Investors who start buying foreign stocks often hear about the FBAR and FATCA and worry they've taken on a new filing obligation with severe penalties. For most people who buy ADRs and foreign shares through a U.S. broker, they haven't. These reports are about foreign accounts and assets held outside the U.S. financial system, not about foreign securities as such.
The short answer
| How you hold it | FBAR (FinCEN 114) | Form 8938 |
|---|---|---|
| ADRs or foreign ordinary shares at a U.S. broker | No | No |
| Account at a foreign broker or bank | Yes, if over threshold | Yes, if over threshold |
| Foreign shares held directly, outside any account | No | Yes, if over threshold |
| Foreign mutual fund held through a foreign account | Yes (as the account) | Yes |
The rest of this page explains why, and what changes the answer.
FBAR: FinCEN Form 114
The Report of Foreign Bank and Financial Accounts is a Treasury (FinCEN) form, not an IRS tax form, though the IRS enforces it. A U.S. person must file if they have a financial interest in, or signature authority over, foreign financial accounts whose combined value exceeds $10,000 at any time during the calendar year. That holds whether or not the accounts earn taxable income.
- What counts: accounts at financial institutions located outside the United States, including bank, brokerage, and certain fund accounts. A foreign branch of a U.S. bank counts.
- What doesn't: an account at a U.S. institution, regardless of what it holds. Your Schwab account full of Toyota and Nestle ADRs is a U.S. account.
- Deadline: April 15 of the following year, with an automatic extension to October 15.
- How to file: electronically through FinCEN's BSA E-Filing System, separate from your tax return.
Key point
The $10,000 test uses the combined maximum balance of all your foreign accounts. Three foreign accounts each peaking at $4,000 put you over the line.
Form 8938: FATCA reporting
Form 8938, Statement of Specified Foreign Financial Assets, is filed with your income tax return. It covers foreign financial accounts and certain foreign assets held outside an account. The thresholds are much higher than the FBAR's and depend on filing status and where you live.
| Filer | Last day of year above | Or at any time above |
|---|---|---|
| Single or married filing separately, living in the U.S. | $50,000 | $75,000 |
| Married filing jointly, living in the U.S. | $100,000 | $150,000 |
| Single or married filing separately, living abroad | $200,000 | $300,000 |
| Married filing jointly, living abroad | $400,000 | $600,000 |
What isn't reportable
The IRS's Form 8938 Q&A states that you don't need to report a financial account maintained by a U.S. financial institution or its holdings. Foreign stocks and ADRs in a U.S. brokerage account fall here. Foreign securities held inside a foreign account aren't reported separately either; the account itself is reported.
What is reportable
Foreign stock or securities held outside a financial account are reportable. The classic example is a Canadian junior's shares registered directly in your name with a Canadian transfer agent, or a share certificate in a drawer. See buying Canadian stocks from the U.S. for how shares end up held this way.
Penalties for failing to file Form 8938 start at $10,000 and can rise to $50,000 more for continued failure after IRS notice. FBAR penalties are separate and adjusted for inflation annually.
What actually triggers these forms
For investors, the usual triggers are:
- Opening an account at a foreign broker to buy shares on the TSX Venture, LSE, or another exchange your U.S. broker doesn't reach. See how to buy foreign stocks.
- A foreign bank account held for travel, a property abroad, or family reasons. It counts toward the FBAR total with any foreign brokerage account.
- Directly registered foreign shares from a private placement, an employee plan, or an inheritance (Form 8938 only).
Worked example
A married couple living in Ohio holds $180,000 of ADRs at a U.S. broker and opens a Canadian brokerage account that peaks at $22,000 during the year. The ADRs trigger nothing. The Canadian account is over $10,000, so they file an FBAR. For Form 8938, their foreign assets are $22,000, below the $100,000 / $150,000 joint thresholds, so no Form 8938.
The other forms foreign investors meet
Form 8621 for PFICs
Unlike the FBAR and Form 8938, Form 8621 depends on what you own, not where. If you own shares of a passive foreign investment company, such as a foreign-domiciled fund or many exploration-stage miners, you may need a Form 8621 for each one, even if they sit in a U.S. brokerage account. PFIC shares in an IRA are generally outside these rules. Form 8938 has rules for assets also reported on certain other forms, including Form 8621; if you hold PFICs outside a U.S. account, check the current Form 8938 instructions or ask a professional how they interact.
Form 1116 for the foreign tax credit
Form 1116 isn't a disclosure form, but it's the other foreign-related form investors file most. You need it to claim the foreign tax credit when your foreign taxes exceed $300 ($600 joint), when any of the income wasn't reported on a 1099 or similar statement, or when you have non-passive foreign income.
Practical steps
- List every account you have and note where the institution is located, not what it holds.
- Add the maximum balance of every foreign account during the year. Over $10,000, file an FBAR.
- Compare foreign account balances plus any directly held foreign securities to the Form 8938 thresholds.
- Check each foreign fund or exploration company for PFIC status.
- If you've missed past FBARs or 8938s, talk to a tax professional before filing anything. The IRS has procedures for late filings, and which one fits depends on your facts.
Common questions
Do I need to file an FBAR because I own ADRs at Schwab or Fidelity?
No. The FBAR covers financial accounts located outside the United States. An account at a U.S. broker is a U.S. account even if it holds foreign stocks or ADRs.
Do foreign stocks at a U.S. broker go on Form 8938?
No. The IRS says you don't report a financial account maintained by a U.S. financial institution or its holdings on Form 8938. Foreign stock held outside any financial account, such as directly registered shares, is reportable if you're over the threshold.
If I file Form 8938, do I still need an FBAR?
Possibly. The two have different rules and thresholds, and filing one doesn't satisfy the other. Someone with a foreign brokerage account over both thresholds files both.
Sources
Educational content only, not investment, tax or legal advice. The Stateside Report does not recommend buying or selling any security. Tax rules depend on your situation; confirm with a qualified tax professional. Full disclosures.