New FBAR & FATCA Reporting Requirements

The Report of Foreign Bank and Financial Accounts, commonly known as FBAR, is a filing requirement administered by FinCEN (Financial Crimes Enforcement Network) under the Bank Secrecy Act. FBAR must be filed by any U.S. person—including citizens, residents, entities, trusts, and estates—who has a financial interest in, or signature authority over, one or more foreign financial accounts with an aggregate value exceeding $10,000 at any point during the calendar year. The FBAR is filed electronically on FinCEN Form 114 through the BSA E-Filing System, with a due date of April 15 and an automatic extension available to October 15. Foreign financial accounts subject to FBAR reporting include bank accounts, securities accounts, commodity futures accounts, insurance or annuity policies with cash values, and mutual funds or similar pooled funds held at foreign financial institutions. The FBAR is separate from a taxpayer's federal income tax return and is not filed with the IRS directly, though the IRS enforces FBAR compliance. Penalties for FBAR non-compliance can be severe: non-willful violations carry penalties up to $10,000 per violation, while willful violations can result in penalties of the greater of $100,000 or 50% of the account balance per year. Accounting and tax professionals advising clients with foreign financial relationships must be familiar with FBAR requirements to ensure timely and accurate compliance.

FATCA—the Foreign Account Tax Compliance Act—was enacted in 2010 to combat offshore tax evasion by requiring both U.S. taxpayers and foreign financial institutions to report information about foreign financial accounts and assets to the IRS. While FBAR and FATCA overlap in purpose, they are distinct reporting regimes with different thresholds, forms, and filers. FATCA reporting for individual U.S. taxpayers is done through IRS Form 8938 (Statement of Specified Foreign Financial Assets), which is filed as an attachment to the federal income tax return. The reporting thresholds for Form 8938 are higher than FBAR—$50,000 for unmarried taxpayers living in the U.S. and $100,000 for married filing jointly, with higher thresholds for taxpayers living abroad. FATCA also imposes significant obligations on foreign financial institutions to identify and report U.S. account holders to the IRS or face a 30% withholding tax on U.S.-source payments. The scope of assets reportable under FATCA is broader than FBAR, including interests in foreign entities, foreign-issued life insurance with cash values, and certain foreign pensions. Taxpayers with foreign accounts or assets may be required to file both FBAR and Form 8938 simultaneously, as the two regimes are not mutually exclusive. Tax professionals must understand both frameworks to provide comprehensive foreign asset compliance guidance.

FBAR non-compliance penalties are among the most severe in the tax compliance landscape, reflecting Congress's strong policy interest in transparency around foreign financial accounts. For non-willful FBAR violations—where the failure to file or report was not intentional—the IRS may assess penalties up to $10,000 per violation per year. For willful violations, the penalty can reach the greater of $100,000 or 50% of the account balance at the time of the violation per year, which can quickly equal or exceed the full value of the account itself. Criminal penalties, including fines and imprisonment, apply in egregious willful non-compliance cases. The IRS has historically offered amnesty and reduced-penalty programs to encourage taxpayers with unreported foreign accounts to come into compliance voluntarily, most notably through the Offshore Voluntary Disclosure Program and the Streamlined Filing Compliance Procedures, which provide reduced penalties for eligible non-willful filers. Taxpayers who become aware of FBAR filing obligations they have missed should seek prompt consultation with a tax attorney or CPA experienced in international tax compliance before the IRS initiates contact, as voluntary disclosure options are significantly more favorable than responses to IRS-initiated investigations. Maintaining contemporaneous records of foreign account balances and transaction activity is also critical for supporting accurate FBAR filings and defending penalty assessments when challenged.

FATCA's Form 8938 requires U.S. taxpayers to report a broad range of specified foreign financial assets that meet the applicable reporting threshold. Reportable assets include financial accounts maintained at foreign financial institutions—such as checking, savings, and investment accounts at foreign banks and brokerage firms—as well as other specified foreign financial assets not held through a financial account. The latter category includes stock or securities issued by a foreign corporation, interests in foreign partnerships or trusts, financial instruments or contracts with a foreign counterparty, and foreign-issued annuities or life insurance with cash surrender values. Interests in foreign hedge funds and private equity funds also fall within the reporting scope. Notably, direct ownership of foreign real estate is not reportable on Form 8938 unless held through a foreign entity, though the entity interest itself may be reportable. Social Security benefits and similar foreign government payments are generally excluded. The applicable threshold determines whether reporting is required in a given year—thresholds vary based on filing status and whether the taxpayer lives inside or outside the United States at year end. Taxpayers with multiple foreign assets should carefully inventory all holdings annually to determine Form 8938 obligations and avoid the significant penalties for under-reporting or non-filing under the FATCA foreign asset disclosure requirements.

Discovering unfiled FBAR or FATCA reporting obligations creates significant anxiety for clients and urgency for their CPAs, as the longer the non-compliance continues, the greater the potential penalty exposure. The first critical step is an assessment of the scope and nature of the non-compliance—how many years are affected, the aggregate account balances involved, and whether the non-filing appears to be non-willful or potentially willful in nature. This assessment directly determines which IRS voluntary compliance pathway is appropriate. The IRS Streamlined Filing Compliance Procedures are available for U.S. residents and foreign residents with non-willful non-compliance and offer significantly reduced penalties—5% of the highest aggregate account balance for domestic filers, and zero penalty for qualifying foreign residents. The delinquent FBAR submission procedures allow taxpayers who have not been contacted by the IRS to file missing FBARs with an explanatory statement and potentially avoid penalties. Taxpayers who may have willful non-compliance should not file delinquent returns without first consulting with a tax attorney due to the risk of criminal exposure. Under no circumstances should clients ignore known non-compliance, as the IRS's ability to detect foreign accounts through FATCA information sharing with foreign financial institutions has expanded dramatically in recent years. Prompt, proactive voluntary disclosure consistently produces far better outcomes than waiting for IRS contact.