Dear Tax Talk,
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I file Form 8938, Foreign Financial Assets, with my 1040 to the IRS. My tax attorney says I also must file FBAR (foreign bank account) Form 114, at a different U.S. Treasury, non-IRS address, with a different filing date. The two forms have different formats but ask for the same information. Does this make any sense to you?
Your tax attorney is correct in that you need to file the FBAR separately from Form 8938, Statement of Specified Foreign Financial Assets. While the forms may seem the same, there are different requirements in determining whether you must file them.
Let's start with the FBAR (foreign bank account) Form FinCEN-114, which was formerly Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts. When you are preparing your Form 1040 income tax return and completing Schedule B, Interest and Ordinary Dividends, you will see Part III at the bottom of the form, which you are required to complete if you (a) had more than $1,500 of taxable interest or ordinary dividends; (b) had a foreign account; or (c) received a distribution from, or were a grantor of, or a transferor to, a foreign trust.
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Right away you can see that if you have more than $1,500 in taxable interest and dividends, you need to answer the questions listed. Question 7a requires your response in stating whether or not you are required to file FinCEN Form 114.
FinCEN Report 114 is used to report if you have a financial interest in, signature authority, or other authority over one or more financial accounts in a foreign country if the aggregate value of the accounts is $10,000 or more. The forms are required to be electronically filed by June 30 at FinCEN.gov.
Now, let's go over IRS Form 8938, Statement of Specified Foreign Financial Assets. Yes, you are right: It seems like the same information is required again. But there are a few differences. The instructions say that unless an exception applies, if you are a "specified individual" that has an interest in "specified foreign assets" and the value of those assets is more than the "applicable reporting threshold," you are required to file this form with your income tax return. So what does that all mean?
Generally, a "specified individual" is either a U.S. citizen, resident alien of the U.S. or nonresident alien who meets certain conditions. There are different "reporting thresholds" for taxpayers living in the U.S. and taxpayers living outside the U.S. Additionally, within those categories there are different thresholds for unmarried taxpayers, married taxpayers filing a joint income tax return and married taxpayers filing separate income tax returns. I highly recommend printing out the 10 pages of instructions and reading them carefully.
Form 8938 requires disclosure of different "tax items" -- for example, interest, dividends, royalties, etc., from your foreign accounts and where you are reporting them on your tax return. The FinCEN Report 114 does not require that information.
The IRS is very interested in offshore accounts and making sure that everything is reported correctly. Foreign banks are cooperating with reporting this information now, so be sure you are compliant with all of the financial reporting requirements.
Thanks for the great question and all the best to you.
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