FBAR and Form 8938 for accounts linked to trusts

When FBAR applies

A U.S. citizen is a U.S. person for FBAR purposes, and the FBAR rule applies when there is a financial interest in or authority over a foreign financial account and aggregate foreign account values exceed $10,000 at any time during the calendar year. The account test is not based on whether the account produced taxable income.^[7]

A foreign account can include a bank, brokerage, or mutual fund account held outside the United States. A beneficiary need not report foreign financial accounts held by a trust if a U.S. person that is the trust, its trustee, or its agent files an FBAR reporting those accounts.^[1][7]

The FBAR is submitted electronically through FinCEN's BSA E-Filing System and is separate from a federal income tax return. It is an annual report due April 15 after the reported calendar year, with an automatic extension to October 15.^[7]

When Form 8938 applies

A U.S. citizen is a specified individual under the Form 8938 instructions. A specified individual with an interest in specified foreign financial assets files Form 8938 when their aggregate value is above the applicable threshold, provided an exception does not apply.

Specified foreign financial assets include foreign financial accounts and foreign assets held for investment outside an account. A foreign trust owner may have to report assets held by the trust, and a beneficiary may have to report an interest in the trust. A beneficial interest is excluded when the person does not know, and has no reason to know, of it; receiving a distribution counts as knowledge under the IRS summary.^[2][5]

For a U.S. citizen living in the United States, the instructions state a $50,000 threshold at year end or $75,000 at any time for an unmarried person or a person filing separately. For married people filing jointly, the amounts are $100,000 at year end or $150,000 at any time. Higher thresholds apply for individuals living outside the United States.^[5]

Form 8938 is attached to the applicable annual return. For a trust owner, the instructions describe an exception for assets of the owned portion when the trust is reported on Form 3520, the individual files timely, and the trust files Form 3520-A timely. Assets reported on specified other forms can be excluded from duplicate listing, though their values remain part of the reporting threshold calculation.^[2][5]

How the two reports differ

FBAR focuses on foreign financial accounts and uses the $10,000 aggregate account threshold, together with a financial interest or account authority test. Form 8938 covers specified foreign financial assets, including qualifying non-account assets and some foreign trust interests, and uses thresholds that vary with residence and filing status.^[5][7]

Filing Form 8938 does not satisfy an FBAR filing requirement. An account can be reportable on both forms, while a specified foreign financial asset held outside a financial account is reported on Form 8938 and not on the FBAR. The IRS says the forms use different definitions and reporting requirements.^[2][5]

Penalties for missed reports

The FBAR carries civil penalties that scale with willfulness. A non-willful failure can draw a penalty per violation, and no penalty applies when there is reasonable cause and the balance is properly reported. A willful failure can draw the greater of an inflation-adjusted amount (set at $100,000 in the statute) or 50% of the account balance at the time of the violation, and willful violations can also carry criminal exposure.^[7]

A Form 8938 that is not filed complete and correct by the due date can draw a $10,000 penalty. If the failure continues 90 days after the IRS mails a notice, a further $10,000 applies for each 30-day period, up to $50,000 of additional penalty. An underpayment tied to an undisclosed foreign financial asset can also bear a 40% accuracy-related penalty in place of the usual 20%.^[2]

Questions and answers

Related resources

Related glossary terms

• FBAR: FinCEN describes the FBAR filing rule for U.S. persons with foreign accounts. It covers the $10,000 aggregate threshold, account interests and exceptions.
• Responsible party: The Instructions for Form 3520 define the responsible party for specified events involving a foreign trust. The role differs from an owner or U.S. agent.
• Foreign grantor trust: A foreign grantor trust is a foreign trust treated as owned by a grantor, often a U.S. person. Ownership brings Form 3520 and Form 3520-A reporting duties.

Related articles and guides

• PFIC holdings and trust reporting: PFIC classification tests and related reporting apply to U.S. citizens with direct or indirect interests, including interests held through foreign trusts.
• Trust accounts: FBAR and Form 8938 overlap: Trust-related FBAR and Form 8938 reporting: foreign accounts and specified assets, ownership, signature authority, and where the two reports overlap and differ.

Tools and official documents

• Form 1116: foreign tax credit: Form 1116 claims the foreign tax credit for U.S. citizens: income categories, supporting information, related forms and filing timing under the instructions.
• Form 8865: foreign partnerships: Form 8865 reports U.S. persons' interests in certain foreign partnerships: filer categories, definitions, schedules, related forms and timing for citizens.

Related pages

• Banking
• Due diligence and controlling persons of a trust
• FATCA and foreign financial institutions
• Foreign trust forms and the accounts behind them
• How banks and trust companies work with trusts