Having foreign accounts and wading through the reporting requirements can be a daunting task. This week we hope to shed some light on two of the more common forms and when you need to file them.
FinCen 114, also known as the FBAR (which stands for Foreign Bank Account Report), may be required if you have a foreign account. It is a stand-alone form with its own due date and is used to report account balances and ownership. You are required to file the form if you have a financial account in a foreign country or have a financial interest in or signature authority over a foreign account when the aggregate balance of all foreign accounts exceeds $10,000 USD at any time during the calendar year. The definition of a foreign account includes not only bank accounts but brokerage accounts and certain other investment vehicles.
Financial interest means that you own or have legal title of the account, or own more than 50% of a business with a foreign account. Signature authority means that you have control over the disposition of money, funds, or other assets held in a foreign account by having direct communication with the institution maintaining the financial account. The FinCen 114 reporting requirement is for any U.S. citizen, U.S. resident, or U.S. business, regardless of business type.
Form 8938 reports foreign accounts and certain additional foreign financial assets, as well as other information, such as the income generated by the foreign financial assets and where that income is being reported on the income tax return. It is filed with a taxpayer’s income tax return.
As an individual, you are required to file Form 8938 if you reach certain thresholds, which are different if you are living in the United States or if you are living abroad. If you are living in the United States and are filing as an unmarried individual or married filing separately, the threshold is if the total value of foreign financial assets was more than $50,000 USD on the last day of the tax year, or more than $75,000 USD at any time during the year. If you are living in the United States and are married filing jointly, the threshold is if the total value of foreign financial assets was more than $100,000 USDs on the last day of the tax year, or more than $150,000 USD at any time during the year.
If you are living abroad and are filing as an unmarried individual or married filing separately, the threshold is if the total value of foreign financial assets was more than $200,000 USD on the last day of the tax year, or more than $300,000 USD at any time during the year. If you are living abroad and are married filing jointly, the threshold is if the total value of foreign financial assets was more than $400,000 USD on the last day of the tax year, or more than $600,000 USD at any time during the year.
Domestic corporations, partnerships, and trusts must file Form 8938 if their purpose is to hold, directly or indirectly, foreign financial assets, and the total value of those assets exceeds $50,000 USD on the last day of the tax year or $75,000 USD at any time during the tax year. When converting the foreign currency into USD, the published U.S. Treasury Department rates must be used as the exchange rate for both the FBAR and Form 8938.
In the next few weeks we will share some examples of when someone needs to file Form 8938, the FBAR, or both. If you think you may have a foreign reporting requirement, we would be happy to assist you and answer any questions you may have.