If you have bank accounts or foreign investments abroad, you’ve probably heard of filing requirements FBAR (Report of Foreign Bank and Financial Accounts) and FATCA (Foreign Account Tax Compliance Act). While both related to foreign assets, they have different roles. This is the United States’ way of monitoring taxpayers offshore monies and investments.
They have two separate reporting systems with different rules. It’s easy to misunderstand the differences when filing your taxes. This is one of the most common and expensive tax mistakes for Americans to make if they have foreign assets.
First: FBAR (FinCEN Form 114)
The FBAR is all about foreign bank and financial accounts. Examples may be checking or savings account, pensions, or investment accounts held outside of the U.S. FBAR exists to provide financial transparency and prevent money laundering.
If the total of your foreign accounts reach $10,000 at any point during the year, you are required to file Form 114 with your annual tax return. Regardless of the currency, if it reaches $10,000 USD, it hits the threshold of reporting with the U.S. Treasury’s financial crime enforcement division.
It doesn’t matter if:
- The money is spread across multiple accounts
- The accounts are inactive
- Or you already reported them on your tax return
Second: FATCA (Form 8938)
FATCA is broader and generated to be entered directly on your tax return. FATCA exists for tax compliance and asset disclosure through the IRS. However, instead of focusing on bank accounts alone, it looks at your general foreign financial assets. This can include:
- Foreign banks and brokerage accounts
- Foreign stocks held directly
- Interested in foreign companies
- Foreign partnerships and trusts
So even if you don’t manage a foreign bank account, any other type of financial asset can trigger FATCA.
Do You Have to File Both?
Most of the time, yes.
If you own foreign accounts, it’s very likely that you’re meeting FBAR and FATCA requirements. It’s important to understand that one does not replace the other. Filing FATCA does not satisfy FBAR requirements, or vice versa — they run parallel.
If you fail to file, the consequences can become steep quickly. A non-willful mistake can reach up to $10,000 per offense, with willful violations reaching up to 50% of the account balance per year.
What about filing FATCA or FBAR only?
This is a less common scenario, but it still happens. You may only need to file FATCA if you have:
- Foreign stocks held directly (NO foreign brokerage account)
- Foreign business ownership
- Interests in foreign partnerships or trusts
- Foreign assets that aren’t within a financial account
In these cases, there’s nothing “account based” to trigger a FBAR requirement, but FATCA still applies.
As for FBAR, it is fairly simple. If at any point your foreign account(s) exceed the minimum threshold, you must report the accounts.
Bringing it All Together
FBAR and FATCA are closely related, but they’re not interchangeable. FBAR focuses specifically on foreign accounts, while FATCA expands the view to a broader range of foreign assets.
In many cases, taxpayers with foreign accounts will need to comply with both filing requirements, even though they’re filed separately and serve different government agencies. The key takeaway is that filing one or the other isn’t going to cover the requirements for holding foreign financial assets. Each has its own set of rules, thresholds, and filing obligations.
Because penalties for missing either filing can be tough, it’s important to review your foreign holdings carefully each year. If you’re in doubt, reporting is always the safer route.
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