In this video, Abhinav is sharing the differences between IRS FBAR vs Form 8938 for Indian expats in US
Video transcript (kindly note auto-transcription can contain errors):
Okay. Hello. This is Abhinav, and I welcome you. In this video, I’m sharing basically a comparison between 2 reportings, that a US resident has to do to the IRS. Basically, 1 FBAR is to the FinCEN, but, basically, 2 reportings that a US resident has to do with respect to foreign financial assets.
So if you’re a US NRI and, you’re confused because both these reports, FBAR and form 8938, pertains to your foreign assets. For example, if you’re a nonresident Indian who goes to the US, you have assets in India. You have stocks. You have bank accounts. You have real estate.
You have, you know, other investments. Right? So what to report in FBAR? What to report in form 8938? It’s a bit confusing if you are not you know, you don’t, you know, get into it and do the speed work, then it’s bit difficult to file these reports on your own.
Right? You have to do some kind of a reading. Right? So FBAR, I have made a separate video. You can check that.
Form 8938, I have made a separate video. You can check that. The links to both the videos will be there in the description, and you can watch those videos. Now here, what I’m doing is just like a kind of a brief comparison, on the both the reportings. What are the differences between both the reportings?
Right? So now understand this one very, very important thing that FBAR reporting is basically, it is on the accounts financial accounts, foreign financial accounts. Right? The emphasis is on the accounts, be it be it a custodial account, be it a bank account. Right?
The it should be a financial account, whereas form 8938 reporting is wide. It not only talks about financial accounts, it also talks about financial interests. Right? It that interest may not be in a kind of a through a financial account. That interest may be, like, in a company in India or in a trust in, like, Malaysia.
Right? If you are an Indian, you have a trust in, like, some, Dubai or some Cayman Islands or somewhere, that also qualifies for 893. But for FBAR reporting is more on the bank accounts and the custodial accounts and wherever you hold signatory, kind of signature authority, that is the focus. Right? So we can say that 8938, the scope is much more larger as compared to FBAR.
Right? Now FBAR also has a lower threshold than Form 8938. Now if you think talk about the FBAR threshold, it is $10,000 for a financial year for a tax year, and it’s, like, the maximum at any time process 10,000, then you need to report. But for 8938, it depends on 2 things. What is the status of your tax filing?
Whether you are filing unmarried, whether you are single, whether you’re filing married filing jointly, or you’re filing as married filing separately, and whether you live in USA or you live outside of the USA so the threshold depends on that so for example you’re married filing jointly and you live outside of the USA the threshold is 4 lakh dollars more than 4 lakh dollars at the end of the tax year or 6 6 lakh dollars at any time during the financial year. So that threshold is very high. So most likely if you are a US resident having Indian assets, Indian investments or Indian investment accounts, FBAR reporting you qualifying as a for FBAR reporting has a much higher chance as compared to form 8 938 reporting. But both you need to check whether you qualify and then you need to report because the penalties are very high right of non reporting or false reporting now FBAR is focused on ownership or signing authority Right? FBAR is see, mainly, FBAR is basically either you own the account or you have any sort of signature authority.
May it be like a like a power of attorney, right, or a nominee. Right? Any kind of a signatory, any kind of a sign signing authority or a signatory authority, those if ifs and buts needs to be checked. But any signature authority in any account, even though there is no income from the account, even though you are not earning any income, you are a power attorney holder of an account of your brother in India, so you need to report it in FBAR. And even if your brother is also US resident, he also will need to report.
But the focus here is on the ownership or signing authority. However, form 493 8938 basically requires you to have a financial interest in a foreign company or in a foreign asset or in a foreign financial account which is taxable in the US. So 8938 is actually the main account which is basically where the US wants to check that if you hold a financial interest outside of US which is taxable to you being you being a US resident, are you offering it to tax in India? So 8938 is a more, I will say, it’s a it’s a more focused kind of a it’s a most sharper requirement whereby you have to also file it along with your tax return and you have to also show that, okay, if you are having an income from a foreign, Indian Private Limited Company, you have a business in India, and you have income from it, you need to report it in form 8938. And, also, in 8938, you have to report which particular schedule, which line you have reported this income in 1040.
So to that extent, you need to kind of do the detailing. You cannot only report the your interest in the Indian private label company and not report the income. Right? So that is not possible. So 898 is a much more sharper requirement where US wants to check whether you have offered the foreign income to tax in the US that’s why it has to be the 8938 has to be filed along with the tax seater.
Okay. Now FBAR requires a location. FBAR is most concerned with the location of the asset. It should be located outside the United States, whereas form 893 focuses on the residence tax residence of the payer. Right?
That the company that is paying should its tax result should be outside the United States. So in FBAR, in case of FBAR, any asset which is located outside the United States has to be reported. Whereas 8938 says that the payer’s tax resident should be that of other than the US. So if, for example, if you have a financial account, if you, as a US resident, have a financial account in a US bank in India. Right?
So basically, FBAR will require it to be you you’ll file it as part of the FBAR because the location of the asset is in India. Right? Location of that account is in India, which is a foreign country. Whereas form 8938 will it will it will not be required to. Right?
Because the bank account belongs to the US Bank, the branch of the US Bank. Right? So the payer is still the US Bank, which is a US resident. So there that is just like a small start, small difference. Okay.
Then FBAR considers only financial accounts where 8938, whereas 8938 includes even non financial accounts. So FBAR is only concerned with financial accounts. Right? You having any financial account, be it a brokerage account or a bank account. 8938 says that even non financial accounts you need to report.
For example, you hold, for example, interest in a partnership firm. Right, or foreign stocks, if you have stocks in India, which are not held by a brokerage, which are held outside of, you know, a brokerage. So that also needs to be reported in 8938 because any income, any unlisted stocks that you have in India, which has income, that income needs to be reported in the US tax law. Right? So you have to report it in 8938 and also report the income in 1040.
FBAR considers public accounts only. Right? FBAR, the focus is on public account. For example, if the if you give both to the IRS guidance, they consider, like, mutual funds they consider or kind of public pooled investments, whereas the where the investments are available for the public, which is like a mutual fund, an Indian mutual fund. Whereas form 8938 also considers private account private accounts, which is like a PMS if you hold in India, which is a private account or a private equity or a or a private hedge fund.
These are all private accounts. So that also are qualified for 8938 reporting. Now, FBAR needs to be reported to the FinCEN, right, which is a separate department or part of the Department of Treasury Financial Crime Enforcement Network. Right? It is not the IRS.
It’s a separate department within the Department of Treasury, whereas form 8938 needs to report it to the IRS along with the tax tutor. The timeline for both the reportings is the same April 15th, and you can get extension, 6 month extension. Now, if by you get auto you get auto extension till October 18th October 15th, so there is no kind of you need to don’t need to file an extension as such. But for 8938, you need to file an extension to your tax return, and only then you get an extension to file form 8938. Right?
So these are some points that I try to bring, kind of bringing the difference between both the reportings because there is a certain overlap between both the reports. I hope this video was useful. If you have any questions, do share in the comment section. Any questions, any feedback, do share in the comment section. Thank you so much for watching this video.
Thank you so much. Bye.