Last Updated on August 6, 2025 by Arnaud Collignon

1. What is the purpose of the Foreign Account Tax Compliance Act (FATCA)?

FATCA is a key initiative by the U.S. government to combat tax evasion by U.S. persons who hold financial accounts and other assets offshore. It aims to increase transparency regarding U.S. taxpayers’ foreign financial holdings by requiring both U.S. taxpayers and foreign financial institutions to report certain information to the IRS.

2. Who is required to report under FATCA, and what forms are involved?

Under FATCA, certain U.S. taxpayers holding foreign financial assets above specific thresholds must report these assets to the IRS using Form 8938, “Statement of Specified Foreign Financial Assets.” This form must be attached to the taxpayer’s annual income tax return. Additionally, foreign financial institutions are required to report directly to the IRS about accounts held by U.S. taxpayers or foreign entities with substantial U.S. ownership. It’s important to note that this FATCA requirement is in addition to the long-standing obligation to report foreign financial accounts on FinCEN Form 114, “Report of Foreign Bank and Financial Accounts (FBAR).”

3. What are the reporting thresholds for U.S. taxpayers under FATCA?

The reporting thresholds for Form 8938 vary based on filing status and residence. For taxpayers living in the United States:

Unmarried: More than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.
Married filing jointly: More than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.
Married filing separately: More than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.

For taxpayers living abroad:

Married filing jointly: More than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year.
Not married filing jointly: More than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.

These thresholds apply only if the taxpayer is required to file a U.S. income tax return for the year.

4. What assets are considered “specified foreign financial assets” for FATCA reporting?

Specified foreign financial assets include foreign financial accounts and foreign non-account assets held for investment. This can encompass foreign stock and securities, foreign financial instruments, contracts with non-U.S. persons, and interests in foreign entities. However, certain assets are explicitly excluded, such as financial accounts maintained by U.S. payors (e.g., U.S. branches of foreign banks), beneficial interests in foreign trusts or estates if unknown, and interests in foreign government social security or insurance programs.

5. Are there any exceptions or situations where reporting on Form 8938 is not required?

Yes, there are several exceptions. If you are not required to file a U.S. income tax return for the year, you do not need to file Form 8938. Additionally, if specified foreign financial assets have already been reported on other IRS forms (e.g., Form 3520 for trusts/foreign gifts, Form 5471 for foreign corporations, Form 8621 for passive foreign investment companies, Form 8865 for foreign partnerships, or Form 8891 for Canadian retirement savings plans), you do not need to re-report the details on Form 8938. You only need to identify which and how many of these forms report the assets. Other exceptions exist for certain trusts, assets held by bona fide residents of U.S. territories, and assets with mark-to-market elections under IRC Section 475.

6. How should I determine the value of my foreign financial assets for reporting purposes?

Generally, you should report a reasonable estimate of the highest fair market value of the asset during the tax year. For financial accounts, you can typically rely on periodic financial account statements (provided at least annually) to determine the maximum value. For non-account assets, the year-end value can be used if it reasonably approximates the maximum value. Valuation can be based on publicly available information from reliable financial sources or other verifiable sources. Even without such information, a reasonable estimate is sufficient. If assets are in a foreign currency, you must convert their value to U.S. dollars using the U.S. Department of the Treasury’s Bureau of the Fiscal Service’s foreign currency exchange rates, or another publicly available rate if not listed there, based on the exchange rate on the last day of your tax year.

7. What are the penalties for non-compliance with Form 8938 reporting requirements?

Failure to file Form 8938 when required can result in significant penalties. These include a $10,000 failure-to-file penalty, an additional penalty of up to $50,000 for continued failure after IRS notification, and a 40 percent penalty on any understatement of tax directly attributable to non-disclosed assets. Furthermore, the statute of limitations for the tax year can be extended. However, no penalty will be imposed if the failure to disclose is due to reasonable cause and not willful neglect, which is determined on a case-by-case basis.

8. What is the relationship between Form 8938 and the FBAR (FinCEN Form 114)?

Form 8938 and the FBAR are distinct but often overlapping reporting requirements. Both may require reporting of certain foreign financial accounts. However, Form 8938 is filed with your annual income tax return to the IRS, while the FBAR (FinCEN Form 114) is filed electronically through the Financial Crimes Enforcement Network’s BSA E-filing System, generally due by April 15 for the previous calendar year. They have different rules, definitions (e.g., for “financial account”), and reporting requirements. For instance, assets held outside of an account with a financial institution (like foreign stock certificates held directly) are reported on Form 8938 but not on the FBAR. Therefore, filing one form does not relieve the obligation to file the other if both requirements are met.