swiss-francs-274113_1920Mary and I were sitting in a coffee shop discussing her tax positions and screening her financial documents, when I realized that this year she needs to file Form 8938.

Me: Mary, there is one more form this year, which we will include in your tax tasks, that is form 8938.

Mary: Form 8938! Oh the one that is similar to FBAR?

Me: Form 8938, Statement of Specified Foreign Financial Assets.

Mary: But we have been filing FBAR’s for years, 8938 seems to be the same. Do you really think we need to file it? And are we going to just file 8938 and take out FBAR?

Her questions made me realize that we all are confused with the Form 8938 and its similarity to FBAR’s. This is when I thought to pull up my sleeves and pin down the basics of both the forms. The new Form 8938 filing requirement does not replace your obligation to file an FBAR. You must file each form if you are meeting their respective reporting thresholds. There are various parameters, which distinguishes both of them. These are:

  • Who is required to file?
    • Only individual taxpayers, or individual taxpayers filing joint tax returns with their spouses, must file Form 8938. For FBAR in addition to this, numerous types of domestic and foreign entities must file the FBAR. However, it is anticipated that the IRS will issue regulations requiring domestic U.S. entities to file Form 8938 in the future.
  • What is the threshold for the FBAR?
    • If the total maximum value of the account(s) exceeds $ 10,000 at any time during the calendar year, you should file an FBAR.
  • What is the threshold for form 8938? The filing threshold depends on where you live (inside or outside the U.S.) and your filing status (married or unmarried).
    • Taxpayers living in the U.S. should file if they are: Unmarried and the total value of their specified financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year. Married and file a joint return and the total value of their specified financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year. Married and file a separate return and the total value of their specified financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
    • Taxpayers living outside the U.S. should file if they are: Unmarried and the total value of their specified financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year. Married and file a joint return and the total value of their specified financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year. Married and file a separate return and the total value of their specified financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.
  • What are considered “Specified Financial Assets”?
    • There is substantial duplication of assets in the FBAR and form 8938. However in addition to bank accounts, investments accounts and any other types of financial accounts you should also include any account which produce’s any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the asset which are reported in your tax declaration. Interest in a closely held foreign corporation, foreign trust and foreign pension plan is reported on Form 8938. For example, Mary, a US Citizen working in Switzerland, has enrolled herself in Swiss pension plans. When she prepares Form 8938, apart from reporting foreign assets, she will take into account her interest in Swiss pension plan.
  • Are there any exceptions to form 8938 and what has to be reported?
    • Yes, if the asset is reported on another tax form (3520, 5471, 8621, 8865) you do not need to include it on form 8938. However, please know that theexception does not include an FBAR as it is not considered a tax form.
  • What Must Be Reported?
    • For FBAR, you need to report if you have sufficient interest in a financial entity and/or have the authority to control the assets. For Form 8938, you must report if you have any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or assets that need to be reported on your tax return.
  • What are the filing deadlines?
    • You must file the FBAR separately with a non-extendible deadline of June 30 for the previous year. However, please note that starting in tax year 2016 the filing deadline will be in accordance with the tax filing deadlines (starting in 2017). You must file Form 8938 with your tax return by April 15 for the previous tax year (June 15 if you live abroad). This deadline can be extended until October 15 if you file a request for extension to file.
  • Where do I file?
    • The FBAR is filed with theTreasury Department or can be filed electronically while Form 8938 will be filed with your return.

I hope this crisp summary gives Mary a better understanding on FBAR and Form 8938. I feel like calling her right away to know her views on the same!

About US Tax Practice GmbH: US Tax Practice offers U.S. tax services in Switzerland. It is the go-to tax preparation service and compliance practice for U.S. taxpayers. Located in Lenzburg, Switzerland, the company was founded by Patrick Evans, a U.S. tax accountant (CPA, CGMA) and U.S. citizen determined to work with his clients’ best interests in mind. US Tax Practice GmbH services include U.S. Income Tax Preparation, U.S. Tax Compliance, Foreign Bank Account Reporting (FBAR), Tax Planning and Optimization, and Expatriation.

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