Tax Tip Tuesday: Foreign Account Documentation Tips - What to Keep for FBAR and Form 8938

If you have a bank, brokerage, or retirement account outside the U.S., filing your FBAR or Form 8938 is only half the job. The other half is keeping the records that prove those forms were right.

Foreign account documentation is easy to put off, and hard to rebuild. Foreign banks purge old records, online access ends when an account closes, and statements may only exist in another language. Here’s what to keep, and how to keep it, so you’re ready if the IRS ever asks.

Why Documentation Matters

•        The law requires it. FBAR filers must keep account records for five years from the FBAR due date.

•        The IRS can look back further than you think. If Form 8938 is required but not

filed, the statute of limitations on your entire return can stay open.

•        Penalties are steep. FBAR penalties can apply per year even when no tax is owed,

and willful violations can reach 50% of the account balance.

•        Your preparer needs it. Maximum values, interest income, and foreign tax paid all

come from your records.

Quick Refresher: Who Has to File?

FBAR (FinCEN Form 114)

You file an FBAR if the combined value of your foreign financial accounts exceeded $10,000 at any time during the year. It’s due April 15, with an automatic extension to October 15.

Form 8938 (Statement of Specified Foreign Financial Assets)

Form 8938 is filed with your tax return when your foreign financial assets exceed these thresholds:

Filing Status	Living in the U.S.	Living Abroad
Single or married filing separately	More than $50,000 on Dec. 31, or more than $75,000 at any time	More than $200,000 on Dec. 31, or more than $300,000 at any time
Married filing jointly	More than $100,000 on Dec. 31, or more than $150,000 at any time	More than $400,000 on Dec. 31, or more than $600,000 at any time

Many people file both. Meeting one doesn’t excuse the other.

What to Keep for Every Foreign Account

For each account, keep a record of:

•        Name on the account, and any other owners or signers

•        Account number

•        Bank or institution name and address

•        Type of account (checking, savings, brokerage, pension, insurance)

•        Maximum value during the year, and how you determined it

•        Date opened and, if applicable, date closed

•        Interest, dividends, and gains earned, plus any foreign tax withheld

7 Foreign Account Documentation Tips

1.     Download every statement, every year. Monthly or quarterly statements show the

true maximum value. A year-end statement alone may miss it.

2.     Save statements before you close an account. Once an account is closed, many

foreign banks cut off online access and records can be hard to recover.

3.     Record the exchange rate you used. FBAR and Form 8938 values are converted

using the Treasury Reporting Rates of Exchange for the last day of the year. Note

the rate and source in your file.

4.     Keep a master account list. One spreadsheet listing every account, institution,

account number, and open and close dates makes each year’s filing faster and

more consistent.

5.     Don’t forget accounts you don’t own. Signature authority over a parent’s account

or a business account can trigger FBAR filing, so document those too.

6.     Document large deposits. A big transfer from family abroad may be a gift that’s

reportable on Form 3520. Keep the paper trail showing where the money came

from.

7.     Keep foreign tax records. Withholding certificates and foreign tax returns support

any foreign tax credit you claim on Form 1116.

Example

Kevin has a savings account in Taiwan. His December statement shows NT$900,000, but an April statement shows NT$1,200,000 after his parents sent him a wedding gift. His maximum value for the year is NT$1,200,000, not the year-end balance.

Using an illustrative Treasury rate of 30 TWD per U.S. dollar, that’s $40,000, well above the $10,000 FBAR threshold. If Kevin had kept only his December statement, he would have understated his maximum value by $10,000. And his April statement is also what documents the gift from his parents.

How Long to Keep Records

•        FBAR records: at least five years from the FBAR due date.

•        Tax return records involving foreign assets: we recommend at least seven years, since the IRS can have six years or more to assess tax when foreign income or

assets are omitted.

•        Records supporting basis: as long as you own the asset, plus seven years after

you sell it.

FBAR and Form 8938 errors usually aren’t caused by hidden accounts. They’re caused by missing statements, the wrong exchange rate, or a maximum value nobody could prove. Good records turn a stressful IRS letter into a simple response.

•        Before year-end, download this year’s statements for every foreign account.

•        Start or update your master account list.

•        If you’re closing an account, save every statement first.

•        If you’ve missed FBAR or Form 8938 filings in prior years, talk to a tax professional

about your options before the IRS contacts you.

Have foreign accounts and not sure your records are complete? MKHS Tax Group can help you organize your documentation and file with confidence. Contact us at info@mkhstaxgroup.com.