U.S. Foreign Asset Reporting Guide
U.S. Foreign Asset Reporting, Simplified.
Are you a U.S. citizen, green card holder, or resident with financial assets abroad? This guide is here to help you understand complex reporting rules, avoid potential risks, and discover available benefits. Start now with the simple self-assessment below.
1. Quickly Check My Filing Obligation
Answer a few questions to see if you have an FBAR or Form 8938 filing requirement. This assessment is for informational purposes only and does not constitute legal or tax advice.
2. FBAR vs. Form 8938: A Core Comparison
The two reports seem similar but have different purposes, thresholds, and target assets. This section visually compares their key differences to reduce confusion.
FBAR (FinCEN Form 114)
Based on the Bank Secrecy Act (BSA), its purpose is to prevent illegal financial activities like money laundering. It is an informational report, not a tax form.
- Who: U.S. persons (citizens, residents, entities, etc.)
- Threshold: Aggregate value of all foreign financial accounts exceeds $10,000 at any time during the year.
- What: Foreign bank accounts, brokerage accounts, mutual funds, etc. ('Financial Accounts')
- Key Feature: A filing requirement can arise from having 'signature authority' alone, without ownership.
- Filed with: Filed electronically with FinCEN (separate from tax return).
If the sum of the highest balances of all foreign accounts exceeds the threshold, all accounts must be reported.
Form 8938
Based on the FATCA law, its purpose is to prevent offshore tax evasion. It is filed as an attachment to the annual income tax return (Form 1040).
- Who: 'Specified individuals' and entities with a tax filing obligation.
- Threshold: Complex thresholds that vary by residency and filing status (see chart below).
- What: Financial accounts + 'specified foreign financial assets' like directly held stock, partnership interests, etc.
- Key Feature: Generally only reports assets in which you have a financial interest.
- Filed with: Filed with the IRS along with the tax return.
Form 8938 Filing Thresholds (Example for Single Filer)
Asset Type Reporting Summary
| Asset Type | Reportable on FBAR? | Reportable on Form 8938? |
|---|---|---|
| Foreign Bank/Brokerage Account | Yes | Yes |
| Directly Held Foreign Stock (not in an account) | No | Yes |
| Foreign Partnership Interest | No | Yes |
| Foreign Pension / Cash Value Life Insurance | Yes | Yes |
| Directly Held Foreign Real Estate | No | No |
| Foreign Real Estate Held Through a Corporation | No (the real estate itself) | Yes (the interest in the entity) |
3. The High Cost of Non-Filing: Understanding the Penalties
Failure to meet filing obligations can lead to substantial financial penalties and legal consequences. The amount varies significantly based on whether the violation is 'willful,' a key factor in compliance strategy.
FBAR Penalties
Non-Willful Violation
Up to $10,000 per violation (adjusted for inflation).
Willful Violation
The greater of $100,000 or 50% of the account balance, plus potential criminal charges.
Form 8938 Penalties
Penalties can increase if non-filing continues after IRS notification.
Furthermore, failing to file Form 8938 can extend the statute of limitations on the entire tax return indefinitely.
4. The Path to Resolution: IRS Voluntary Disclosure Programs
Even if you've missed past filings, there are solutions. The IRS offers relief programs for non-willful taxpayers to waive or reduce penalties. The most important step is the willingness to honestly correct the situation.
The No-Penalty Solution
Streamlined Foreign Offshore Procedures (SFOP)
Expats meeting specific residency requirements can pay back-taxes and interest, and in return, all FBAR and other information reporting penalties are completely waived. This is a powerful opportunity to resolve a compliance crisis favorably.
The Reduced-Penalty Solution
Streamlined Domestic Offshore Procedures (SDOP)
U.S. residents who failed to file can resolve the issue by paying a single 5% penalty on the highest value of their unreported foreign assets during the period, in lieu of multiple other potential penalties. This removes uncertainty and provides a predictable path forward.
For both programs, a well-crafted 'Non-willful Certification' statement, attesting that the failure to file was not intentional, is critically important.
5. Crisis to Opportunity: Leveraging Hidden Tax Benefits
Filing back-taxes can be daunting, but it's also an opportunity to retroactively claim tax benefits you may have missed. This can reduce your tax liability or even result in a refund.
If you've paid income tax to a foreign country, you can take a dollar-for-dollar credit against your U.S. tax to avoid double taxation. This is much more powerful than a simple deduction. For example, if you owe $5,000 in U.S. tax and paid $7,000 in foreign tax, the FTC could eliminate your entire $5,000 U.S. tax bill.
Eligible expats can exclude a certain amount of their foreign earned income (over $126,500 for 2024) from U.S. taxation. Through a disclosure program, you can retroactively apply this benefit to past years, significantly reducing your tax burden.
The Ultimate Strategy: Compliance and the Potential for Refunds
When a non-filer living in a high-tax country uses the SFOP to file back-taxes and retroactively applies the FTC, they can often achieve a positive financial outcome—not only avoiding penalties but actually receiving a tax refund from the IRS.