FBAR vs Form 8938 Compliance: Avoiding Penalties and Errors in 2026

Understanding that you need to file FBAR and Form 8938 is only the first step. The real challenge lies in filing them correctly, avoiding the common mistakes that trigger IRS scrutiny, and knowing how to fix errors before they result in penalties. While the basic requirements are straightforward, the execution creates confusion—leading to penalties that can reach hundreds of thousands of dollars for seemingly minor errors.

Most taxpayers who face FBAR or Form 8938 penalties didn't intentionally evade taxes. They made simple mistakes like using year-end balances instead of maximum values, forgetting to report closed accounts, using incorrect exchange rates, or assuming that filing one form eliminates the need for the other. The IRS receives automatic reports from foreign financial institutions through FATCA agreements, making these errors easy to detect and difficult to hide.

This guide takes a practical approach to compliance, explaining the most common FBAR filing mistakes that trigger IRS audits and how to avoid them, what specific errors on Form 8938 lead to penalties and follow-up inquiries: 

The seven critical FBAR filing mistakes

These common mistakes account for most FBAR filing penalties and IRS inquiries. Avoiding them protects you from unnecessary problems.

Mistake #1: Reporting year-end balance instead of maximum value

This is the single most common FBAR filing error. The form requires the maximum account value at any point during the calendar year—not the average balance, not the year-end balance, and not your typical balance.

Why this matters: Your account might have received a large deposit in March that you immediately transferred elsewhere. Even though the high balance existed for only a few days, you must report that maximum amount.

Example of the error: Your foreign savings account shows a December 31 balance of $45,000. You report $45,000 on your FBAR. However, in June you received a $120,000 inheritance that sat in the account for two weeks before you invested it. Your correct maximum value is $165,000 ($45,000 + $120,000).

How to avoid this: Review every monthly statement for the entire calendar year. Note the highest balance for each account. Many banks provide "high balance" information on annual statements, but verify this against monthly statements to ensure accuracy.

Mistake #2: Omitting closed accounts

Many taxpayers assume closed accounts don't require reporting. This is incorrect and frequently triggers penalties.

The rule: If an account exceeds $10,000 at any point during the year, you must report it on your FBAR—even if you closed it in January and the reporting year ends in December.

Example: You maintained a foreign account with €75,000 until you closed it on February 15, 2025. Your FBAR for 2025 (filed in 2026) must still report this account with its maximum balance, even though the account has been closed for 10 months.

How to avoid this: Keep records of all account closures including the closure date and the account's maximum balance before closure. Don't delete old bank statements when you close accounts—you'll need them for FBAR filing.

Mistake #3: Using incorrect exchange rates

FBAR requires converting all foreign currency amounts to US dollars using the Treasury Department's year-end exchange rate published at fiscal.treasury.gov/reports-statements/treasury-reporting-rates-exchange.

Common mistakes: Using the exchange rate on the date the account reached its maximum balance, using average exchange rates for the year, using your bank's exchange rate, or using commercial rates from Google or XE.com.

Why this matters: Exchange rates fluctuate significantly. Using the wrong rate can make your reported balances appear artificially low, triggering IRS suspicion that you're deliberately underreporting.

Example: Your UK account reached a maximum of £80,000 in May 2025 when the exchange rate was 1.27 USD/GBP. You report $101,600. However, the Treasury's year-end rate for December 31, 2025, is 1.22 USD/GBP. The correct reporting amount is $97,600. The IRS receives the £80,000 figure from your UK bank under FATCA and calculates that it should be $97,600—creating a discrepancy.

How to avoid this: Always use Treasury rates from fiscal.treasury.gov. If your currency isn't listed (rare), convert to a listed currency first using reputable sources, then convert to USD using Treasury rates.

Mistake #4: Not reporting accounts with signature authority only

You must report foreign accounts where you have signature authority even if you have no financial interest in the account. This commonly applies to business accounts you control as an employee or officer.

Example: You're the controller at a US company with a subsidiary in Singapore. You have signature authority over the subsidiary's bank account holding $2 million. You must report this account on your personal FBAR even though you don't own any of the funds.

Confusion point: Form 8938 generally doesn't require reporting accounts where you only have signature authority without financial interest. This difference between Form 8938 vs FBAR creates confusion, leading people to omit these accounts from FBAR incorrectly.

How to avoid this: List all foreign accounts you can access or control, even if you don't own them. Ask your employer if you have signature authority over any foreign business accounts.

Mistake #5: Joint account reporting errors

Joint account holders each must report the full value of jointly held accounts, not their percentage ownership.

The rule: If you jointly own a foreign account with your spouse containing $60,000, you each report $60,000 on your separate FBARs (if filing separately), not $30,000 each.

Example creating problems: You and your sibling jointly own an inheritance account in Italy with €200,000. You report €100,000 (your 50% share). The IRS receives €200,000 from the Italian bank under FATCA and flags the discrepancy.

How to avoid this: Always report the full value of joint accounts regardless of your ownership percentage. On the FBAR form, indicate "Jointly Owned" in the Type of Account section.

Mistake #6: Not reporting dormant or zero-balance accounts

If an account existed during the year and exceeded the threshold at any point, you must report it—even if it ended the year with zero balance.

Example: Your foreign brokerage account held $85,000 in January. You liquidated everything and transferred funds to the US in March, leaving a zero balance. You must still report this account on your 2025 FBAR with the $85,000 maximum value.

Mistake #7: Missing the FBAR entirely because you filed Form 8938

The most dangerous assumption is that filing Form 8938 with your tax return satisfies all foreign account reporting requirements. These are separate forms with separate filing requirements to different government agencies.

The truth: Filing Form 8938 with the IRS doesn't notify FinCEN that you filed FBAR. Filing FBAR with FinCEN doesn't notify the IRS that you filed Form 8938. You must file both forms separately if both thresholds are met.

The six critical Form 8938 mistakes

Form 8938 errors are less common than FBAR mistakes because the higher thresholds mean fewer people must file. However, when errors occur, they're costly.

Mistake #1: Assuming FBAR covers Form 8938 requirements

This mirrors the FBAR mistake from the opposite direction. Filing FBAR doesn't satisfy Form 8938 requirements if you exceed Form 8938 thresholds.

How to check: Calculate your foreign assets separately for each form's thresholds. FBAR uses a $10,000 aggregate threshold for accounts only. Form 8938 uses $50,000-$600,000 thresholds (depending on status and residence) for broader asset categories.

Mistake #2: Not checking both maximum and year-end values

Form 8938 requires meeting thresholds based on either maximum value during the year OR year-end value. You must check both conditions.

Example: You're single and live in the US. Your foreign accounts total $45,000 on December 31 (below the $50,000 year-end threshold). However, they totaled $80,000 in July before you made a large purchase (above the $75,000 maximum value threshold). You must file Form 8938 because you exceeded the maximum threshold even though you didn't exceed the year-end threshold.

Following Form 8938 instructions carefully ensures you check both conditions correctly.

Mistake #3: Not reporting foreign pensions and retirement accounts

Foreign employer-sponsored pensions and retirement plans are specified foreign financial assets reportable on Form 8938—yet commonly omitted.

Example: You worked in Canada and participated in your employer's Canadian RRSP (Registered Retirement Savings Plan). The RRSP has grown to $180,000. This is a specified foreign financial asset that must be reported on Form 8938 if you meet other threshold requirements.

How to avoid this: Review all retirement accounts, pensions, and deferred compensation arrangements with foreign employers or foreign financial institutions.

Mistake #4: Incomplete asset descriptions

Form 8938 instructions require detailed information for each asset including the name and address of the financial institution, account number or identifying information, maximum value during the year, value on December 31, and income earned from the asset during the year.

Problem: Many taxpayers provide incomplete information like "Swiss Bank Account" without the bank name, address, or account number. This triggers IRS follow-up inquiries.

How to avoid this: Use Part IV through VI of Form 8938 correctly, providing complete information for each asset. Keep supporting documentation (statements, valuations) to substantiate reported values.

Mistake #5: Not reporting foreign life insurance with cash value

Foreign-issued life insurance policies with cash value are reportable specified foreign financial assets frequently omitted from Form 8938.

Example: You purchased a whole life insurance policy from a UK insurer while working in London. The policy has a cash surrender value of $75,000. This must be reported on Form 8938 if you meet other threshold requirements.

Mistake #6: Reporting on the wrong form schedule

Form 8938 has different sections (Parts I and II) for different asset types. Reporting assets in the wrong section creates confusion and processing delays.

Part I: Report deposit and custodial accounts (bank accounts, brokerage accounts) in Part I.

Part II: Report other foreign financial assets (stocks, bonds held directly, partnership interests, foreign entities) in Part II.

Following Form 8938 instructions ensures assets appear in the correct sections.

What triggers an FBAR or Form 8938 audit

The IRS doesn't randomly audit foreign account reporting. Specific triggers flag returns for review.

Trigger #1: FATCA data mismatches

Foreign financial institutions report account information directly to the IRS under FATCA agreements. When reported balances don't match your FBAR or Form 8938, automated systems flag your filing.

Example: Your Swiss bank reports to the IRS that your account had a maximum balance of CHF 150,000 in 2025. Your FBAR reports only CHF 80,000. This mismatch automatically triggers review.

Trigger #2: Large unreported foreign income

If your tax return shows substantial foreign income (interest, dividends, capital gains) but you filed no FBAR or Form 8938, the IRS questions where the income-generating assets are held.

Example: Your Schedule B shows $15,000 in foreign interest income, but you filed no FBAR or Form 8938. The IRS calculates that $15,000 in interest requires substantial principal—likely exceeding reporting thresholds.

Trigger #3: Accounts in high-risk jurisdictions

Accounts in countries known for bank secrecy or tax evasion receive additional scrutiny. These include Switzerland, Cayman Islands, Singapore, Hong Kong, and Liechtenstein (though this list changes).

Trigger #4: Round numbers and suspicious patterns

Reporting exactly $10,000 when the threshold is $10,000 appears suspicious—as if you're trying to avoid reporting. Similarly, reporting exactly the same amounts year after year raises questions.

Trigger #5: Incomplete or inconsistent information

Missing account numbers, addresses, or identification numbers on FBAR or Form 8938 trigger follow-up inquiries. Inconsistencies between the two forms also raise flags.

How to correct FBAR and Form 8938 errors

Discovering you made a mistake doesn't automatically mean penalties. Correction procedures exist for honest errors.

Correcting FBAR errors

If you haven't filed: File your delinquent FBARs immediately through the FinCEN BSA E-Filing System. Attach a statement explaining the reason for late filing and asserting reasonable cause if applicable.

If you filed incorrectly: File an amended FBAR through the BSA E-Filing System. Check the "Amended" box and provide corrected information. Attach a statement explaining what was wrong and why.

Delinquent FBAR Submission Procedures: If you failed to file FBARs in prior years but all income was properly reported and taxed, use the Delinquent FBAR Submission Procedures. File all late FBARs with a reasonable cause statement. If accepted, penalties are typically waived.

Correcting Form 8938 errors

If you haven't filed: Prepare Form 8938 for the year(s) you should have filed. File an amended return (Form 1040-X) with Form 8938 attached.

If you filed incorrectly: File Form 1040-X (Amended U.S. Individual Income Tax Return) with a corrected Form 8938attached. Explain the error in Part III of Form 1040-X.

Timing matters: File amendments as soon as you discover errors. The statute of limitations for IRS assessment is typically three years, but it doesn't begin running until you file a complete and correct return including required forms.

Important: Don't wait for IRS contact to correct errors. Voluntary disclosure receives more favorable treatment than corrections made after IRS inquiry.

Streamlined Filing Compliance Procedures

For taxpayers with unreported foreign accounts who failed to file FBAR, Form 8938, or properly report foreign income, the Streamlined Procedures offer penalty relief.

Requirements: File last three years of amended or delinquent tax returns (with Form 8938 if required), file last six years of delinquent FBARs, certify non-willfulness on Form 14653, and pay any taxes owed.

Penalty relief: US residents pay a 5% miscellaneous offshore penalty. Non-US residents pay zero penalty.

Who qualifies: Taxpayers whose failure to comply was non-willful (not intentional).

Compliance strategies for 2026 and beyond

Create a tracking system: Maintain a spreadsheet listing all foreign accounts with maximum balances throughout the year. Update monthly.

Set calendar reminders: FBAR deadline is April 15 (October 15 automatic extension). Form 8938 deadline matches your tax return deadline.

Review both forms annually: Even if you filed last year, thresholds and requirements may have changed. Exchange rate fluctuations can push you over thresholds unexpectedly.

Document everything: Keep all foreign bank statements, investment reports, and pension statements for at least six years. Save correspondence about account closures, transfers, and balance confirmations.

Work with experienced professionals: Foreign account reporting is complex. A tax professional experienced in international compliance helps avoid costly mistakes.

How NSKT Global ensures FBAR and Form 8938 compliance

NSKT Global specializes in foreign account reporting compliance for individuals with complex international financial situations. Our team ensures accurate FBAR filing and Form 8938 preparation while minimizing audit risk.

Our foreign account compliance services include comprehensive account inventory and threshold analysis, ensuring we identify every reportable account and correctly apply thresholds based on your specific situation and residency status. We provide accurate FBAR filing through FinCEN's system with proper maximum value calculations using correct Treasury exchange rates and complete asset identification information. We prepare complete and accurate Form 8938 following Form 8938 instructions precisely, reporting all specified foreign financial assets with required supporting documentation.

We also offer ongoing compliance support, including annual compliance reviews ensuring you remain current as account balances and circumstances change, proactive monitoring for threshold changes, exchange rate impacts, and new account openings that affect filing requirements, and integration with overall tax planning to ensure foreign account reporting coordinates with your tax return preparation and strategy.

Whether you're filing for the first time, discovered past errors, or want to ensure ongoing compliance, NSKT Global provides the expertise to navigate FBAR filing and Form 8938 requirements accurately while protecting you from penalties and IRS scrutiny.