If you are a tax professional, you know that international tax compliance is no longer a niche concern but a mainstream issue that can affect clients from all walks of life. Whether your clients are U.S. citizens living abroad, recent immigrants or simply individuals with global investments, understanding the rules around foreign financial asset reporting is essential. Two forms stand at the center of this compliance landscape: the FBAR (FinCEN Form 114) and IRS Form 8938.

If you’re not fully up to speed with these requirements, you could be putting your clients and your practice at risk. All tax professionals should understand the difference and the overlap between these two forms; this knowledge is crucial for proper filings and compliance.

What is FinCEN and the FBAR (Form 114)?

The FBAR, short for Foreign Bank and Financial Accounts Report, is filed on Form 114, not with the IRS, but with the Financial Crime Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department.

The purpose of the FBAR is to require U.S. persons to report their financial interest in, or signature authority over, foreign financial accounts if the aggregate value of those accounts exceeds $10,000 at any time during the calendar year. This includes not just bank accounts, but also brokerage accounts, mutual funds and even certain foreign retirement accounts.

Who needs to file?

The definition of a “U.S. person” is broad. It includes U.S. citizens, residents, trusts, estates and domestic entities like corporations, partnerships and LLCs. If any of these have a financial interest in or signature authority over foreign accounts that cross the $10,000 threshold, an FBAR filing is required.

What is IRS Form 8938?

Form 8938, Statement of Specified Foreign Financial Assets, is an IRS form that was introduced as part of the Foreign Account Tax Compliance Act (FATCA). Unlike the FBAR, Form 8938 is filed as part of your client’s annual federal income tax return.

Form 8938 requires U.S. taxpayers to report specified foreign financial assets if the total value exceeds certain thresholds. These thresholds are higher than those for the FBAR and vary depending on the taxpayer’s filing status and whether they live in the U.S. or abroad.

For example:

• Single filers living in the U.S. must file if the total value of a specified foreign financial asset is more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.
• Thresholds for married couples filing jointly double to $100,000 at year-end, or $150,000 at any time.
• There are higher thresholds for taxpayers living abroad:
  • Single or married filing separately – Must file if total specified foreign assets exceed $200,000 on the last day of the tax year, or $300,000 at any time during the year.
  • Married filing jointly – Must file if total specified foreign assets exceed $400,000 on the last day of the tax year, or $600,000 at any time during the year.

Form 8938 covers a wide range of assets, including foreign bank accounts, stocks, securities, partnership interests and certain foreign-issued life insurance policies. While there is overlap with the FBAR, Form 8938 also requires reporting of assets that may not be covered by the FBAR.

How do the FBAR and Form 8938 work together?

It’s common for taxpayers to be confused about whether they need to file one form, both or neither. Both the FBAR (FinCEN Form 114) and Form 8938 are used to report foreign financial accounts, but they serve different purposes and are filed with different agencies:

- Different agencies: The FBAR is filed with FinCEN versus Form 8938, which is filed with the IRS.

- Different thresholds: The FBAR’s threshold is $10,000; Form 8938’s are higher and vary by filing status and residency.

- Different assets: There is overlap, but Form 8938 covers more asset types, including certain foreign stocks and securities not held in a financial account.

- Different deadlines: The FBAR is due April 15 (with an automatic extension to Oct. 15); Form 8938 is due with the taxpayer’s annual tax return, including extensions.

Each form has different definitions, thresholds and penalties, so compliance with one may not satisfy the requirement of the other.

FBAR vs. Form 8938: What is the difference between these two?

Feature	FBAR (FinCEN Form 114)	IRS Form 8938
Filed with	FinCEN (Treasury)	IRS (with tax return)
Filing threshold	$10,000 aggregate	Varies by filing status and residency
Types of assets	Foreign bank and financial accounts	Accounts, stock, foreign entities, pensions
Who files	U.S. persons with foreign assets	Individuals meeting asset thresholds
Filing method	BSA e-filing portal	Attached to tax return

NOTE: In some cases, a taxpayer may need to file both forms, while in others, only one form may be required. Knowing these distinctions helps avoid errors and the penalties that may follow.

Don’t wait until there is a problem

The IRS continues to ramp up enforcement of foreign reporting compliance. FATCA-related information-sharing agreements between the U.S. and foreign jurisdictions, along with domestic reporting tools like Form 8938, make it easier than ever for the IRS to discover unreported assets. If your clients are behind on FBAR or Form 8938 filings, time is not on their side.

Example

Aracely is a U.S. citizen who lives in Los Angeles, CA. Her filing status is single. Aracely works for a multinational company and travels frequently. She also lived in Colombia for a few years. She now resides in the United States and holds the following foreign financial assets:

• A bank account in Medellin, Colombia, with a year-end balance of $6,500 (but the balance peaked at $12,000 in September)
• A brokerage account in Spain with various foreign mutual funds, worth $60,000 on Dec. 31 of the current year
• A small investment in Guatemala as a Sociedad Anonima LLC (non-U.S. entity), valued at $15,000
  Aracely’s combined foreign account balances exceeded $10,000 during the year (Medellin bank account + Spain brokerage account = $70,000 total at peak).

Is Aracely required to file the FBAR with FinCEN? Yes, she must file the FBAR to report both accounts.

Aracely is single and lives in Los Angeles, CA, so the Form 8938 reporting threshold is $50,000 at year-end, or $75,000 at any time. Let’s figure out if she needs this form:

• Her foreign brokerage account ($60,000 at year-end)
• Her Guatemalan LLC (partnership interest) $15,000
• Total is $75,000 at year-end

We now know Aracely must file Form 8938 because she holds a brokerage account in Spain and a partnership interest (Sociedad Anonima) in Guatemala. She may also need to report the bank account in Medellin, depending on how that account is classified. In practice, many tax professionals would include it on the form to be cautious.

Asset	FBAR required?	Form 8938 required?
Medellin bank account	Yes	Probably
Spain brokerage (mutual funds)	Yes	Yes
Guatemala partnership interest	No (not a bank account)	Yes

Consequences of noncompliance

The IRS and FinCEN take foreign asset reporting seriously. Failing to file either the FBAR or Form 8938 can result in steep penalties even if the omission was unintentional.

FBAR penalties: Non-willful violations can result in penalties of up to $10,000 per violation. Willful violations are much more severe, with penalties of the greater of $100,000 or 50% of the account balance per year. Criminal penalties are also possible in cases of intentional noncompliance.

Form 8938 penalties: Failure to file can result in a $10,000 penalty, with an additional $10,000 for each 30-day period of continued noncompliance after IRS notification, up to a maximum of $50,000. Understatements of income related to undisclosed foreign assets can trigger a 40% accuracy-related penalty.

The statute of limitations for assessment of tax related to unreported foreign assets is extended to six years, and in some cases, there is no statute of limitations at all. This means the IRS can pursue noncompliance long after the original due date, sometimes even beyond six years.

Common pitfalls and how to avoid them

Many clients don’t realize they have a filing obligation. This is especially true for:

• U.S. citizens living abroad who maintain local bank accounts
• Recent immigrants who retain accounts in their home countries (green card holders)
• U.S. residents who inherit foreign assets (generally cash, business assets, pensions)
• Individuals investing in foreign mutual funds or retirement plans

With the IRS ramping up enforcement and the rules surrounding foreign asset reporting growing more complex, it’s more important than ever for tax professionals to stay informed. Our upcoming webinar will give you the high-level overview you need to confidently advise clients, avoid costly mistakes and stay compliant.

Here is what you will learn:

• The basics of the FBAR and Form 8938, what they are, and who needs to file
• How to determine which clients are at risk and how to ask the right questions
• The differences and overlaps between the FBAR and Form 8938
• The consequences of noncompliance, including financial penalties and the extended statute of limitations
• How FinCEN and the IRS work together on enforcement
• Real-world examples and practical tips for guiding clients through the process

Final thoughts

Don’t let your clients face the risks of noncompliance alone. Equip yourself with the knowledge and tools you need to guide them through the maze of foreign asset reporting. Register now for our Foreign Financial Asset Reporting with FBAR and Form 8938 webinar and take your practice to the next level. Your clients and your reputation depend on it.

The One Big Beautiful Bill Act (OBBBA), signed into law earlier this year, brings a host of tax reforms. Among its more education-focused additions is a brand-new federal tax credit designed to incentivize private contributions to scholarship organizations.

Section 70411 of the OBBBA introduces a federal tax credit for make qualifying donations to state-certified scholarship-granting organizations (SGOs). These organizations provide scholarships for K-12 students to attend eligible private schools.

While the details are still evolving, the opportunity for taxpayers, especially those with a philanthropic focus to reduce their federal tax liability while supporting education, is worth a closer look.

How the new scholarship credit works

The scholarship credit is modeled after similar state-level programs that allow donors to fund private school scholarships in exchange for a state tax credit. With the OBBBA, this incentive is now available at the federal level, expanding its reach and appeal.

Here’s how it works:

• Taxpayers who make donations to eligible SGOs can receive a dollar-for-dollar federal tax credit.
• The credit is nonrefundable, which can reduce tax liability to zero but not below.
• Unused credits cannot be carried forward to future tax years

Importantly, the total national cap for the credit is $10 billion per year, and credits will be awarded on a first-come, first-served basis through an allocation system managed by the IRS.

The credit is available only to individuals who are U.S. citizens or residents, not to businesses or corporations. Under §25F the tax credit is effective for tax years after Dec. 31, 2026.

Eligibility requirements

Donations must be made to certified scholarship-granting organizations (SGO) to qualify for the credit, as defined by state law and approved by the IRS. To be a qualified SGO, the organization must:

• Be a 501(c)(3) tax-exempt entity
• Use at least 90% of contributions to award scholarships to eligible students
• Provide scholarships for K-12 education only
• Distribute funds equitably without favoring any specific schools or religious groups

Donors cannot designate their contributions for a specific student, and they cannot receive any benefit in return for their gift other than the tax credit.

Contribution limits

There are annual limits on the amount of credit a taxpayer can claim:

• Individuals may claim up to $1,700 per taxpayer ($3,400 MFJ) per year
• Federal credit is reduced by any state credit received for the same contribution
• Unused credits may be carried forward up to 5 years

Because the contribution generates a federal tax credit, it cannot be claimed as a charitable deduction on Schedule A, Form 1040. However, if only a portion of the gift is credited, the remaining amount may be deductible under standard charitable contribution rules, subject to adjusted gross income (AGI) limits. Remind your tax clients they cannot double dip.

Who benefits?

This new federal scholarship credit could appeal to a wide range of taxpayers, including:

• High-income individuals looking for ways to reduce federal tax liability while supporting school choice
• Taxpayers in states without generous education tax credits, who can now benefit at the federal level

It also creates opportunities for SGOs and private schools to raise scholarship funds more efficiently, particularly in communities where educational options are limited or underfunded.

State coordination and legal considerations

Taxpayers should know that this federal credit may interact with existing state-level education tax credits. For example, in states like Arizona or Georgia that already offer their own scholarship credits, donors will need to assess how contributions are treated for both state and federal purposes.

Additionally, since SGOs are governed by state law and must meet IRS requirements, tax professionals should verify the certification status of any organization receiving a donation. Improper contributions may not qualify for the credit.

Planning opportunities for tax professionals

For tax practitioners, the new credit opens the door to year-end planning strategies, especially for clients with philanthropic goals and significant tax liabilities. It’s a compelling alternative to traditional charitable giving, with more immediate and guaranteed federal tax savings.

However, timing is everything. Because of the national cap, clients interested in maximizing the credit must apply early in the year and stay current with IRS guidance on allocation and contribution deadlines.

Ready to fund a scholarship?

The OBBBA’s federal scholarship credit represents a significant shift in how charitable giving can intersect with tax planning. While still new and subject to IRS interpretation, the program offers both a financial incentive for donors and a lifeline for students seeking greater access to education.

As with any new credit, the fine print matters. Be sure to consult with a tax advisor to understand the eligibility rules, contribution procedures and strategic opportunities specific to your situation.

The H.R. 1, One Big Beautiful Bill Act (OBBBA), introduces significant changes to U.S. international tax law, with a focus on competitiveness, simplification and anti-abuse. Designed to bolster U.S. global competitiveness, reduce complexity and close loopholes, the OBBBA significantly rewrites rules governing foreign income, deductions and reporting obligations for U.S. taxpayers, especially for corporations and their advisors.

As a tax professional, it’s important to understand how these changes affect controlled foreign corporation (CFC) inclusions, foreign tax credit (FTC) calculations and Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, reporting.

International changes under the OBBBA: what tax pros need to know

Rebranding and reforming GILTI and FDII

One of the most notable changes under the OBBBA is the rebranding of major international tax concepts:

• GILTI (global intangible low-taxed income) is now called” net CFC tested income” (NCTI).
• FDII (foreign-derived intangible income) is now known as “foreign-derived deduction eligible income” (FDDEI).

The underlying mechanics have also shifted:

• The 10% QBAI (qualified business asset investment) exclusion for tangible assets is repealed, streamlining but broadening the base of tested income.
• The §250 deduction is reduced:
  • From 50% to 40% for NCTI
  • From 37.5% to 33.34% for FDDEI

Interest and R&E expenses are no longer apportioned to FDDEI income unless they’re properly allocable, which could result in larger deductions for qualified income.

Pro tip: You can expect updates to Form 5471 Schedules I and I-1 to reflect this terminology shift and revised calculation method. Former GILTI schedules will now focus on NCTI, and there will be no QBAI exclusion to report.

Foreign tax credit (FTC) enhancements

The OBBBA aims to level the international playing field by increasing allowable FTCs:

• The deemed paid credit for CFC tested income rises from 80% to 90%.
• Interest and R&E deductions are excluded from the FTC limitation calculations for NCTI, helping companies recover more of the foreign taxes they pay.
• The look-through rule for related CFCs under §954(c)(6) is made permanent, offering long-term planning certainty.

Tip: These changes will enhance the FTC value on Form 5471, Schedules E and P, particularly where previously taxed earnings and profits (PTEP) are involved.

CFC attribution and Subpart F inclusion overhaul

The rules for identifying and reporting ownership in CFCs are updated, reducing inadvertent inclusions and aligning inclusion periods:

• Downward stock attribution from foreign persons to U.S. persons is once again restricted, limiting unexpected CFC classifications.
• New concepts of foreign-controlled U.S. shareholders and foreign-controlled foreign corporations are introduced. These provisions extend inclusion rules to certain U.S. taxpayers controlled by foreign persons, even if the foreign corporation wouldn’t otherwise be a CFC.
• Prorate inclusion of Subpart F and NCTI now applies to any portion of the year in which stock is held, not just the last day of the tax year.

Tip: This change demands more precise ownership tracking for Form 5471. Tax pros should expect increased complexity when allocating Subpart F and CFC-tested income for partial-year holdings.

Other noteable international provisions

These notable international adjustments impact sourcing rules and can provide additional flexibility in cross-border sales and deductions:

• The BEAT (base erosion and anti-abuse tax) rate increased to 10.5% from 10%.
• Coordination rules for business interest expense limitation and interest capitalization are updated.
• A portion of income from U.S.-produced inventory sold abroad may now be treated as foreign sourced (up to 50%), if sold through a foreign branch.

Partnership and timing changes

• The election to defer the CFC’s taxable year by one month §898(c) is repealed.
• There is a continuing shift to an aggregate approach for partnerships in international contexts, aligning Subpart F and NCTI with partner-level inclusion.

Tip: Partnerships involved with CFCs must reassess how they allocate income to partners and ensure timely inclusion reporting across the board.

Form 5471: evolving responsibilities and reporting requirements

If you advise clients with international operations, Form 5471 continues to be the centerpiece of your compliance obligations. With the OBBBA changes:

• New terms such as “net CFC tested income” and “foreign-derived deduction eligible income” will appear throughout the form.
• Schedules I and I-1 will require updated calculations and reflect the repeal of QBAI.
• Additional information about ownership periods is required to support pro rata income inclusions.
• New FTC limitations and 90% deemed-paid rules must be clearly reflected in Schedules E and P.
• You may need to identify relationships with foreign-controlled U.S. shareholders or foreign-controlled foreign corporations, possibly requiring new checkboxes or explanations.

Form 5471 in action and how a tax professional might approach a 2026 filing under these new rules

U.S. Appletree Co. owns 100% of Foreign Pineapple Co., a CFC, for the full tax year.

Foreign Pineapple Co. earns:

• $1 million of net CFC tested income
• $100,000 of Subpart F income

Foreign Pineapple Co. pays $100,000 in foreign income taxes. Additionally, Foreign Pineapple has $2 million in tangible assets (no longer relevant for QBAI). Now, U.S. Appletree Co. is a calendar-year taxpayer, and the tax year is 2026.

NCTI inclusion: U.S. Appletree Co. will include the full $1 million in gross income. Under Subpart F income, U.S. Appletree Co. will also include $100,000 in gross income.

• Now under §250 deduction: 40% of NCTI will be $400,000 (0.40 x $1 million)
• Foreign tax credit: 90% of foreign taxes on NCTI will be $90,000 FTC (0.90 x $100,000)

Form 5471 reporting

• Schedule I-1: reports $1 million net CFC tested income (formerly GILTI)
• Schedule I: includes $100,000 Subpart F income
• Schedule E: $100,000 foreign taxes paid
• Schedule P: shows $90,000 FTC deemed paid
• Schedule G & O: confirm 100% ownership all year

Summary table of key OBBBA international changes affecting Form 5471

Area	Pre-OBBBA law	OBBBA change (2025+)	Form 5471 impact
GILTI	10% QBAI exclusion, 50% deduction	QBAI exclusion repealed, 40% deduction, renamed “net CFC tested income”	Report full tested income, new terminology
FDII	10% tangible asset exclusion, 37.5% deduction	Exclusion repealed, 33.34% deduction, renamed “foreign-derived deduction eligible income”	New calculation, new terminology
FTC on GILTI	80% deemed paid credit	90% deemed paid credit	Report higher credit, new limitation for PTEP
Expense Apportionment	Interest/R&E allocated to GILTI/FDII	Only directly allocable expenses allocated	Less complex reporting, affects FTC
Subpart F inclusion	Last day of CFC year	Pro rata for all periods of ownership	More detailed reporting of ownership periods
Downward attribution	Allowed	Limited (§958(b)(4) restored)	May affect CFC status, reporting
Look-through rule	Temporary	Permanent	Ongoing reporting for related CFCs

Planning for what’s next

While the One Big Beautiful Bill Act aims to simplify the international tax code, its immediate impact on reporting and compliance (especially for Form 5471 filers) is anything but simple. Tax professionals should plan for updates to IRS forms, client questionnaires and planning tools in the coming year.

Here are some ways to get ahead of the changes:

• Review client structures now for CFC status, especially where foreign-controlled U.S. shareholders are involved.
• Update tracking systems to monitor ownership periods more precisely.
• Recalculate FTC limitations under the new rules and explore how reduced expense apportionment could benefit your clients.
• Stay current on Form 5471 instructions, as the IRS is likely to release a revised version for the 2026 filing season.

NATP members can expect further resources and deep dives in our upcoming webinars, newsletter briefs and updated practice guides.