FATCA for US Persons: Form 8938 Thresholds, PFIC Reporting, and CRS Overlap

What Is FATCA and Why Does It Affect Individuals?

The Foreign Account Tax Compliance Act (FATCA), enacted as part of the Hiring Incentives to Restore Employment (HIRE) Act of 2010 (Public Law 111-147), operates on two levels. At the institutional level, it requires foreign financial institutions (FFIs) to report US account holders to the IRS (or to their domestic tax authority under an Intergovernmental Agreement). At the individual level, it requires US persons to report "specified foreign financial assets" on Form 8938 as part of their annual US tax return.

This article focuses on the individual-level FATCA obligations — the Form 8938 reporting requirements — and their interaction with the separate FBAR (FinCEN 114) reporting obligation and the PFIC (Passive Foreign Investment Company) regime.

Form 8938: Specified Foreign Financial Assets

Form 8938 (Statement of Specified Foreign Financial Assets) is filed as part of the annual US individual income tax return (Form 1040 or 1040-NR). It requires US persons to disclose all "specified foreign financial assets" (SFFAs) above the applicable threshold.

What Counts as a Specified Foreign Financial Asset

SFFAs include:

• Financial accounts maintained at foreign financial institutions (bank accounts, brokerage accounts, investment accounts, pension accounts, life insurance with cash value)
• Foreign stocks or securities not held through a foreign financial institution
• Foreign partnerships interests
• Foreign trusts (as grantor or beneficiary)
• Foreign pensions not established under a US qualified plan
• Foreign hedge fund and private equity fund interests
• Any interest in a foreign estate

Critically, ownership of foreign real estate does not directly create a Form 8938 obligation — however, a foreign entity that owns real estate is itself a SFFA if the individual holds an interest in it.

Filing Thresholds

The filing thresholds differ based on the taxpayer's filing status and whether they live in the US or abroad.

Filing Status and Location	Threshold to File	Higher Threshold (Year-End)
Unmarried, living in US	$50,000 at year-end	$75,000 at any point
Married filing jointly, in US	$100,000 at year-end	$150,000 at any point
Unmarried, living outside US	$200,000 at year-end	$300,000 at any point
Married filing jointly, outside US	$400,000 at year-end	$600,000 at any point

"Living outside the US" means qualifying as a foreign resident under the bona fide residence test or physical presence test for the entire year. A US citizen who spends 6 months abroad does not qualify for the higher overseas thresholds.

The thresholds are aggregate: all SFFAs are totalled together to determine whether the threshold is crossed. If the aggregate of all foreign accounts, foreign investment holdings, and foreign trust interests exceeds the threshold, all SFFAs must be disclosed — even those with small individual values.

PFIC Reporting: Form 8621

US persons who own shares in a Passive Foreign Investment Company (PFIC) must file Form 8621 for each PFIC in which they hold an interest, regardless of whether they receive distributions or sell shares.

What Is a PFIC

A foreign corporation is classified as a PFIC if:

• 75% or more of its gross income is passive income (dividends, interest, rents, royalties, capital gains), or
• 50% or more of its assets produce or are held for the production of passive income

This definition captures the vast majority of foreign mutual funds, ETFs, unit trusts, OEICs, and other collective investment vehicles. A UK resident US citizen who invests in an ISA holding UK unit trusts holds PFICs. A US citizen who owns shares in a foreign private company with minimal active operations may also hold PFIC shares.

PFIC Tax Treatment

The default PFIC rules — the "excess distribution regime" — impose punitive US tax treatment on distributions from PFICs and gains on sale:

• Excess distributions (amounts exceeding 125% of the average of the prior three years' distributions) are allocated to each year the shares were held
• The portion allocated to prior years is taxed at the highest ordinary income rate applicable in that year (currently 37%), plus interest at the underpayment rate for each year

This regime can produce effective tax rates well above 50% on gains from PFICs. The alternatives — making a Qualified Electing Fund (QEF) election or a mark-to-market election — require annual inclusion of the PFIC's pro-rata share of income (for QEF) or annual mark-to-market gains (for MTM), producing current US taxation.

Form 8621 Filing Requirements

Form 8621 must be filed annually for each PFIC:

• Where a distribution was received from the PFIC
• Where the PFIC shares were disposed of
• Where a QEF or MTM election was made
• Where the aggregate value of all PFIC shares exceeds $25,000 for single filers or $50,000 for joint filers

The $25,000/$50,000 threshold for annual disclosure means that even small foreign fund holdings require annual Form 8621 filing. Failure to file results in the statute of limitations for the relevant tax return remaining open indefinitely (under Section 6501(c)(8)).

The FBAR vs Form 8938: Key Differences

The FinCEN 114 (FBAR) and Form 8938 obligations are separate and both apply simultaneously in many situations. Their differences are:

Feature	FBAR (FinCEN 114)	Form 8938 (FATCA)
Filing authority	FinCEN (Treasury)	IRS (as part of 1040)
Threshold	$10,000 aggregate at any point in the year	$50k-$400k depending on status and location
What is reported	Foreign financial accounts only	Broader: accounts, interests in entities, trusts
Due date	April 15 (6-month extension to October)	April 15 (with tax return extension)
Penalty for wilful failure	Up to $100,000 or 50% of account value per violation	Up to $50,000
Signature authority	Yes — must report if signature authority over an account	No — limited to accounts you own

Both forms can be required for the same accounts. A US citizen with a single £200,000 UK savings account must file both FinCEN 114 (because the balance exceeds $10,000 at some point in the year) and Form 8938 (if they are resident abroad, because the balance exceeds $200,000 at year-end).

CRS Overlap

Under CRS, UK financial institutions report the account details of US-resident individuals to HMRC, which then exchanges the data with the IRS. This means the IRS already receives information about US persons' UK accounts through both FATCA (under the UK-US IGA) and CRS. The reporting on the individual side (Form 8938 and FBAR) is separate and additional — it is not satisfied by the institutional reporting.

Individuals who believe that CRS exchange means the IRS already has their information and therefore individual filing is unnecessary are incorrect. The institutional reporting and individual filing obligations are independent.

HPT Group regularly assists US citizens living outside the United States — in the UK, Europe, or the UAE — with their Form 8938, Form 8621, and FinCEN 114 compliance, and with the broader challenge of managing a US tax filing obligation alongside the tax requirements of their country of residence. For a review of your FATCA and PFIC compliance position, contact our international tax team or apply for a consultation.