Foreign asset reporting is one of the most misunderstood areas of U.S. tax compliance. Many taxpayers believe that if income was already taxed abroad—or if assets did not generate income—there is nothing to report. This assumption is incorrect and often leads to severe penalties.

This guide explains the core foreign asset reporting requirements, including FBAR, FATCA (Form 8938), Form 3520, and Form 3520-A, and how these disclosures fit into the broader international tax compliance framework.

What Counts as a Foreign Asset?

Foreign assets include more than just overseas bank accounts. Reportable assets may include foreign checking and savings accounts, investment and brokerage accounts, foreign pensions, interests in foreign trusts, certain foreign insurance products, and large foreign gifts or inheritances.

FBAR Explained (FinCEN Form 114)

The FBAR is required when the aggregate value of foreign financial accounts exceeds $10,000 at any point during the year. The FBAR is filed separately from the tax return with the U.S. Treasury and applies even when accounts generate no income.

FATCA and Form 8938

Form 8938 is filed with the tax return and reports specified foreign financial assets when certain thresholds are met. Although similar to FBAR, FATCA has different reporting thresholds and asset definitions, meaning some taxpayers must file both forms.

Reporting Foreign Gifts and Trusts (Forms 3520 & 3520-A)

Form 3520 is required to report large foreign gifts, inheritances, and transactions with foreign trusts. Form 3520-A is used to report annual activity of foreign trusts. These forms carry some of the harshest penalties in the tax code when missed.

Common Foreign Asset Reporting Mistakes

Common errors include assuming foreign accounts under $10,000 are exempt, failing to aggregate accounts, confusing FBAR and FATCA thresholds, and not reporting foreign gifts received from family members abroad.

Penalties for Failing to Report Foreign Assets

Penalties for non-compliance can range from $10,000 per form to significantly higher amounts for willful violations. In some cases, penalties may exceed the value of the asset itself.

How the IRS Detects Unreported Foreign Assets

The IRS relies on FATCA data sharing agreements, foreign bank reporting, treaty cooperation, and automated data matching to identify unreported assets. Discovery often triggers multi-year examinations.

How to Correct Past Foreign Asset Reporting Issues

Taxpayers who failed to report foreign assets may still qualify for IRS relief programs such as the Streamlined Filing Compliance Procedures. Early correction often results in significantly reduced penalties.