FBAR vs. Form 8938: What Is the Difference?

The FBAR in outline

The FBAR — FinCEN Form 114, the Report of Foreign Bank and Financial Accounts — comes from the Bank Secrecy Act rather than the Internal Revenue Code. It is filed with the Financial Crimes Enforcement Network, electronically through the BSA E-Filing System, and it is not part of your income tax return. A U.S. person must file when they have a financial interest in, or signature authority over, foreign financial accounts whose aggregate maximum value exceeds 10,000 U.S. dollars at any point during the calendar year.

Two features of that rule deserve emphasis. First, the threshold is aggregate: it looks at the combined maximum value of all foreign accounts, not each account individually. Second, signature authority counts even without ownership, which regularly catches employees who can sign on an employer's foreign account and family members added to a relative's account abroad.

Form 8938 in outline

Form 8938, the Statement of Specified Foreign Financial Assets, comes from the Internal Revenue Code provision enacted as part of FATCA. It is filed with the IRS as an attachment to your income tax return, and it is only required if you are otherwise required to file a return. Its scope is broader than the FBAR's: in addition to foreign financial accounts, it covers other specified foreign financial assets held for investment, such as stock or securities issued by a non-U.S. person that are not held in a financial account, an interest in a foreign entity, and certain foreign financial instruments and contracts.

The thresholds are structured differently

The FBAR uses one flat aggregate figure that does not vary by filing status or place of residence. Form 8938 thresholds vary by filing status and by whether the taxpayer lives in the United States or abroad, and they are tested against both the value on the last day of the tax year and the highest value at any point during the year. Taxpayers living abroad have substantially higher thresholds than those living in the United States. Because the specific dollar amounts are set out in the current instructions and can be updated, the figures should be confirmed against the IRS instructions for the year being filed rather than from memory.

A side-by-side summary

• Authority: FBAR arises under the Bank Secrecy Act; Form 8938 arises under the Internal Revenue Code
• Filed with: FinCEN through the BSA E-Filing System; the IRS with your tax return
• Trigger: an aggregate account value above the FBAR threshold; a specified-asset value above the applicable Form 8938 threshold
• Scope: foreign financial accounts, including signature authority; foreign financial accounts plus other specified foreign financial assets held for investment
• Return requirement: FBAR is required even if no income tax return is due; Form 8938 is required only with a required return
• Deadline: FBAR follows the return due date with an automatic extension available; Form 8938 follows the return, including valid extensions

Why the same account often appears twice

A U.S. person with a single foreign bank account holding, say, the equivalent of 400,000 dollars will commonly file both. The account is a foreign financial account for FBAR purposes and a specified foreign financial asset for Form 8938 purposes. There is no election to report it in one place only. Duplicative as it feels, both regimes must be satisfied on their own terms.

What is easy to miss

• Accounts held jointly with a non-U.S. spouse or relative
• Foreign pension and retirement arrangements, which may be reportable depending on the arrangement
• Foreign life insurance or annuity contracts with a cash value
• Accounts a client considers dormant or inactive but that still hold a balance
• Signature authority over an employer's or family member's foreign account
• Foreign brokerage holdings, including funds that may carry separate PFIC reporting

Valuation and currency

Both forms require values expressed in U.S. dollars, generally converted using the U.S. Treasury year-end exchange rate unless another rate is appropriate under the instructions. The FBAR asks for the maximum value of each account during the year, which requires reviewing statements rather than only the year-end balance. Retaining statements and a record of the conversion method used makes a later inquiry substantially easier to answer.

Consequences of not filing

Both regimes carry penalties, and the FBAR penalty structure distinguishes between non-willful and willful failures, with materially different exposure. Form 8938 penalties are assessed under the Internal Revenue Code and can be accompanied by an extended statute of limitations on the related return. This is one of the areas where an accurate, timely filing is dramatically less costly than a correction later.

If prior years were missed

Taxpayers who discover unreported foreign accounts have established options for coming into compliance, and the appropriate one depends on the facts, including whether the failure was non-willful and whether any tax was underpaid. What is generally not advisable is quietly filing prior-year forms without evaluating which procedure applies. If foreign accounts have gone unreported, the sequence in which the correction is made matters as much as the forms themselves.

Sources and official references

• FinCEN — Report of Foreign Bank and Financial Accounts (FBAR)
• IRS — Report of Foreign Bank and Financial Accounts (FBAR)
• IRS — About Form 8938
• IRS — Comparison of Form 8938 and FBAR Requirements