Property Developers, Property Investors

IRS Form 8938 and FBAR reporting

simon

Simon Misiewicz

17th November 2021

IRS Form 8938 and FBAR reporting

IRS Form 8938 and FBAR reporting are essential tax considerations for ex-pats with foreign investments.

Form 8938 is used to report specified foreign financial assets if the total value of all specified foreign financial assets is more than the allowed reporting threshold.

FBAR stands for Foreign Bank Account Report and is also known as FinCEN Form 114. If you are in the reporting threshold, it must be submitted annually.

FBAR exists to combat tax evasion, particularly with reporting money and assets held in foreign banks. FBAR must be filed online at the Financial Crimes Enforcement Network (FinCEN).

FBAR dates back to 1970, when it was created as part of the Bank Secrecy Act.

It is not filed with a federal income tax return. FBAR filing requirements apply whenever a US person has a financial interest in or signature authority over a foreign financial account with a value over $10,000 at any time during the calendar year.

Form 8938 is only filed when a person meets the threshold for filing and has to file a US tax return.

If a person does not have to file a tax return, then Form 8938 is not required in that current year.

The frequently asked questions about IRS Form 8938 and FBAR

“Should I speak to a tax specialist about IRS Form 8938 and FBAR Reporting?”

“What are the basics of IRS Form 8938 and FBAR reporting?”

“Who needs to file Form 8938?”

“What is the difference between Form 8938 and FBAR?”

“What needs to be reported on Form 8938?”

“What are the penalties for failing to file Form 8938?”

“Do I need to file a US tax return and Form 8938?”

“What are the FBAR reporting requirements?”

“What are the penalties for failing to file under FBAR?”

“Do I have to report foreign property on Form 8938?”

“Can the IRS check foreign bank accounts?”

“How does this affect Hong Kongers that are looking to move or invest in the United Kingdom from Hong Kong?”

“How does this affect American readers that are looking to move or invest in the United Kingdon from the United States.”

Should I speak to a tax specialist about IRS Form 8938 and FBAR Reporting?

Certain US taxpayers holding specified foreign financial assets with an aggregate value over $50,000 need to report information about those assets on Form 8938.

This must be attached to the taxpayer’s annual US income tax return.

Since December 2015, certain domestic corporations, partnerships and Trusts that are formed to hold (directly or indirectly) specified foreign assets must file Form 8938.

Since 1970, the Bank Secrecy Act (BSA) requires US persons to file an FBAR if they have a financial interest in bank accounts, brokerage accounts and mutual funds in a foreign country.

FBAR reporting also applies if the aggregate value of all foreign financial accounts exceeds $10,000.

If you’re unsure how to proceed with filing Form 8938 or FABR reporting, it is recommended that you speak to our UK and US tax advisors to ensure your overseas financial affairs are tax-efficient.

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UK Tax resident status: You may be interested in our main Article on UK Tax status if you are looking to move to the UK or from the UK. You may also be interested to know how more about our property tax services if you are looking to invest in UK buy to let properties.

What are the basics of Form 8938 and FBAR reporting?

As property accountants serving thousands of UK landlords that purchase buy to let properties, we know that many US ex-pats are concerned about their reporting requirements concerning foreign investments held in the UK.

In recent years, the IRS has stepped up efforts to track down delinquent taxpayers and enforce the payment of overdue taxes. American ex-pats have come under increasing scrutiny.

One of the main initiatives introduced was the Foreign Account Tax Compliance Act (FATCA).

FATCA is part of the Hiring Incentives to Restore Employment (HIRE) Act, designed to enforce higher tax compliance among US taxpayers with foreign accounts and assets.

FATCA created Form 8938, an additional foreign account reporting requirement over and above FBAR that must be filed with the US Treasury annually.

If a US taxpayer has more than a certain amount of foreign assets, Form 8938 is included as part of their annual Form 1040 filing.

It requires an expanded list of foreign assets not covered by FBAR.

Our UK and US tax specialists team recommend that every ex-pat be aware of FATCA and how it could affect their foreign investments and tax liabilities.

Called a Statement of Specified Foreign Financial Assets, Form 8938 is used by ex-pats to tell the IRS about financial assets held abroad.

When living and working abroad, it is common for Americans to gain different types of foreign financial assets, such as a foreign pension plan or shares in a foreign company.

As a US taxpayer, you must report those foreign assets in your annual taxes and filing Form 8938 is a common way to do this.

The main points to remember about Form 8938 are:

– Not every US ex-pat needs to fill one out
– There’s a hefty fine for not filing Form 8938 (up to $50,000)
– Review the different requirements between Form 8938 and FBAR

An FBAR must be submitted yearly if you are within the reporting threshold.

To complete an FBAR form, you will need your name, Social Security Number (ITIN), address, details of all joint owners of the account, foreign bank names and addresses and the type of accounts held.

We recommend that you review what the IRS says is required for US taxpayers to do when filing Form 8938, as well as the rules around FBAR reporting.

To speak to one of our UK and US tax advisors about Form 8938 or FBAR, book a consultation here.

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Who needs to file Form 8938?

If you’re a US taxpayer who lives outside of the US and holds a total combined value of foreign assets worth more than $300,000 at any time during the year (or $200,000 on the last day of the year), you need to report it on Form 8938.

If you live outside of the US and have qualifying assets, including any bank, investment or retirement accounts maintained outside of the US, it is essential to know when the tax year starts and stops.

It can be different in different countries, and speaking to a UK and US tax advisor will help clarify this.

What is the difference between Form 8938 and FBAR? 

There are differences between Form 8938 and FBAR, so it is vital to understand them.

Form 8938 is filed with the IRS, but you file FBAR with FinCEN, the US Treasury Department’s Financial Crimes and Enforcement Network.

Form 8938 requires you to report the maximum value of specified foreign financial assets, including foreign financial accounts.

FBAR requires you to report the maximum value in foreign financial accounts maintained by a foreign institution physically located in a foreign country.

Form 8938 is attached to your annual income tax return and is due by the ex-pat tax filing deadline. FBAR must be received by April 15th with a six-month automatic extension available to October 15th.

What needs to be reported on Form 8938? 

Financial accounts held in a foreign financial institution must be reported on Form 8938.

Foreign stock held in a foreign brokerage account needs to be reported, but the stock within the account does not need to be reported separately.

Foreign stock held outside a foreign brokerage account, foreign partnership interests, foreign domestic funds, foreign-issued life insurance, as well as foreign hedge and private equity funds all need to be reported under Form 8938 to the IRS.

If you’re unsure how to complete Form 8938, we recommend that you get professional tax advice.

What are the penalties for failing to file Form 8938?

Failure to file Form 8938 can result in a $10,000 fine with additional penalties of up to $50,000 for continued failure after IRS notification.

Underpayment of tax attributable to non-disclosed foreign financial assets will be subject to an additional underpayment penalty of 40% by the IRS.

Please speak to our UK and US tax advisors to get a clear picture of where your tax liabilities stand.

What are the FBAR reporting requirements? 

If you are a US person with a financial interest in foreign financial accounts, you must file an FBAR if the aggregate value of the account exceeds $10,000.

To avoid tax penalties, make sure to file FinCEN Form114 timely. The deadline is April 15th, following the calendar year you are reporting.

Filing an FBAR is a mandatory filing requirement for many US persons, including ex-pats who have foreign financial accounts.

Because FBARs are filed to FinCEN rather than the IRS, not filing (or inaccurate or incomplete filings) penalties are more serious.

To get help with your FBAR, speak to one of our UK and US tax advisors today.

What are the penalties for failing to file under FBAR?

There are severe consequences if you do not report your foreign accounts as an American ex-pat.

If the IRS decides that you have committed a willful violation, the consequence can include a penalty of $100,000 or 50% of the account value, whichever is higher.

If you don’t disclose offshore accounts, you could be caught through an IRS audit, resulting in freezing all foreign accounts.

The IRS can also impose penalties for failure to comply with offshore account disclosure requirements.

If you’re unsure where you stand with FBAR, book a consultation with our specialist tax team today.

Do I have to report foreign property on Form 8938?

You do not have to report foreign property on Form 8938 or other FATCA forms, even if it is a rental property.

Under certain circumstances, you may be required to file Form 3520 to report a distribution from a foreign trust, foreign estate, or gift from a foreign person in excess of $100,000 during the year.

Visit this link to see more common questions and answers from the IRS on Form 8938.

Suppose you’re unsure what constitutes a foreign financial asset to the IRS. In that case, it includes any financial account maintained by a foreign financial institution, other foreign financial assets such as stock or securities issued by someone other than a US person, any interest in a foreign entity and any financial instrument or contract that has an issuer who is not a US person.

Please speak to our UK and US property tax advisors today.

Can the IRS check foreign bank accounts? 

The IRS can find a foreign bank account.

This is why interest and dividends from your foreign bank accounts must be reported on your annual tax return, including foreign disclosure forms and statements on Form 1040.

Foreign accounts are taxable, so the IRS and US Treasury have rigorous processes in place for declaring overseas assets.

Any American citizen with foreign bank accounts totalling more than $10,000 in aggregate is required to report such accounts.

One of the main catalysts for the IRS to learn about foreign income, which was not reported, is through FATCA.

In accordance with FATCA, more than 300,000 FFIs (Foreign Financial Institutions) in over 110 countries actively report account holder information to the IRS.

The purpose of FATCA is to force managers of foreign financial institutions to report all American clients to the IRS or be severely punished with high withholding taxes.

If the information reported is not 100% accurate or complete, the fund manager will still be penalised.

Some countries have data protection laws that would be broken if the fund manager cooperates fully with the IRS.

A fund manager may not realise that he has an American client if represented by a non-American third party.

The client may not provide the fund manager with the required information in the first place.

The penalty is solely applied to the fund manager and not the US ex-pat client.

A non-cooperative American ex-pat client could be seen to be more hassle than they are worth to a UK fund manager.

FATCA can cause fund managers to deal differently with US ex-pat clients, but it is in the best interests of fund managers to be able to continue to work with American clients in the UK.

How does this affect Hong Kongers looking to move or invest in the United Kingdom from Hong Kong?

The IRS Form 8938 is a United States reporting requirement to inform the US government of the financial assets owned by an American or Green Card holder.

There are times that Hong Kongers need to file a Form 8938 in the US. This is where they have financial interests in the United States or have a Green Card.

Hong Kongers will need to file a Form 8938 and possibly the FBAR, too, if this is also the case.

Learn more about our International services to help Hong Kongers move or invest in the United Kingdom

How does this affect American readers looking to move or invest in the United Kingdom from the United States?

Americans that live or invest in the United Kingdom will still have to meet their financial and 1040 taxation reporting requirements.

Learn more about our International services to help Americans move or invest in the United Kingdom

You may be interested in our main Article on UK Tax status if you are looking to move to the UK or from the UK.

You may also be interested in knowing more about our property tax services if you are looking to invest in UK buy to let properties.

You may be interested in services where we help Americans move to the UK with tax in mind. There are several legal matters and tax issues that you need to consider.

We have also written a helpful article about people moving from the US to the UK and getting a VISA.

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