FBARs (FinCEN Form 114s), Form 8938s and Form 8966s: not just one but three ways Uncle Sam monitors Americans’ overseas holdings

April 7, 2022
By Paul Atkinson
Opinion

More American expats are familiar these days than they used to be with Foreign Bank Account Reports (“FBARs”), aka FinCEN Form 114s – which need to be filed by American taxpayers for every year that their offshore bank account holdings total US$10,000 or more, even if just for one day.

Until recently, because so few expats were aware of this, many have been hit with eye-watering penalty charges as a result.

That said, some observers think there still isn’t enough publicity being given to the need for Americans with overseas bank and financial accounts to file FBARs and/or Form 8938s.

The still-widespread lack of knowledge about FBARs and Form 8938s, as well as Form 8966s (which are filed by financial institutions, but which concern the non U.S. accounts of U.S. “persons”) is, in fact, what prompted the Association of Americans Resident Overseas (AARO) to recently publish on its website an extensive special report into FBARs, and those related reporting forms.

(This special section may be viewed on the AARO website by clicking here.)

Because the fact remains that even though these three asset reporting forms are similar in terms of their purpose – to give the U.S. authorities a detailed picture of exactly how much money and other financial assets its citizens are holding outside of the country, where it’s being held, and the specific nature of these holdings – American taxpayers with non-U.S. accounts can find their obligation to comply with their reporting obligations overwhelming.

And the fact that FBARs are often in the news, when people go to court to fight FBAR penalties running into the tens of thousands of dollars if not more, particularly given the potential penalties that lurk for those who fail to do so, or who do so but who nevertheless get it wrong.

No doubt aware of such concerns, the IRS has a page on its website comparing the filing requirements for FBAR Form 114s and 8938s, and suggesting additional links to visit for more information, which may be viewed by clicking here.

In addition, the agency also offers a couple of amnesty programs that those U.S. Persons who might not have been aware of their filing obligations can take advantage of, in order to head off any penalty charges (ideally with the help of a trustworthy specialist legal adviser).

As a service to AARO members and supporters as well as to the American Expat Financial News Journal’s readers, meanwhile, the following explanation might prove helpful, at least for getting started.

(We begin with an explanation of the two types of reports that taxpayers are responsible for filing, followed by an explanation of Form 8966, which is the one filed by financial institutions, such as banks, asset managers and insurance companies…)

Reports filed by taxpayers

**1. Foreign Bank Account Reports* (FBARs) (aka FinCEN Form 114s)**

(*Officially known as the “Foreign Bank and Financial Account Reporting form” but “FBAR” is easier to say than “FBAFAR Form”...)

• Filed with: the Financial Crimes Enforcement Network (FinCEN, a part of the U.S. Treasury Department)

• Date established and background: Although full-scale enforcement of FBARs didn’t take off until much later, the regulations on which the FBAR is based technically date back to the Bank Secrecy Act of 1970, which obliges the U.S. Treasury to obtain certain information about the overseas holdings of American taxpayers, as part of efforts to target tax evasion, money laundering and other criminal activities.

Developed by FinCEN (the Financial Crimes Enforcement Network, a part of the U.S. Treasury), FBARs have been enforced by the IRS since 2003.

• Minimum threshold (to trigger the need to file an FBAR report): US$10,000 in total (“aggregate” value, ie., not “per account”) of all of an individual taxpayer’s “foreign” financial accounts at any point during the year in question.

If the filing requirement is triggered, all the taxpayer’s accounts need to be reported, including dormant and zero-balance accounts.

• Filing deadline: April 15, but there’s an automatic extension to Oct.15

• Penalty/ies for failure to disclose: FBAR penalties can be harsh, although there are certain “amnesty” programs designed to enable taxpayers to attempt to reduce or avoid penalties, which works best if they can prove genuine ignorance of their requirement to file.

“Non-willful” violations: They say up to US$10,000 “per violation” but this also tends to be the starting amount, FBAR sources point out. The amount is also now being adjusted for inflation, so currently, it’s actually $13,640.

“Willful” violations: Up to the greater of US$100,000, or 50% of the account balance at the time of the violation, for each violation – and each year that the taxpayer failed to file is considered a separate violation.

Criminal penalties are also possible, with the assessment of a civil penalty not precluding the possibility of a criminal penalty or prosecution.

• Number of FBARs filed in 2019: 1.4 million

2. Form 8938s (FATCA byproduct)

• Filed with: the Internal Revenue Service (IRS, a part of the U.S. Treasury Department)

• Date established and background: The Form 8938 was a byproduct of the Foreign Account Tax Compliance Act (part of the HIRE Act), signed into law in 2010, and enforced from 2014.

It requires more in-depth reporting, and requires information on more types of overseas assets, such as investments held outside of the U.S.

• Minimum threshold (to trigger the need to file an 8938): Depending on the taxpayer’s residence and tax filing status, the minimum ranges from US$50,000 aggregate account value at year’s end, or US$75,000 at any time during tax year (for U.S. residents who are single or married filing separately) to US$400,000 at year’s end or US$600,000 at any time during the year (for married, non-U.S. resident taxpayers filing jointly).

• Filing deadline: Because it’s filed with the taxpayer’s tax return, a form 8938 is due when their tax return is due, which for expats is normally June 15, ie., two months later than the U.S. filing deadline.

• Penalty/ies for failure to disclose: Up to US$10,000, rising with continued non-compliance to a potential maximum of US$50,000. Criminal penalties also possible.

• Number of Form 8938s filed in 2019: 2.0 million

Report filed by Foreign Financial Institutions (FFIs)

3. Form 8966

• Filed with: the Internal Revenue Service (IRS, a part of the U.S. Treasury Department)

• Date established and background: The Form 8966 also had its origins in the Foreign Account Tax Compliance Act of 2010, and like FATCA forms, Form 8966s are filed by banks and other financial institutions – (thus potentially providing the IRS with a potential opportunity to catch out individual taxpayers who fail to file Form 8938s with their tax returns).

The details for filing Form 8966s are spelled out for the world’s “FFIs” (non-U.S. banks and financial institutions) in bilateral FATCA-implementing Intergovernmental Agreements (IGAs) that the U.S. currently has with more than 100 countries.

• Minimum threshold (to trigger the need to file an 8966): This is difficult to determine, because it's not made available in the same way as the filing threshold for the forms filed by taxpayers, but rather, directly to FFIs. For expat taxpayers, the minimum threshold may vary, depending on which country they’re living in (as it’s dictated by the IGA that governs the way FATCA is implemented there), but based on a study of an IGA between the U.S. and a major European country, a depository account with a minimum of US$50,000 as of the end of the year would need to be reported on a Form 8966, as would, potentially certain retirement and other accounts.

Interestingly, below US$50,000 was also named in a recent court decision (as this publication reported last December) as the amount that a Dutch citizen born in the U.S., but with no other connection to that country, was said to be entitled to keep with his local (Dutch) bank without having to provide it with a U.S. Tax Identification Number (TIN). If his total holdings with this bank were to exceed that amount, the court said, he would be required to provide the bank with his TIN, as, presumably, at this point the bank would be obliged to report to the IRS on his account, in compliance with FATCA.

• Filing deadline: March 31, with a 90-day extension available on request. Additional extensions may be available under certain “hardship” conditions.

• Penalty/ies for failure to disclose: If it fails to file a Form 8966 on behalf of a particular U.S. Person taxpayer, a bank may risk being determined to be "non-participating" FFI under FATCA, which could subject it to 30% withholding tax on certain U.S. source fixed or determinable annual or periodic income, or “gross proceeds” from asset transactions that can produce such income. But this applies to the institution, not to the taxpayer.

• Number of Form 8966s filed in 2019: 6.3 million

For more details and comparison of Form 8966 requirements for bank reporting with the Common Reporting Standard, the multilateral system used for information exchange internationally, see the April, 2019 Government Accountability Office report, Foreign Asset Reporting: Actions Needed to Enhance Compliance Efforts, Eliminate Overlapping Requirements, and Mitigate Burdens on U.S. Persons Abroad (GAO-19-180), Appendix IV and Appendix V. This report, which is 83 pages long, may be viewed and downloaded by clicking here.

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Paul Atkinson is a Paris-based American who spent more than 20 years with the Organisation for Economic Co-Operation and Development, and who currently chairs the banking committee of the Association of Americans Resident Overseas.

Editor’s note: Every effort has been made to ensure the accuracy and comprehensiveness of this summary of the three types of overseas asset reporting forms provided for use by U.S. taxpayers. However, this article was intended for general information purposes only, and should therefore not be construed as formal advice by any individual, nor should any action be taken on account of the information presented here, beyond obtaining using it as the basis for seeking professional advice.

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