Threshold (Total Value of Assets)
Aggregate value of financial accounts exceeds $10,000 at any time during the calendar year. This is a cumulative balance, meaning if you have 2 accounts with a combined account balance greater than $10,000 at any one time, both accounts would have to be reported.
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
Civil monetary penalties are adjusted annually for inflation. For civil penalty assessment prior to Aug 1, 2016, 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