FATCA Reporting

FATCA Reporting

FATCA Reporting: The Foreign Account Tax Compliance Act is a Federal Tax Law that requires certain US Taxpayers with ownership of certain specified foreign financial assets located outside the United States to report those assets to the IRS on Form 8938. FATCA Reporting requires the disclosure of the maximum value of the account/asset — along with the amount of income attributed to each asset.  FATCA has become a major pain for taxpayers across the globe. That is because more than 110 countries and more than 300,000 foreign financial institutions have agreed to report Uniited States account holder information to the IRS. While there are many aspects to these rules and regulations, the main purpose of FATCA Reporting is to ensure global compliance. We will focus on how FATCA impacts U.S. persons, and their requirement to properly file the reporting forms each year to disclose specify foreign financial assets. Noting, if a person fails to comply with FATCA, they may be able to minimize or avoid FATCA Penalties by submitting to one of the offshore voluntaty disclosure tax amnesty programs.

Here are some important FATCA reporting and compliance tips to get you through filing:  

How do Foreign Banks FATCA Report?

When a person is subject FATCA, the Foreign Bank will take several actions to ensure the bank stays compliant (and avoid IRS fines and penalties). 

Here are some common methods the banks use:

Foreign Bank Sends a FATCA Letter to customer

In this common situation a US person will receive a FATCA Letter from their foreign financial institution. Accompanying the letter will be an IRS W-8 BEN and W-9 forms.

The foreign financial institution will then require the US person to certify under penalty of perjury whether they are a US person or not.

If it turns out they are either a US Citizen, Legal Permanent Resident, Expatriate, and/or Accidental Americans – the bank may send the account holder information to the IRS.

Foreign Bank Communicates Directly to the IRS

Not all foreign financial institutions will put the customer on notice about their FATCA Reporting requirements.

Rather, if the bank believes that the customer is at all possibly a US person, they may simply send the account holder information to the IRS without giving the customer any notice.

FATCA Reporting Noncompliance with the Bank

When a U.S. account holder does not comply with the foreign bank or other foreign financial institution, two common things will occur:

Bank Closes Your Account

Many foreign financial institutions simply do not want to deal with the headache of having to stay in FATCA compliance.

For many foreign institutions they do not have a sufficient U.S. person client-base to undergo the additional cost for maintaining FATCA Compliance.

As a result, the bank simply closes the account.

Your Account is Frozen by the Bank

Some banks will actually freeze the money and not entitle the customer to any access until the customer confirms under penalty of perjury (a foreign equivalent statement) of what their US status is.

Which FATCA Reporting Forms do I Report on?

When it comes to Individuals, Trusts, Estates and Businesses that file annual tax forms, the general requirement is IRS Form 8938.

The form is required to disclose specified foreign financial assets.

This form is a bit different than some other tax forms, in that it is a part of your tax return. 

For example, commercial software for consumers such as TurboTax generally does not include International information reporting forms as part of their form base – but they do include form 8938.

It is important to note that if a person does not have to file a tax return, then they are not required to file a form 8938.

With many other international reporting forms such as the FBAR, it is required to be filed even if a tax return is not required – but this is not true of the form 8938.

Threshold Requirements for FATCA Reporting

There are different FATCA threshold requirements depending on the filing status of the taxpayers, and if they reside in the U.S. or abroad.

As provided by the IRS:

FATCA Reporting Threshold

If you are a specified individual, your applicable reporting threshold depends upon whether you are married, file a joint federal income tax return, and live inside (or outside) the United States.

Taxpayers living in the United States

• • • If you do not live outside the United States, you satisfy the reporting threshold discussed next that applies to you, and no exception applies, file Form 8938 with your income tax return.

Unmarried Taxpayers

• • • If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

Married Taxpayers Filing a Joint Income Tax Return

• • • If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year. Married taxpayers filing separate income tax returns.

    • If you are married and file a separate income tax return from your spouse, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

Taxpayers living outside the United States

• • • If your tax home is in a foreign country, you meet one of the presence abroad tests described next, and no exception applies, file Form 8938 with your income tax return if you satisfy the reporting threshold discussed next that applies to you.

Unmarried Taxpayers

• • • If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.

Married Taxpayers Filing a Joint Income Tax Return

• • • If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year. 

Presence Abroad

You satisfy the presence abroad test if you are one of the following.

• • • A U.S. citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.

    • A U.S. citizen or resident who is present in a foreign country or countries at least 330 full days during any period of 12 consecutive months that ends in the tax year being reported.

FATCA Reporting Thresholds Applying to Specified Domestic Entities

If you are a specified domestic entity, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

What Foreign Assets do I Report for FATCA?

There are many assets that the IRS requires Taxpayers to include when filing for FATCA compliance.

Some of the more common assets, include:

• • Direct Stock and Securities

  • Stock Accounts

  • Bank Accounts

  • Investment Accounts

  • Life Insurance

  • Foreign Pension

Some assets require more comprehensive reporting than others. When the asset is reported as a deposit or custodial account, the reporting is generally less complex than a direct asset, such as a stock certificate.

How do I Report Income for FATCA?

The income earned from the Form 8938 assets are summarized on the first page of the Form 8938.

For example, if a person has interest income, they will identify it on the first page of the Form 8938, including the form and schedule – along with the line number.

IRS Penalties for FATCA Reporting Non-Compliance

The IRS can issue penalties for Penalties for failing to comply with the FATCA Filing Requirements.

As provided by the IRS:

• • • “You may be subject to penalties if you fail to timely file a correct Form 8938 or if you have an understatement of tax relating to an undisclosed specified foreign financial asset.”

Failure-To-File Penalty

• • • If you are required to file Form 8938 but do not file a complete and correct Form 8938 by the due date (including extensions), you may be subject to a penalty of $10,000.

Continuing Failure to File

• • • If you do not file a correct and complete Form 8938 within 90 days after the IRS mails you a notice of the failure to file, you may be subject to an additional penalty of $10,000 for each 30-day period (or part of a period) during which you continue to fail to file Form 8938 after the 90-day period has expired. The maximum additional penalty for a continuing failure to file Form 8938 is $50,000.

Married Taxpayers Filing a Joint Income Tax Return

• • • If you are married and you and your spouse file a joint income tax return, the failure to file penalties apply as if you and your spouse were a single person. You and your spouse’s liability for all penalties is joint and several.

What if I Missed FATCA Reporting Filing Requirements

If you missed the FATCA Reporting Requirements, the IRS has developed various amnesty programs to assist you with compliance.  Some of these programs including the IRS Voluntary Disclosure Program (aka New OVDP) and the Streamlined Filing Compliance Procedures.

We Specialize in IRS Offshore Disclosure and Compliance

Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure and FATCA Reporting.

Contact our firm today for assistance with getting compliant.