Tax Talk Thursday: Expat Tax Pitfalls: FBAR and FATCA Reporting

For U.S. taxpayers living abroad, two of the most common (and costly) reporting traps are FBAR (Foreign Bank Account Report, FinCEN Form 114) and FATCA (Foreign Account Tax Compliance Act, reported on IRS Form 8938). While both involve disclosing foreign assets, they serve different purposes, are filed with different agencies, and carry distinct penalties for noncompliance.

FBAR: FinCEN Form 114

• Who files? U.S. persons (citizens, residents, green card holders, and certain entities) with foreign financial accounts totaling over $10,000 at any point during the calendar year.

• Where is it filed? Directly with FinCEN (not the IRS) through the BSA e-Filing System.

• What to include? Bank accounts, brokerage accounts, foreign pension accounts, and even certain jointly held accounts.

• Penalties: Non-willful violations can run $10,000 per account per year, while willful violations can reach the greater of $100,000 or 50% of the account balance per year.

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FATCA: IRS Form 8938

• Who files? U.S. taxpayers meeting higher thresholds (for example, single taxpayers abroad with more than $200,000 in foreign assets on the last day of the year, or $300,000 at any time during the year). Married thresholds are higher.

• Where is it filed? Attached to the annual Form 1040 tax return.

• What to include? Broader than FBAR—includes foreign stocks, partnership interests, and certain foreign trusts or entities, not just bank accounts.

• Penalties: A $10,000 penalty for failure to file, escalating to $50,000 for continued failure after IRS notice.

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Common Pitfalls for Expats

1. Confusing thresholds: Many assume if they’re under FATCA thresholds, they don’t need FBAR. Wrong—FBAR’s $10,000 threshold is far lower.

2. Overlap issues: Assets often need to be reported on both FBAR and Form 8938. Filing one does not substitute for the other.

3. Joint accounts with non-U.S. spouses: These are often overlooked but still reportable.

4. Foreign pensions and insurance policies: Many expats miss these, but they are generally reportable under FBAR and FATCA.

5. Assuming no tax liability means no reporting: Even if foreign income is excluded under the Foreign Earned Income Exclusion (Form 2555), FBAR and FATCA reporting still applies.

FBAR and FATCA reporting are disclosure requirements, not additional taxes. However, the penalties for noncompliance are severe. For U.S. expats, careful recordkeeping and annual review of foreign accounts are essential. If you discover missed filings, consider corrective measures such as the IRS’s Streamlined Filing Compliance Procedures before the IRS contacts you and you need help contact info@mkhstaxgroup.com.