Report of Foreign Bank and Financial Accounts (FBAR)

The Report of Foreign Bank and Financial Accounts (FBAR) is a mandatory annual report that U.S. persons must file with the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN). Its primary mission is to be a spotlight in the dark corners of international finance, helping the U.S. government track foreign accounts to prevent tax evasion, money laundering, and other financial crimes. Think of it as a declaration to Uncle Sam: “Here are the financial accounts I hold outside the U.S.” This isn't a tax form—you don't pay any tax with the FBAR itself. Instead, it's a transparency tool. The filing requirement is triggered if the total, combined value of all your foreign financial accounts exceeds $10,000 at any point during the calendar year, even for just a single day. The penalties for failing to file can be draconian, ranging from hefty fines to criminal charges, making it a critical, albeit often overlooked, piece of financial housekeeping for any U.S. investor with a global footprint.

Understanding whether you need to file boils down to two simple questions: Are you a “U.S. person,” and did your foreign accounts cross the reporting threshold?

The term “U.S. person” is broader than you might think. It’s not just about holding a U.S. passport. You are generally considered a U.S. person for FBAR purposes if you are one of the following:

• A U.S. citizen (even if you live abroad)
• A U.S. resident (a “green card” holder or someone who meets the “substantial presence test” for tax purposes)
• Entities, including corporations, partnerships, or limited liability companies, created or organized in the United States or under its laws.
• Trusts or estates formed under the laws of the United States.

This is the most common point of confusion. The $10,000 threshold is an aggregate figure. It does not mean you only have to report an individual account that holds more than $10,000. You must file if the total value of all your foreign financial accounts combined exceeded $10,000 at any time during the year. Example: You have three accounts in Germany.

• Account A: Highest balance was $5,000
• Account B: Highest balance was $4,000
• Account C: Highest balance was $2,000

Individually, none of these accounts are over $10,000. However, their combined highest value is $5,000 + $4,000 + $2,000 = $11,000. Because this aggregate value surpassed $10,000, you are required to file an FBAR and report all three accounts.

The definition is intentionally broad to capture a wide range of assets. A “foreign” account is simply one located outside of the United States. Common examples include:

• Bank Accounts: Checking, savings, and time deposit accounts with foreign banks.
• Securities Accounts: Brokerage accounts, commodity futures or options accounts.
• Other Financial Instruments: An insurance or annuity policy with a cash value.
• Pooled Funds: Shares in a foreign mutual fund or similar pooled fund.
• Digital Assets: Increasingly, accounts held at foreign virtual asset service providers to trade cryptocurrency may be reportable.

Notably, assets you hold directly, like foreign real estate or precious metals stored in a private vault, are generally not reportable on an FBAR. However, if that real estate is held within a foreign entity or the income from it flows into a foreign bank account, the reporting rules would likely apply to the account.

No, and confusing them is a classic mistake. While they seem similar, they are two separate requirements with different rules, thresholds, and purposes. Think of them as two different security guards at the airport—one from airport security (FBAR) and one from the airline (Form 8938). Both are checking your bags, but they're looking for different things and report to different bosses. Here’s a quick breakdown of the key differences:

• Filed With: FBAR is filed electronically with FinCEN, a bureau of the Treasury Department focused on financial crime. Form 8938 is filed with the Internal Revenue Service (IRS) as part of your annual income tax return.
• Purpose: FBAR is a tool to combat money laundering. Form 8938 is purely for tax compliance.
• Thresholds: The FBAR threshold is a simple, aggregate $10,000. The thresholds for Form 8938 are much higher and vary based on your filing status and whether you live in the U.S. or abroad.
• What's Reported: FBAR covers foreign financial accounts. Form 8938 covers a broader category of “specified foreign financial assets,” which can include things like stock or securities not held in an account and partnership interests.

It's entirely possible you may need to file one, both, or neither.

For a value investor, whose philosophy is built on discipline, diligence, and avoiding unforced errors, understanding FBAR is non-negotiable.

1. Risk Management 101: The legendary investor Warren Buffett advises, “Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.” The penalties for FBAR non-compliance are severe enough to destroy years of investment gains. Filing is a simple, low-cost way to manage a potentially catastrophic risk. It's a textbook example of an “unforced error” you must avoid.
2. Complexity Is a Cost: Investing internationally opens up a world of opportunities, but it also introduces complexity. FBAR reporting, currency conversions, and different tax regimes are all “frictional costs” of global investing. A prudent investor accounts for this administrative burden. If the complexity and compliance work outweigh the potential rewards of a foreign investment, it may be better to stick to what you know and can manage easily.
3. Focus on What Matters: Value investing is about analyzing businesses, not about clever tax schemes. FBAR is a blunt reminder that transparency and integrity are paramount. Trying to hide assets offshore is a fool's errand that distracts from the real work of finding wonderful companies at fair prices. Pay your taxes, file your forms, and sleep well at night, knowing your focus remains squarely on the long-term performance of your investments.