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.