American citizens and lawful permanent residents (“green card holders”) living abroad often assume that once they leave the U.S., their tax obligations vanish. That is incorrect. The United States uses a citizenship-based taxation system, meaning U.S. persons are taxed on their global income, no matter where they reside. Two of the most crucial compliance regimes for U.S. expats involve FBAR and FATCA. Missing or incorrect filings can trigger heavy penalties. This article gives you a practical guide to what those rules are, when they apply, how to file, and how to manage risks.
What Are FBAR and FATCA?
FBAR (FinCEN Form 114)
- Full name: Report of Foreign Bank and Financial Accounts (commonly called FBAR).
- Administered by: The U.S. Department of the Treasury via FinCEN (Financial Crimes Enforcement Network).
- Purpose: To require U.S. persons to disclose foreign financial accounts (banks, brokerage, mutual funds, etc.) to identify undisclosed offshore holdings.
- Threshold: You must file if the aggregate value of all your foreign financial accounts exceeded $10,000 at any time during the calendar year (even briefly).
- Key distinction: FBAR is not a tax return. It is purely an informational report.
FATCA (Internal Revenue Code / IRS Form 8938)
- Full name: Foreign Account Tax Compliance Act (FATCA).
- Administered by: IRS (Internal Revenue Service) under U.S. tax code.
- Purpose: Requires U.S. taxpayers with substantial foreign financial assets to report those on Form 8938, in addition to FBAR, and places disclosure obligations on foreign financial institutions.
- Thresholds: These depend on filing status, residency, and whether you’re living abroad or inside the U.S. For example, a U.S. person living abroad must file if specified foreign assets exceed $200,000 at year-end or $300,000 at any time during the year (for single filers).
- Overlap with FBAR: Filing FBAR does not relieve you from FATCA/Form 8938 obligations if thresholds are met.
Who Must File: Comparing FBAR vs FATCA
| Feature | FBAR (Form 114) | FATCA (Form 8938) |
| Who must file | U.S. persons (citizens, residents, trusts, estates, etc.) with foreign accounts > $10,000 aggregate | U.S. persons with “specified foreign financial assets” above threshold |
| Administered by | FinCEN (Treasury) | IRS |
| Timing | Calendar year, due April 15 with extension to October 15 | Tax filing deadline (April) including extension |
| Assets covered | Foreign financial accounts (bank, brokerage, mutual funds, etc.) | Broader: foreign investment accounts, stocks, interests in foreign entities, etc. |
| Purpose | Disclosure of foreign account holdings | Disclosure of foreign financial assets as part of tax reporting |
| Penalties for non-compliance | Severe: civil and criminal penalties under Title 31 | Additional penalties, plus impact on tax return audits |
Key points:
- If you exceed the FBAR threshold, you must file FBAR regardless of whether you file a U.S. tax return.
- The FATCA threshold depends on your filing status and where you live.
- You may have to file both. Comply with both regimes if your situation triggers them.
When & How to File
FBAR (FinCEN Form 114)
- Deadline: April 15 (automatic extension to October 15 for U.S. persons abroad).
- Filing method: Electronically via the BSA E-Filing System. Paper filings are generally not accepted unless you receive an exemption.
- Information needed: Account numbers, names/addresses of foreign banks, max account values during year, account type, ownership type.
FATCA / Form 8938
- Deadline: Same as your U.S. tax return (April 15, plus extensions).
- Where to file: Attach Form 8938 to your Form 1040 (U.S. individual tax return).
- Assets to include: Foreign bank accounts, stocks, bonds, interests in foreign entities, foreign trusts, etc. Certain exclusions apply.
- Joint accounts: If you hold a foreign account jointly, usually report entire value (not just your share).
Penalties & Risks of Non-Compliance
- FBAR violations: Can lead to civil or criminal penalties. Penalties may include up to $100,000 per violation or 50% of the account value, whichever is greater, for willful violations.
- FATCA/Form 8938 failures: Separate penalties, e.g. $10,000 for failure to furnish the form, plus additional fines for continued noncompliance.
- Statute of limitations: FBAR violations under Title 31 have a 6-year period.
- Audit risk & matches: IRS and Treasury compare data from foreign financial institutions (under FATCA reporting) with your FBAR / tax return. Discrepancies can trigger audits or enforcement actions.
- Reputational and banking risk: Some foreign banks refuse accounts for U.S. persons due to compliance costs.
Special Considerations for Expats
Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC)
Even though FBAR and FATCA are disclosure obligations, your tax liability may be mitigated by:
- FEIE: Exclude a portion of foreign earned income (if qualifying) using Form 2555.
- Foreign Tax Credit: Use Form 1116 to offset U.S. taxes with foreign taxes paid.
These do not relieve you from FBAR or FATCA compliance.
Filing Delinquent FBARs
If you missed FBAR filings in past years and you are not under audit or criminal investigation, you may use the Delinquent FBAR Submission Procedures or Streamlined Compliance Procedures to limit penalties.
“Accidental Americans”
Some people are U.S. citizens by birth (e.g. born in U.S. territory) but have lived most of their lives abroad and are unaware of their obligations. They still are subject to FBAR/FATCA requirements.
Foreign Institution Reporting to U.S.
Under FATCA, many foreign banks (non-U.S. financial institutions) must report U.S. account holders (balances, interest, etc.) to the IRS.
Thus, your banking institution may ask for your U.S. tax status or U.S. taxpayer ID (SSN or ITIN).
Common Mistakes Expats Make
Even well-intentioned taxpayers make errors when dealing with FBAR and FATCA. Below are some of the most frequent issues:
- Assuming small accounts don’t count
Even if each account has a small balance, the combined total may exceed $10,000, triggering FBAR reporting. - Ignoring joint or family accounts
Accounts shared with a spouse or held for a child must often be reported if you have signature authority or control. - Overlooking local retirement or investment funds
Many foreign pension or insurance-linked investments qualify as reportable financial assets. - Believing that paying foreign tax removes U.S. reporting duties
Paying taxes abroad does not replace filing requirements with the IRS or FinCEN. - Missing deadlines due to different time zones
Filing late even unintentionally can attract penalties. Always use reminders or hire an expat tax professional.
By being aware of these pitfalls, you can stay compliant and avoid unnecessary stress.
Key Takeaway
For U.S. expatriates, FBAR and FATCA reporting are not matters of choice, they are requirements of the law presiding over the U.S. citizens living abroad.
In spite of the fact that these forms do not constitute your tax bill directly, they guarantee that the IRS is fully informed about your offshore assets.
Disregarding them may result in very severe financial and legal repercussions.
Keep your records straight, file your tax returns on time, and engage a skilled and experienced tax consultant specializing in expat filings if you want to be in compliance and avoid the risks that are not necessary.
