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
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