The Taxpayer Times

The IRS Question Many Taxpayers Answer Too Quickly

Every year, U.S. taxpayers are asked a question on their federal income tax return that often does not receive much attention:

“At any time during the year, did you have a finacial interest in or signature authority over a financial account located in a foreign country (such as a bank account, securities account, or brokerage account)?”

Many people answer this question quickly. Some answer “No” without much thought. Others answer “Yes” but assume the question is informational and does not require further action.

Under U.S. law, that assumption can be incorrect.

This question arises because holding foreign financial accounts or assets can trigger separate reporting obligations, even when no additional tax is owed and even when the account appears personal, inactive, or insignificant.

Those obligations fall under two different U.S. laws: FBAR and FATCA.

Why This Question Matters Under U.S. Tax Law

Foreign financial accounts and assets are not automatically visible to U.S. tax authorities. As a result, U.S. law requires taxpayers to disclose certain foreign financial information through specific reporting systems.

These rules are not based on intent. They are not based on whether income was earned. They are not based on whether tax was paid in another country.

Instead, these reporting obligations are based on facts, including:

• Whether a foreign account or asset exists
• How it is owned or controlled
• How large it became during the year

FBAR and FATCA were enacted to address this disclosure gap. Although they may apply to the same taxpayer, they are not the same law, not filed the same way, and not enforced through the same process.

Two Different Laws, Two Different Reporting Systems

One of the most common sources of confusion is the belief that FBAR and FATCA are interchangeable. They are not.

• FBAR focuses on foreign financial accounts
• FATCA focuses on specified foreign financial assets
• FBAR is filed with the U.S. Treasury
• FATCA is filed with the IRS as part of the tax return

Understanding which applies starts with understanding what each law is designed to capture.

FBAR is limited to foreign financial accounts, while FATCA can apply to a broader range of foreign financial assets, including certain investments held outside a bank or brokerage account.

FBAR: Who Must File and What Is Reported (FinCEN Form 114)

FBAR stands for Foreign Bank Account Report. The required form is FinCEN Form 114.

FBAR is administered by the Financial Crimes Enforcement Network (FinCEN). Although penalties are examined and enforced by the Internal Revenue Service, the form itself is not filed with the IRS.

Who Must File FBAR

A U.S. person must file FBAR if:

• They had a financial interest in or signature authority over one or more foreign financial accounts, and
• The combined maximum value of all such accounts exceeded $10,000 at any time during the year

Key points many taxpayers overlook:

• The $10,000 threshold is aggregate, not per account
• The balance does not have to be high at year-end
• The account does not have to generate income
• Signature authority alone may trigger filing
• Closed accounts may still be reportable if the threshold was met earlier in the year

FBAR is about account existence and value, not taxation.

Where and When FBAR Is Filed

FBAR is filed electronically only through FinCEN’s BSA E-Filing System.

• It is not attached to the tax return
• It is not filed through IRS e-file
• Paper filing is not permitted

FBAR Due Dates

• Original due date: April 15
• Automatic extension: October 15

No extension request is required. The extension applies automatically, even if the tax return itself is not extended.

FATCA: Who Must File and What Is Reported (IRS Form 8938)

FATCA refers to the Foreign Account Tax Compliance Act. FATCA reporting is done on IRS Form 8938, which is filed with the federal income tax return.

FATCA is part of the Internal Revenue Code and is administered and enforced by the Internal Revenue Service.

Who Must File Form 8938

A taxpayer must file Form 8938 if they hold specified foreign financial assets and the total value exceeds applicable thresholds.

These thresholds:

• Are significantly higher than FBAR thresholds
• Vary based on filing status
• Vary based on whether the taxpayer lives in the United States or abroad

Specified foreign financial assets may include:

• Foreign bank and brokerage accounts
• Certain foreign investment holdings
• Interests in foreign entities
• Other non-U.S. financial assets defined by U.S. tax law

Because of the higher thresholds, many taxpayers who must file FBAR do not need to file Form 8938.

Where and When FATCA Is Filed

Form 8938 is filed with the federal income tax return.

FATCA Due Dates

• Due date: April 15
• Extended due date: October 15 (if the tax return is properly extended)

There is no automatic extension for Form 8938 by itself. The extension applies only because the tax return is extended.

Why Some Taxpayers Must File Both

It is possible and common for a taxpayer to be required to:

• File FBAR
• File Form 8938
• Report overlapping accounts on both forms

Filing one does not eliminate the obligation to file the other. Each law stands on its own.

Consequences of Not Filing FBAR or FATCA

One a reporting obligation exists under U.S. law, failure to comply can carry consequences.

Under U.S. law, FBAR and FATCA are mandatory reporting requirements. The consequences for failing to file when required are established by statute and publicly described by the responsible government agencies.

FBAR Penalties

According to FinCEN and IRS guidance:

• Civil penalties may apply for failure to file a required FBAR
• Penalties are evaluated based on whether the failure is non-willful or willful
• Penalties apply per year
• Penalties may apply even if no income was earned and no tax is owed

FBAR penalties are separate from income tax penalties and are not assessed through the tax return filing process.

FATCA (Form 8938) Penalties

According to IRS guidance:

• Civil penalties may apply for failure to file Form 8938 when required
• Additional penalties may apply if the failure continues after IRS notice
• Failure to file Form 8938 can affect the statute of limitations for the entire tax return
• FATCA penalties apply regardless of whether tax was ultimately owed

Why These Laws Are Taken Seriously

FBAR and FATCA exist to enforce financial transparency where U.S. authorities would otherwise have limited visibility. The presence of penalties reflects how seriously these disclosure obligations are treated under U.S. law.

The IRS foreign account question is not routine. It is the starting point for determining whether these laws apply.

Final Takeaway

FBAR and FATCA are not obscure or unusual rules. They are part of the normal U.S. tax compliance framework and apply based on facts that many taxpayers consider routine.

Understanding whether these laws apply – and knowing where and when required forms must be filed – allows taxpayers to address obligations early and avoid unnecessary complications later.

Disclaimer

This article is provided for general information and educational purposes only. It is not intended as individualized tax advice, and reading this article does not create a client relationship.

Tax laws and reporting obligations can vary based on specific facts and circumstances. Readers with foreign financial accounts or assets should consult a qualified tax professional to determine how U.S. tax law applies to their situation.