Do I Need to File an FBAR for FY 2023 (and What Happens If I Don’t)?
October 24, 2023
Taxpayers that own (or control) offshore bank accounts and other foreign financial assets have a duty to report these assets to the federal government annually. While there are minimum thresholds for taxpayers’ reporting obligations, these thresholds are fairly low—so most high-income and high-net-worth taxpayers will need to comply. Typically, this means filing a Report of Financial Bank and Financial Accounts (FBAR) with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
But other reporting obligations may apply as well. For example, many U.S. taxpayers who are required to file an FBAR will also need to file Form 8938 with the Internal Revenue Service (IRS). Since failure to file either form can trigger steep penalties, individual and corporate taxpayers must ensure that they have a clear understanding of their filing obligations for fiscal year (FY) 2023.
The FBAR Filing Requirements for FY 2023
The obligation to file an FBAR applies to U.S. taxpayers who own (or control) foreign financial accounts. As the IRS explains, “an account at a financial institution located outside the United States is a foreign financial account.” Due to this broad definition, nearly all offshore accounts are covered, with limited exceptions for retirement accounts, correspondent/nostro accounts, certain government-owned accounts and certain trusts.
Here is an overview of the FBAR filing requirements for FY 2023:
- U.S. Taxpayers Subject to the FBAR Filing Requirement – The obligation to file an FBAR applies to all “U.S. persons,” which includes individual citizens and residents of the United States, domestic business entities, trusts, and estates. For purposes of FBAR compliance, the United States includes Puerto Rico and all other U.S. territories.
- FBAR Reporting Threshold – U.S. taxpayers must file an FBAR if the aggregate value of their foreign financial accounts exceeds $10,000 at any time during 2023. If a taxpayer has multiple foreign financial accounts and a single account exceeds $10,000 in value, the taxpayer must still report all accounts to FinCEN. As the IRS also clarifies, “if you have 2 accounts with a combined account balance greater than $10,000 at any one time, both accounts would have to be reported.”
- Calculating Aggregate Account Value – To determine the aggregate value of their offshore accounts for FBAR compliance purposes, U.S. taxpayers must convert any foreign currency or cryptocurrency “to U.S. dollars using the end of the calendar year exchange rate.” Taxpayers must report the value of their foreign financial accounts to FinCEN in U.S. dollars.
FBARs are due to FinCEN on April 15, regardless of Tax Day, but all U.S. taxpayers receive an automatic extension to October 15. Even so, foreign financial holdings may have other tax implications as well, so individual and corporate taxpayers will generally need to address their reporting obligations when preparing their annual returns.
The Form 8938 Filing Requirements for FY 2023
Along with an FBAR, many U.S. taxpayers will also need to file Form 8938 for FY 2023. While the FBAR filing requirement applies to foreign financial accounts, the Form 8938 filing requirement applies to “specified foreign financial assets.” This includes, but not limited to, offshore bank accounts. Other specified foreign financial assets include:
- Stocks and other securities issued by foreign entities
- Other interests in foreign entities
- Financial instruments and contracts with issuers or counterparties that are not U.S. persons
As a result, U.S. taxpayers who are required to file an FBAR with FinCEN may also be required to file Form 8938 with the IRS. Additionally, even if a taxpayer isn’t required to file an FBAR, filing Form 8938 may still be required. Here is an overview of the Form 8938 filing requirements for FY 2023:
- U.S. Taxpayers Subject to the FBAR Filing Requirement – The obligation to file Form 8938 applies to U.S. citizens, resident aliens, certain non-resident aliens, certain domestic corporations, partnerships and trusts. Unlike the FBAR filing requirement, the Form 8938 filing requirement does not apply to residents of U.S. territories who are not otherwise covered.
- Form 8938 Reporting Threshold – The Form 8938 reporting thresholds vary for individuals and entities, and they also vary depending on whether the taxpayer resides in the United States or in a foreign country. For unmarried individuals residing in the U.S., filing Form 8938 is required if the total value of their specified foreign financial assets was more than $50,000 on the last day of FY 2023 or exceeded $75,000 at any time during FY 2023.
- Calculating Aggregate Asset Value – To determine the aggregate value of their specified foreign financial assets for Form 8938 compliance purposes, U.S. taxpayers must determine the fair market value of their covered assets in U.S. dollars. Taxpayers must also report the aggregate value of their specified foreign financial assets to the IRS in U.S. dollars.
Unlike the FBAR, Form 8938 is due on Tax Day and should be attached to the taxpayer’s annual return. If a taxpayer requests an extension to file its return, the taxpayer may file Form 8938 with its return during the extension period.
Consequences of Failing to File an FBAR or Form 8938
So, that covers the FBAR and Form 8938 filing requirements for FY 2023. Now, what happens if you don’t meet the filing requirements?
Under the Foreign Account Tax Compliance Act (FATCA), failure to file an FBAR is minimally subject to a civil monetary penalty (CMP), which rises annually with inflation. However, willfully failing to file an FBAR can lead to criminal penalties. Similarly, while failure to file Form 8938 will trigger a CMP under the Bank Secrecy Act (BSA) in most cases (ranging from $10,000 to $60,000), willful failure to file Form 8938 can trigger criminal penalties as well.
Request a Confidential Consultation with an Offshore Tax Lawyer at Brown Tax, P.C.
At Brown Tax, P.C., we represent corporate and high-asset individual taxpayers in significant federal tax controversies. If you or your company is facing scrutiny related to its offshore accounts or other foreign financial assets, we invite you to contact us for more information. Please call 888-870-0025 or contact us online to request a confidential consultation.