The National Taxpayer Advocate recommends a law change to eliminate duplication.

For tax professionals navigating the complexities of international tax law, few requirements are as redundant and potentially treacherous as the double reporting of foreign financial assets. Currently, many U.S. taxpayers must report the same foreign accounts twice: once to the Financial Crimes Enforcement Network (FinCEN) and again to the Internal Revenue Service (IRS).

Last month, the National Taxpayer Advocate recommended a legislative solution to amend the Internal Revenue Code and the Bank Secrecy Act to eliminate this duplication. For practitioners and their clients, this change would represent a significant step toward a more efficient and just tax system.

The Current Duplicative Landscape

At present, two distinct statutes drive the reporting of foreign financial interests:

• 31 U.S.C. § 5314 (FBAR): Requires U.S. persons to file FinCEN Form 114 to report interests in foreign financial accounts exceeding $10,000 at any time during the year.
• IRC § 6038D (Form 8938): Enacted as part of FATCA, this requires taxpayers to attach Form 8938 to their annual income tax returns to report “specified foreign financial assets” if they meet certain value thresholds (generally starting at $50,000).

Because “specified foreign financial assets” under the tax code largely overlap with “financial accounts” under the Bank Secrecy Act, taxpayers often find themselves entering the same account numbers, bank names, and maximum values on two different forms.

The High Stakes of Non-Compliance

The danger for clients is not merely the administrative burden, but the draconian penalty regime associated with each form:

• FBAR Penalties: Non-willful violations can result in penalties of approximately $16,000 per violation (adjusted for inflation). Willful violations can escalate to the greater of $163,353 or 50% of the account balance per year.
• Form 8938 Penalties: Failure to file carries a $10,000 penalty, which can increase by an additional $50,000 for continued failure after IRS notification. Furthermore, an accuracy-related penalty of 40% applies to any tax understatement attributable to undisclosed foreign assets.

The National Taxpayer Advocate’s Proposal

The NTA recommends that Congress amend IRC § 6038D and 31 U.S.C. § 5314 to provide that assets correctly reported on an FBAR need not be duplicated on Form 8938. The goal is to ensure that while each agency (IRS and FinCEN) maintains access to necessary information, the taxpayer is not penalized for failing to report the exact same data twice.

This recommendation aligns with the broader objectives of the Taxpayer Bill of Rights, specifically the Right to a Fair and Just Tax System and the Right to Pay No More than the Correct Amount of Tax.

How We Can Help

Until these legislative changes are enacted, tax professionals must ensure strict adherence to both reporting regimes. The interaction between these statutes is nuanced; for example, while an FBAR is not subject to the privacy protections of IRC § 6103, Form 8938 is, meaning the information is handled differently by law enforcement.

If your client has undisclosed foreign accounts or is struggling with the complexities of multi-jurisdictional reporting, our firm provides expert guidance on:

• Navigating the Streamlined Filing Compliance Procedures for non-willful conduct.
• Utilizing the IRS Voluntary Disclosure Practice for cases involving potential willfulness.
• Defending against FBAR and Form 8938 penalty assessments.

Contact us for a consultation to learn more about how we can protect your client’s interests in an increasingly transparent global financial environment.