When Do U.S. Taxpayers Disclose Offshore Accounts on FBAR and Form 8938

Are U.S. Taxpayers Required to Disclose Offshore Accounts on FBAR and Form 8938?

Disclosing Offshore Accounts on FBAR and Form 8938

When it comes to international tax and reporting compliance, two of the most common acronyms you will undoubtedly come across in your research quest are FBAR (Foreign Bank and Financial Account Reporting aka FinCEN Form 114) and FATCA (Foreign Account Tax Compliance Act aka Form 8938). While both of these acronyms refer to the same concept of reporting foreign assets, accounts, investments, and income to the  US Government, they are not the same — and oftentimes Taxpayers may have to report their assets and accounts on both forms. The failure to comply with FBAR & FATCA may have serious implications, resulting in fines and penalties – but these penalties can oftentimes be reduced, avoided, or abated with one of the various offshore tax amnesty programs. Let’s look at five important facts about FBAR & FATCA.

FBAR (5 Key Facts)

The FBAR Is the more well-known form because it has been around longer and the penalties can be astronomical, especially in situations in which a taxpayer is considered to have willfully violated the law. Here are five important facts to know:

      • The FBAR is not limited to just bank accounts, but also includes foreign pension accounts, foreign investment accounts and certain life insurance policies.

      • Taxpayers are required to file the FBAR, even if they do not have ownership of the account.

      • If a U.S. person is a joint owner with a foreign person, the US person is still required to report the full balance of the account even if the full balance is not owned by them.

      • There is no form currently to file a late FBAR, but the due date has been on automatic annual extension until October for the past several years.

      • Even if a taxpayer is not required to file a tax return, they may still be required to file the annual FBAR — this includes minor children.

FBAR Reporting is Not a New Form

While FATCA is a relatively new compliance procedure, the FBAR has been around since about 1970. FBAR is based exclusively on US tax law and requires US persons who have ownership, interest, or even just signature authority in a foreign financial account to report that information to the US government and directly to FinCEN. Despite the fact that the FBAR is neither a tax form nor an IRS form, it is the Internal Revenue Service that is tasked with enforcement of compliance and for the past several years, has significantly increased the number of penalty assessments.

FBAR Has a Much Lower Threshold

The FBAR threshold is relatively low. If a US person (which is more than just a US individual, see here) has an annual aggregate total of all of their foreign accounts exceeding $10,000 on any given day of the year, then the FBAR is required. It is very important to note that it is an annual aggregate total of all the accounts, and not just that each separate account must exceed $10,000. For example, a US person with 10 accounts and $9,000 in each account would absolutely have to report, since the annual aggregate total is $90,000. On the other hand, the FATCA threshold requirement varies based on marital filing status and domestic vs. foreign residency of the Taxpayer.

FBAR Is Filed Separately; FATCA Is Filed With the Return

The FBAR is not a tax form and it is not filed with the Internal Revenue Service; it is lodged electronically on the FinCEN website. Conversely, FATCA reporting is made directly to the Internal Revenue Service and it is submitted by US taxpayers on an annual Form 8938. This form is part of the US tax return and is included with the taxpayer’s tax return in any year they are required to file the form.

Form 8938 (5 Key Facts)

Out of all the different international information reporting forms that a US person may have to file, FATCA (Form 8938) is the new kid on the block. Let’s look at five important facts to know about FATCA:

      • Unlike the FBAR, the Form 8938 is only required if the taxpayer is required to file the tax return. In other words, if a tax return is not required to be filed (for exampke, if the taxpayer is below the threshold) then he does not have to file a Form 8938.

      • There are different threshold requirements for filing Form 8938, depending on the taxpayer’s filing status (Single, MFS, MFJ) and whether the Taxpayer is a US resident or not.

      • Form 8938/FATCA requires the Taxpayer to disclose more detailed information about the accounts and assets than the FBAR does.

      • Only accounts that the taxpayer has an interest in are required to be reported for FATCA.

      • The failure to file the FATCA may result in an otherwise closed tax return to remain open, even if the statute of limitations would have otherwise expired.

FATCA Compliance Involves Reciprocal Global Reporting

FATCA refers to the Foreign Account Tax Compliance Act. Since 2014, the United States has entered into more than 110 intergovernmental agreements (IGA) with foreign countries across the globe. The goal of FATCA is to facilitate reciprocal reporting by persons with assets and income in the respective foreign countries. For example, a US person with foreign accounts will be reported by the Foreign Financial Institution to the US government and the US Government reports the foreign person with US assets to the foreign government’s tax authorities. This makes it easier for the IRS to keep tabs on US persons and make sure all accounts are being reported and offshore income is being included on the US tax return. 

FATCA Requires Having an Interest in the Asset

While the FBAR reporting rules do not require that the Taxpayer have any interest in money in the account, FATCA is different. For FATCA, the filer must have an interest in the account in order to meet the requirement to file the form.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

Contact our firm today for assistance.

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