Living as a U.S. citizen or green card holder abroad offers incredible opportunities, but it also comes with unique financial responsibilities. Among the most confusing for many expats are the requirements for reporting foreign financial accounts. You may have heard terms like FBAR and FATCA thrown around, often causing anxiety and uncertainty. Understanding these obligations is not just about compliance; it's about protecting yourself from potentially severe penalties. Let's clarify the differences between FBAR and FATCA and outline what you need to know to stay compliant with U.S. foreign account reporting rules.
What are FBAR and FATCA?
While both FBAR and FATCA require U.S. persons to report foreign financial accounts, they are distinct regulations with different purposes, filing requirements, and governing bodies.
FBAR: Reporting Foreign Financial Accounts
FBAR stands for Report of Foreign Bank and Financial Accounts. It is a requirement under the Bank Secrecy Act (BSA) and is administered by the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. The FBAR is not filed with your federal income tax return (Form 1040); it is filed electronically through the BSA E-Filing System.
The purpose of the FBAR is to help the U.S. government combat money laundering, tax evasion, and other financial crimes. It requires U.S. persons to report their financial interest in or signature authority over foreign financial accounts.
FATCA: Reporting Specified Foreign Financial Assets
FATCA stands for the Foreign Account Tax Compliance Act. Enacted in 2010, FATCA is part of the Internal Revenue Code and is administered by the Internal Revenue Service (IRS). FATCA requires certain U.S. taxpayers to report specified foreign financial assets on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with your annual federal income tax return (Form 1040).
FATCA also requires foreign financial institutions (FFIs) to report information about financial accounts held by U.S. taxpayers to the IRS. This intergovernmental cooperation significantly enhances the IRS's ability to identify U.S. persons with offshore accounts.
Who Needs to File?
Determining whether you need to file an FBAR or Form 8938 (under FATCA) depends on your status as a U.S. person and the aggregate value of your foreign financial accounts and specified foreign financial assets.
FBAR Filing Thresholds and Requirements
A U.S. person must file an FBAR if they have a financial interest in or signature authority over one or more foreign financial accounts, and the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year. This threshold is quite low, meaning many expats with even modest savings abroad may meet the requirement.
A "U.S. person" for FBAR purposes includes U.S. citizens, U.S. residents, entities (corporations, partnerships, LLCs) created or organized in the U.S., and trusts or estates formed under U.S. law.
For more detailed information on FBAR requirements, you can refer to our guide on FBAR Filing Requirements: What You Need to Know.
FATCA Form 8938 Filing Thresholds and Requirements
The filing thresholds for Form 8938 are higher than for FBAR and vary depending on whether you live in the U.S. or abroad, and your tax filing status. For U.S. persons living abroad, you must file Form 8938 if the total value of your specified foreign financial assets exceeds:
- $200,000 on the last day of the tax year, or $300,000 at any time during the year, if you are single or married filing separately.
- $400,000 on the last day of the tax year, or $600,000 at any time during the year, if you are married filing jointly.
Specified foreign financial assets include not only financial accounts held at foreign financial institutions but also other foreign financial assets not held in an account, such as foreign stocks or securities held directly, foreign mutual funds, and foreign-issued life insurance or annuity contracts with a cash value.
Our blog post What is FATCA? provides further context on this reporting obligation.
What Information Must Be Reported?
Both FBAR and Form 8938 require reporting details about your foreign financial holdings, but the specific information and the types of accounts/assets covered differ.
Details Required for FBAR
On FinCEN Form 114, you must report:
- The maximum value of each foreign financial account during the calendar year.
- The name and address of the financial institution where each account is held.
- The account number.
- The type of account (e.g., bank account, securities account, other financial account).
- Information about the U.S. person (name, address, taxpayer identification number).
The maximum value should be reported in U.S. dollars, using the Treasury's Financial Management Service rate for the last day of the calendar year if the account is held in foreign currency.
Details Required for Form 8938
On Form 8938, you must report:
- The maximum value of each specified foreign financial asset during the tax year.
- The name and address of the financial institution or other entity where the asset is held.
- A description of the asset.
- Information about the U.S. person (name, address, taxpayer identification number).
- Income earned from the reported assets.
Form 8938 requires reporting income generated by the assets, which is not a requirement for the FBAR.
Severe Penalties for Non-Compliance
Failure to file FBAR and Form 8938 when required can result in significant penalties, which can be civil or criminal, and vary depending on whether the non-compliance was willful or non-willful.
FBAR Penalties
- Non-Willful Violation: The penalty can be up to $10,000 per violation per year.
- Willful Violation: Penalties can be substantially higher, potentially the greater of $100,000 or 50% of the balance of the account at the time of the violation, for each year of non-compliance. Criminal penalties may also apply in cases of willful non-compliance.
FATCA Penalties
- Failure to File Form 8938: A penalty of $10,000 may be imposed for failure to file.
- Continued Failure to File: If you fail to file after receiving an IRS notice, additional penalties of $10,000 may be imposed for each 30-day period of non-filing after the notice, up to a maximum of $50,000.
- Understatement of Tax Attributable to Undisclosed Foreign Financial Assets: A penalty of 40% may be imposed on the portion of an understatement of tax attributable to undisclosed foreign financial assets.
These penalties highlight the critical importance of understanding and meeting your foreign account reporting obligations. Our post on Late with your U.S. Expat return? These are the consequences and your options provides more context on the risks of non-compliance.
Ensuring Compliance and Seeking Help
Navigating FBAR and FATCA requirements can be complex, especially with varying thresholds and definitions. Many expats are unaware of these obligations or misunderstand them, leading to unintentional non-compliance. If you have foreign financial accounts and are unsure whether you need to file or how to do so correctly, seeking professional guidance is essential.
If you are behind on your foreign account reporting or U.S. tax filings, the IRS offers programs like the Streamlined Foreign Offshore Procedure. This program allows eligible U.S. taxpayers residing abroad to catch up on their filing obligations and avoid penalties, provided their non-compliance was non-willful. Our guide A Guide to Filing U.S. Taxes for Expats: From Noncompliance to Peace of Mind offers a broader overview of getting compliant.
Tax laws are complex and subject to change. The information provided in this blog post is for informational purposes only and does not constitute legal or tax advice. The details regarding filing thresholds, penalties, and program eligibility are based on current understanding as of January 2025 but may be subject to legislative changes or IRS guidance. Readers should consult with a qualified tax professional for personalized advice tailored to their specific circumstances.
Understanding the distinction between FBAR and FATCA is crucial for U.S. expats with foreign financial accounts. While both aim to increase transparency, they have different reporting requirements and are filed with different government bodies. Staying compliant is key to avoiding significant penalties and ensuring peace of mind.
We specialize in helping U.S. expats navigate their tax responsibilities while maximizing their financial opportunities. From tax return preparation to strategic planning, we offer personalized guidance tailored to your unique situation. If you’d like to discuss your tax needs or explore how we can assist you, let’s schedule a consultation. Click here to book your session.
