Page 1 - Reporting Foreign Accounts on the FBAR versus Form 8938: Differences, Similarities, and Traps to Avoid
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COLUMNS I Tax Practice & Procedure
                          Reporting Foreign Accounts on the



                                       FBAR versus Form 8938


                                              Differences, Similarities, and Traps to Avoid

                                                           By Usman Mohammad


                         ecause U.S. taxpayers are required to report and pay  enacted the Foreign Account Tax Compliance Act (FATCA).
                         taxes on their worldwide income, the U.S. government  Among other things, FATCA requires foreign financial institu-
                   Bhas fought to compel taxpayers to report their interests  tions (i.e., foreign banks) and certain other nonfinancial foreign
                   in overseas bank accounts. In the 1970s, the FBAR (Report  entities to report on the foreign assets held by their U.S. account
                   of Foreign Bank and Financial Accounts) was created as part  holders or be subject to withholding on certain types of payments.
                   of the Bank Secrecy Act. The form requires the reporting of   FATCA also created a new information reporting requirement
                   a taxpayer’s foreign accounts, and its purpose is to discourage  for U.S. taxpayers with respect to their foreign assets, a require-
                   tax evasion committed through the use of unreported foreign  ment set forth in IRC section 6038D. FATCA’s information
                   accounts. Yet in 2007, UBS banker Bradley Birkenfeld disclosed  reporting requirement was implemented via new Form 8938, a
                   to the U.S. government that UBS was assisting large numbers  form that was first required to be filed in 2012 (with returns for
                   of U.S. taxpayers in evading their U.S. tax obligations through  the 2011 tax year).
                   the use of undisclosed Swiss bank accounts. The IRS thereafter
                   began scrutinizing UBS and other Swiss banks over secret Swiss  Reporting Differences between the FBAR and Form 8938
                                                                       U.S. persons with foreign accounts should be aware that
                                                                     there are numerous differences between the FBAR and Form
                                                                     8938. First and foremost are the different reporting thresholds.
                                                                     The FBAR must be filed when a U.S. person has foreign bank
                                                                     accounts with an aggregate high balance of $10,000 at any point
                                                                     during the tax year. Form 8938, by contrast, has different mone-
                                                                     tary thresholds depending upon the tax filing status and location of
                                                                     the taxpayer. An unmarried taxpayer residing in the United States
                                                                     must file Form 8938 if her specified foreign assets exceed $50,000
                                                                     on the last day of the tax year or more than $75,000 at any time
                                                                     during the tax year. Those thresholds increase to $200,000 and
                                                                     $300,000, respectively, for an unmarried taxpayer residing outside
                                                                     the United States. Married taxpayers residing in the United States
                                                                     and filing joint tax returns must file Form 8938 if their specified
                                                                     foreign assets exceed $100,000 on the last day of the tax year
                                                                     or more than $150,000 at any time during the tax year (but just
                                                                     $50,000 and $75,000, respectively, if filing separate tax returns).
                                                                     For married taxpayers residing outside the United States and filing
                                                                     joint tax returns, the Form 8938 reporting threshold is $400,000
                   accounts held by U.S. taxpayers, scrutiny that quickly spread to  in specified foreign assets on the last day of the tax year, or more
                   foreign banks located in other jurisdictions such as Israel, India,  than $600,000 at any time during the tax year (but just $200,000
                   and the Caribbean. Beginning in 2009, the United States began  and $300,000, respectively, if filing separately).
                   using a carrot-and-stick approach with U.S. taxpayers regarding   Second, the type of interest in a foreign account that will trigger
                   the issue of undisclosed foreign bank accounts. The government  an obligation to file an FBAR is different than the type of interest
                   combined criminal prosecutions by the Department of Justice  that will trigger an obligation to file Form 8938. For FBAR pur-
                   (the stick), with a formal IRS voluntary disclosure program that  poses, ownership interest in an account, power of attorney over
                   precluded criminal prosecution if a taxpayer voluntarily came  an account, or even just signature authority are each sufficient for
                   forward, disclosed his foreign accounts, and paid back taxes and  purposes of reporting the account. In addition, foreign accounts
                   a penalty based on the value of the foreign accounts (the carrot).  in which an individual has an indirect but sufficient beneficial
                     In 2010, in response to the discovery of the widespread use of  ownership interest (e.g., a greater than 50% ownership interest in
                   undisclosed foreign bank accounts by U.S. taxpayers, Congress  the entity that directly owns the foreign account) must be directly


                   58                                                            JULY/AUGUST 2020 / THE CPA JOURNAL







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          07-2020 TPP_.temp.indd   58                                                                            8/10/20   1:06 PM
          07-2020 TPP_.temp.indd   58
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