Offshore Bank Accounts: FBAR, Form 8938, and FATCA Rules

If you are a U.S. citizen or resident with money in a bank outside the United States, the account itself is legal, but two separate federal filings can apply to it. The rules governing offshore bank accounts, FBAR, and FATCA require you to report the account to the Treasury Department when your combined foreign balances cross $10,000 at any point in the year, to file an additional IRS form at higher thresholds that vary by filing status, and to pay U.S. tax on any interest, dividends, or gains the account earns. Foreign banks report the same information about you to the IRS on their own, so the government usually knows the account exists before you file anything.

The FBAR: The $10,000 Rule

The Bank Secrecy Act requires every U.S. person with a financial interest in, or signature authority over, foreign financial accounts to file a Report of Foreign Bank and Financial Accounts when the combined value of those accounts exceeds $10,000 at any point during the calendar year.¹ The filing is FinCEN Form 114, submitted electronically through FinCEN’s BSA E-Filing system.²

The threshold applies to the aggregate of all your foreign accounts, not each one individually. Three accounts with $4,000 in each, held at the same time, put you over the line. “U.S. person” covers citizens, residents, corporations, partnerships, LLCs, trusts, and estates.³

Deadline

The FBAR is due April 15 for the prior calendar year. If you miss that date, an automatic extension pushes the deadline to October 15 with no request required.²

Spouses

Where a married couple holds only joint foreign accounts, one spouse can file for both. That filing spouse reports all joint accounts on a timely FBAR, and both spouses sign FinCEN Form 114a to designate who is filing. You keep Form 114a in your records; it does not go to FinCEN. If either spouse also has an account in their own name, both spouses have to file separate FBARs, and each report has to include the full value of any joint accounts.⁴

Records

Keep records supporting the FBAR for five years from the due date. That means bank statements, account numbers, and documentation of the highest balance in each account during the year.²

Form 8938: Higher Thresholds That Depend on You

Separate from the FBAR, the IRS requires Form 8938 for taxpayers holding specified foreign financial assets above certain thresholds. It attaches to your annual tax return and reaches a wider set of assets than the FBAR, including foreign stocks, partnership interests, and financial instruments issued by foreign entities, not only bank accounts.⁵

The thresholds shift with your filing status and where you live:

Single, living in the U.S.: foreign assets exceed $50,000 on the last day of the year, or $75,000 at any point during the year.
Married filing jointly, living in the U.S.: $100,000 year-end, or $150,000 at any point.
Single, living abroad: $200,000 year-end, or $300,000 at any point.
Married filing jointly, living abroad: $400,000 year-end, or $600,000 at any point.

These figures come from the Treasury regulations that implement the statute.⁶ Form 8938 is due with your tax return, extensions included.⁷

Why Both Filings Can Apply to the Same Account

The FBAR and Form 8938 are not redundant. The FBAR goes to FinCEN, covers only financial accounts, uses a flat $10,000 threshold, and is filed separately from your tax return. Form 8938 goes to the IRS, covers a broader set of foreign assets, uses thresholds that vary by filing status and residence, and rides along with your 1040. Cross both thresholds and you file both, listing the same account on each.

FATCA: The Bank Reports You Too

Your reporting obligations are only half of it. Under the Foreign Account Tax Compliance Act, foreign financial institutions have to report information about accounts held by U.S. taxpayers directly to the IRS. Treasury has signed intergovernmental agreements with countries around the world to move that data.⁸

A bank that refuses to comply faces a 30% withholding tax on certain U.S.-source payments, which is why virtually every major international institution participates. In practice, the IRS often has your account information before you file. Treating a small foreign balance as too minor to notice is a bad bet when the bank itself is reporting it.

Tax on the Income the Account Earns

The United States taxes its citizens and residents on worldwide income, wherever earned and wherever held. Interest, dividends, and capital gains inside a foreign account are taxable on your federal return the same way they would be domestically.⁹

Foreign interest and dividends go on Schedule B of Form 1040. Part III of Schedule B asks directly whether you hold any foreign accounts and requires you to name the countries. That is a third place the account may need to be identified, on top of the FBAR and Form 8938.

Foreign Tax Credit

If a foreign country taxes the income earned in your account, you can usually claim a foreign tax credit to avoid being taxed twice. The credit equals the lesser of the foreign tax paid or the U.S. tax attributable to that foreign income. It is claimed on Form 1116, though a simplified method exists if all your foreign income is passive (bank interest qualifies), the total foreign tax is below a certain threshold, and a few other conditions are met.¹⁰

Penalties or interest paid to a foreign tax authority do not qualify — only actual income taxes do. And in any given year you have to choose between taking the credit and deducting the foreign taxes as an itemized deduction. You cannot do both.

The Foreign Mutual Fund Trap

One piece of this is worth flagging even if you had not thought to ask about it, because the assumption most investors carry from domestic accounts is wrong. If you buy a foreign-domiciled mutual fund or ETF through your offshore account, the IRS will almost certainly treat it as a Passive Foreign Investment Company. A foreign corporation is a PFIC if at least 75% of its income is passive or at least 50% of its assets produce passive income, and that captures nearly every foreign mutual fund.¹¹

PFIC treatment was designed to be punitive. Under the default method, when you sell shares or receive a large distribution, the gain is spread back across every year you held the investment. You pay ordinary income rates on each year’s slice, plus an interest charge on the deferred tax from prior years. Form 8621 is required for each PFIC held, with a limited exemption from the annual reporting portion for shareholders holding $25,000 or less in total PFICs at year-end ($50,000 for joint filers).¹¹ The practical answer is to stick to individual stocks, bonds, or U.S.-domiciled funds inside a foreign account, rather than locally marketed foreign funds.

Penalties

The penalties are the reason to take these filings seriously.

FBAR

The base statutory penalty for a non-willful FBAR violation is up to $10,000 per violation. Willful failure to file raises it to the greater of $100,000 or 50% of the account balance at the time of the violation.¹² Those base figures are adjusted for inflation each year, so actual maximums may be higher. Criminal penalties for willful violations can reach $250,000 in fines and five years in prison, or $500,000 and ten years if the violation is part of a broader pattern of illegal activity exceeding $100,000 in a 12-month period.¹³

A reasonable cause exception exists: if the failure was due to reasonable cause and you properly reported the account balance, no penalty applies. Claiming you did not know the rule existed is a hard sell, though, given that Schedule B asks about foreign accounts on the face of the return.

Form 8938

Missing Form 8938 triggers an initial $10,000 penalty. If you still have not filed 90 days after the IRS mails you a notice, additional $10,000 penalties accrue for each 30-day period of continued non-compliance, up to a $50,000 maximum.⁵

Cleaning Up Prior Years

If you have unreported accounts from past years, doing nothing is the worst option. The IRS runs several compliance programs, and the penalties under them are far lower than what an audit would produce.¹⁴

Streamlined Domestic Offshore Procedures

This path is built for taxpayers living in the U.S. whose failures were non-willful, meaning negligence, inadvertence, or a good-faith misreading of the law. You file amended returns for the most recent three tax years and delinquent FBARs for the most recent six years. The penalty is 5% of the highest aggregate balance of the unreported foreign assets during the covered period, well below the per-violation penalties that would otherwise apply.¹⁵

You certify eligibility on Form 14654, and the amended returns need “Streamlined Domestic Offshore” written in red at the top of each page. The submission goes by paper mail to a designated IRS address in Austin, Texas.

Delinquent FBAR Submission Procedures

If you already reported the income from your foreign accounts on your tax returns and simply missed the FBAR, a simpler path may work. You cannot be under IRS examination or investigation, and you cannot already have been contacted about the missing FBARs. If you qualify, you file the late FBARs electronically through FinCEN’s system with an explanation for the delay, and the IRS will not impose a penalty.¹⁶

Willful Cases

Taxpayers whose non-compliance was willful cannot use the streamlined procedures. IRS Criminal Investigation runs a separate voluntary disclosure practice for those situations. Penalties are considerably higher, but voluntary disclosure generally takes criminal prosecution off the table. Anyone in this category should work with a tax attorney before submitting anything.

Closing the Account

Closing a foreign account does not end your reporting for the year it closes. No special termination form exists, but if the account (combined with any other foreign accounts) held more than $10,000 at any point during the calendar year of closure, you still owe an FBAR for that final year.² The same logic covers Form 8938 if you crossed its threshold at any point before the account was drained. Interest or gains earned in the final partial year remain taxable. Retain the account records for five years from the FBAR due date.

1
Office of the Law Revision Counsel. 31 USC 5311 – Declaration of Purpose
2
Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
3
Financial Crimes Enforcement Network. Report of Foreign Bank and Financial Accounts
4
Financial Crimes Enforcement Network. Filing for Spouse
5
Office of the Law Revision Counsel. 26 USC 6038D – Information With Respect to Foreign Financial Assets
6
eCFR. 26 CFR 1.6038D-2 – Requirement to Report Specified Foreign Financial Assets
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Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets
8
U.S. Department of the Treasury. Foreign Account Tax Compliance Act
9
Internal Revenue Service. Reporting Foreign Income and Filing a Tax Return When Living Abroad
10
Internal Revenue Service. Topic No. 856, Foreign Tax Credit
11
Internal Revenue Service. Instructions for Form 8621 (12/2025)
12
Office of the Law Revision Counsel. 31 USC 5321 – Civil Penalties
13
Office of the Law Revision Counsel. 31 USC 5322 – Criminal Penalties
14
Internal Revenue Service. Options Available for U.S. Taxpayers With Undisclosed Foreign Financial Assets
15
Internal Revenue Service. U.S. Taxpayers Residing in the United States
16
Internal Revenue Service. Delinquent FBAR Submission Procedures