U.S. taxpayers with foreign financial accounts or overseas investments may have additional reporting obligations beyond filing their annual tax return. Two of the most commonly misunderstood requirements are the Report of Foreign Bank and Financial Accounts (FBAR) and the Foreign Account Tax Compliance Act (FATCA).
Although both reporting rules were created to improve international tax compliance and combat offshore tax evasion, they are separate requirements with different forms, filing thresholds, and reporting rules. Understanding the differences between FBAR and FATCA is important because failing to file required forms can result in significant penalties—even if no additional tax is owed.
What Is FBAR?
The Report of Foreign Bank and Financial Accounts, commonly known as the FBAR, is an information report filed with the Financial Crimes Enforcement Network (FinCEN). Officially called FinCEN Form 114, the FBAR is designed to help the U.S. government identify foreign financial accounts that could potentially be used to conceal assets or income.
An FBAR does not calculate taxes or create an additional tax liability. Instead, it requires taxpayers to disclose certain foreign financial accounts when the combined value of those accounts exceeds specific thresholds.
Foreign accounts that may be reportable include foreign checking and savings accounts, brokerage accounts, certain retirement accounts, and jointly owned accounts. In some cases, individuals with signature authority over another person’s foreign account may also have an FBAR filing requirement.
What Is FATCA?
The Foreign Account Tax Compliance Act (FATCA) is a federal law that requires certain taxpayers to report specified foreign financial assets to the IRS by filing Form 8938 with their federal income tax return.
Unlike the FBAR, which primarily focuses on foreign financial accounts, FATCA applies to a broader range of foreign assets. These may include foreign stocks held outside brokerage accounts, interests in foreign partnerships, certain foreign trusts, and foreign-issued life insurance policies with cash value.
Because FATCA reporting rules are broader, some taxpayers may have FATCA reporting requirements even if certain assets do not need to be reported on an FBAR.
FBAR vs.FATCA
Although FBAR and FATCA share a common goal, there are several important differences between the two reporting regimes.
The FBAR is administered by FinCEN and is filed separately from a taxpayer’s federal income tax return. FATCA, on the other hand, is administered by the IRS and requires taxpayers to file Form 8938 alongside their tax return.
Another major difference involves reporting thresholds. FBAR filing requirements are based on whether the aggregate value of foreign financial accounts exceeds $10,000 at any point during the year. FATCA uses significantly higher thresholds that vary based on filing status and whether the taxpayer lives in the United States or abroad.
Additionally, FATCA applies to a broader category of foreign financial assets, while the FBAR primarily focuses on foreign financial accounts. Importantly, filing one form does not satisfy the requirements for the other.
FBAR and FATCA Filing Requirements
Determining whether you need to file depends on the value and type of foreign assets you own.
For FBAR purposes, taxpayers generally must file if the combined maximum value of all foreign financial accounts reaches or exceeds $10,000 at any point during the calendar year. Many taxpayers mistakenly believe the threshold applies to each account individually, but the rule applies to the aggregate value of all reportable accounts.
For example, if you have three foreign accounts valued at $4,000, $3,000, and $4,500, your combined balance exceeds $10,000 and an FBAR filing may be required.
FATCA filing requirements are more complex. The reporting thresholds vary depending on filing status and residency.
Taxpayers living in the United States generally must file Form 8938 if their specified foreign financial assets exceed:
- $50,000 on the last day of the year or $75,000 at any time during the year for single filers.
- $100,000 on the last day of the year or $150,000 at any time during the year for married taxpayers filing jointly.
Taxpayers living abroad are subject to substantially higher reporting thresholds. Because FATCA applies to a wider range of assets, taxpayers should carefully review whether their foreign investments fall within the reporting rules.
Can You Be Required to File Both?
Yes. Many taxpayers are surprised to learn that they may need to file both an FBAR and Form 8938.
For example, an individual with multiple foreign bank accounts totaling $25,000 may only have an FBAR filing obligation if they do not meet FATCA thresholds. Conversely, a taxpayer with substantial foreign investments held outside financial accounts may have a FATCA filing requirement.
In many situations, taxpayers with significant foreign assets may be required to submit both reports.
Submitting Form 8938 does not eliminate the need to file an FBAR, and filing an FBAR does not satisfy FATCA reporting requirements.
When to File FBAR and FATCA
The FBAR is generally due on April 15 each year. However, taxpayers automatically receive an extension until October 15 if they miss the original deadline. No separate extension request is typically necessary.
Form 8938 follows the same due date as your federal income tax return because it is filed together with your annual return. If you receive an extension for your tax return, the extension also applies to Form 8938.
Because gathering information from foreign financial institutions can take time, taxpayers should begin collecting documentation well before filing deadlines.
Penalties for Noncompliance
The penalties for failing to comply with FBAR and FATCA reporting requirements can be severe. Non-willful FBAR violations may result in penalties of up to $16,536 per unfiled report (per year), not per individual account, following the Supreme Court’s 2023 ruling in Bittner v. United States. Willful violations can lead to penalties equal to the greater of $165,353 or 50% of the account balance per violation, per year. Criminal penalties, including substantial fines and possible imprisonment, may also apply in certain cases.
Failure to file Form 8938 may result in monetary penalties and additional consequences if noncompliance continues after receiving notice from the IRS. Additional tax and interest-related penalties may also apply if foreign income was underreported.
Given the potential consequences, taxpayers who discover prior filing omissions should address them promptly.
Common Filing Mistakes
International reporting rules can be confusing, and many taxpayers make mistakes despite their best efforts to comply.
One of the most common errors is assuming that filing one form satisfies both reporting requirements. Taxpayers also frequently overlook jointly owned foreign accounts, miscalculate account balances, or fail to recognize that certain foreign investments may need to be reported under FATCA.
Another common misconception is that paying taxes to another country eliminates U.S. reporting obligations. In reality, U.S. taxpayers may still have reporting requirements even if no additional U.S. tax is ultimately due.
Frequently Asked Questions
What is the difference between FBAR and FATCA?
FBAR is a FinCEN reporting requirement for foreign financial accounts, while FATCA is an IRS reporting requirement for specified foreign financial assets. They use different forms, thresholds, and reporting rules.
What are the FBAR and FATCA filing requirements?
An FBAR is generally required when the aggregate value of foreign financial accounts exceeds $10,000 during the year. FATCA filing requirements depend on filing status, residency, and the value of specified foreign financial assets.
How to file FBAR?
The FBAR is filed electronically through FinCEN’s BSA E-Filing System and is not submitted with your federal tax return. Taxpayers must report the maximum value of all reportable foreign accounts during the year.
