FATCA & FBAR

What is FBAR and who must file?

The Report of Foreign Bank and Financial Accounts (FBAR — formally FinCEN Form 114) is a Treasury Department reporting requirement under the Bank Secrecy Act, 31 USC §5314, separate from the Internal Revenue Code [SC1]. Any US person with a financial interest in or signature authority over one or more foreign financial accounts must file FBAR if the aggregate value of all foreign accounts exceeds USD 10,000 at any point during the calendar year. The USD 10,000 threshold is aggregate across all accounts, not per-account. 'US person' for FBAR purposes covers US citizens, US residents (defined more broadly than for income-tax purposes — green-card holders and persons meeting the substantial-presence test), domestic entities (corporations, partnerships, trusts), and certain other categories. 'Foreign financial account' covers bank accounts, securities accounts, brokerage accounts, mutual fund holdings, and certain insurance and annuity products held outside the US — including accounts at US-bank foreign branches. FBAR is filed electronically through FinCEN BSA E-Filing by 15 April of the year following the calendar year reported, with an automatic 6-month extension to 15 October (no separate request required).

What is FATCA and Form 8938?

The Foreign Account Tax Compliance Act, enacted in 2010 as part of the Hiring Incentives to Restore Employment Act, operates through two parallel mechanisms: (i) Form 8938 individual-filer reporting under IRC §6038D (the Statement of Specified Foreign Financial Assets), and (ii) the bilateral Intergovernmental Agreement (IGA) framework under which Foreign Financial Institutions (FFIs) report on US-citizen and US-resident customers to their home tax authority, which exchanges with the IRS [SC1]. Form 8938 is required by US individuals (single, married-filing-jointly, or married-filing-separately filers) holding specified foreign financial assets above thresholds: USD 50,000 at year-end or USD 75,000 at any point during the year for unmarried US-resident filers; USD 100,000 / USD 150,000 for married-filing-jointly US-resident filers; USD 200,000 / USD 300,000 for unmarried US-citizen-abroad filers; USD 400,000 / USD 600,000 for married-filing-jointly US-citizen-abroad filers. Form 8938 is filed with the income-tax return rather than separately. Specified foreign financial assets include FFI accounts, foreign-issued securities (stocks, bonds), foreign-pension and deferred-compensation accounts, foreign-issued mutual funds, certain interests in foreign trusts and estates.

What are the differences between FBAR and Form 8938?

The two regimes have substantially overlapping but not identical scope. Threshold: FBAR USD 10,000 aggregate; Form 8938 USD 50,000–600,000 depending on filing status and residency. Filing: FBAR is FinCEN-administered and filed separately through BSA E-Filing; Form 8938 is IRS-administered and filed with Form 1040. Asset scope: FBAR catches financial accounts; Form 8938 catches financial accounts plus broader specified foreign financial assets including non-account holdings. Filing entity: FBAR catches signature-authority-only situations (e.g., corporate signatories); Form 8938 generally requires beneficial ownership. Penalties: FBAR penalties are statutory and severe (USD 16,000 per non-wilful violation; USD 161,000 or 50 percent of account balance per wilful violation, both indexed); Form 8938 penalties are IRC-based at USD 10,000 base + USD 10,000 per 30 days of continued non-compliance after IRS notice (max USD 60,000), plus accuracy-related penalties under IRC §6662 on under-reported income from undisclosed assets. The two regimes operate in parallel — most US-citizen-abroad filers with non-trivial foreign holdings file both.

How do FBAR penalties work?

FBAR penalties are among the most severe in the US tax-and-financial-reporting framework. Non-wilful violations under 31 USC §5321(a)(5)(B)(i) carry a base penalty of USD 10,000 per violation (indexed annually for inflation, currently approximately USD 16,000) [SC1]. The 2023 Supreme Court decision in Bittner v. United States clarified that the non-wilful penalty applies per FBAR form (per year) rather than per account, materially reducing exposure for filers with multiple unreported accounts in the same year. Wilful violations under 31 USC §5321(a)(5)(C) carry a penalty of the greater of USD 161,000 (indexed) or 50 percent of the account balance at the time of violation, per violation per year — exposure can rapidly approach the entire balance of the unreported account in serial-year cases. Wilfulness includes 'wilful blindness' and 'reckless disregard' under post-2014 case law, broadening the practical reach. Criminal penalties under 31 USC §5322 for wilful violations include monetary fines up to USD 250,000 and imprisonment up to five years (10 years for violations committed in the course of another crime or pattern of illegal activity).

What relief programs exist for delinquent filers?

The Streamlined Filing Procedures, introduced in 2012 and expanded in 2014, are the principal IRS amnesty pathway for non-wilful US-citizen-abroad delinquent filers [SC1]. The Streamlined Foreign Offshore Procedures (SFOP — for filers physically resident outside the US for at least one of the three years) waives the failure-to-file and accuracy-related penalties on the income-tax side AND waives FBAR penalties; the Streamlined Domestic Offshore Procedures (SDOP — for US-resident filers) waives those penalties but imposes a 5 percent miscellaneous penalty on the highest aggregate year-end account balance plus highest aggregate year-end value of specified foreign assets across the 6-year FBAR + 3-year income-tax compliance period. Both Streamlined paths require a non-wilful certification under penalties of perjury. The Delinquent FBAR Submission Procedure permits filers who reported all foreign-source income and paid all tax to catch up on missed FBARs without penalty. The Voluntary Disclosure Practice (post-2018, replacing OVDP) covers wilful cases with reduced — but not eliminated — penalty exposure. Reasonable Cause defenses under 31 USC §5321(a)(5)(B)(ii) can apply on a facts-and-circumstances basis but require active assertion.

How do CRS, CARF, and AEOI extend the FATCA framework globally?

FATCA was the global precursor to the OECD Common Reporting Standard (CRS), adopted in 2014 and effective from 2017–18 across over 110 participating jurisdictions [SC7]. CRS-participating jurisdictions require their financial institutions to report customer balances, interest, dividends, and gross proceeds from sale of financial assets to their domestic tax authority, which exchanges with partner jurisdictions where the customer is resident. The US is not a CRS signatory but operates the parallel FATCA framework via bilateral IGAs (Model 1 with most major economies, Model 2 with Switzerland and Japan among others) — meaning a US-citizen-abroad faces FATCA reporting from foreign FFIs to the IRS while also potentially facing CRS reporting from foreign FFIs to the foreign-resident-jurisdiction tax authority (with US residency status filtered out for CRS purposes where the IRS is the residency authority). The Crypto-Asset Reporting Framework (CARF), adopted in 2022 with implementation from 2026 in early-adopter jurisdictions, extends CRS-style information-exchange to cryptoassets — Reporting Crypto-Asset Service Providers report customer transaction and balance data. CRS 2.0 (2024) extends the existing framework to specified electronic-money products and central-bank digital currencies. The combined FATCA + CRS + CARF framework substantially eliminates the practical scope for non-disclosure-driven planning.

What additional foreign-asset reporting forms exist?

Beyond FBAR and Form 8938, US-citizen-abroad filers may face additional reporting obligations: Form 5471 (Information Return of US Persons With Respect to Certain Foreign Corporations) for US persons with 10-percent-or-greater ownership in a foreign corporation; Form 8865 (Return of US Persons With Respect to Certain Foreign Partnerships) for similar partnership interests; Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) for foreign-trust beneficiaries and large foreign gifts (USD 100,000+ from non-US individuals; USD 16,000+ from non-US corporations); Form 3520-A (Annual Information Return of Foreign Trust With a US Owner); Form 8621 (PFIC reporting) for US holders of Passive Foreign Investment Companies (catches most foreign mutual funds and similar pooled-investment products); Form 5472 (US-foreign-related-party transaction reporting); Form 8858 (foreign disregarded entities and branches). Each form has its own thresholds, due dates, and substantial penalty regimes — Form 3520 penalties are particularly aggressive (35 percent of the gift or distribution amount). Practitioners commonly catalogue applicable forms early in any new US-citizen-abroad engagement.

What are the common pitfalls?

Common FBAR/FATCA mistakes practitioners catch on review: (i) missing FBAR on signature-authority-only accounts (corporate-signatory or grandparent's-account scenarios); (ii) missing PFIC reporting on foreign mutual funds (PFICs are catastrophically tax-disadvantageous and most foreign-resident-purchased mutual funds are PFICs); (iii) missing Form 8938 on foreign-pension or 401(k)-equivalent accounts (foreign-pension treatment under treaty and §402 rules is complex); (iv) missing Form 3520 on foreign-trust beneficial interests (most non-US-resident estate planning vehicles trip Form 3520); (v) joint accounts with non-US-citizen spouses — both account holders' US-tax exposure must be assessed; (vi) child accounts with non-trivial balances — minor children with US citizenship trigger FBAR/8938 if thresholds are crossed; (vii) safe-deposit boxes — generally not financial accounts for FBAR but can be for Form 8938 if held for storage of specified financial assets; (viii) cryptocurrency exchanges — partially in scope for FBAR depending on the exchange's banking activities (FinCEN guidance is evolving). The IRS has materially increased post-2018 examination focus on FATCA and FBAR compliance via the IRS Large Business and International Division's Offshore Initiatives.