The Foreign Account Tax Compliance Act (FATCA)

What is FATCA?

The Foreign Account Tax Compliance Act, commonly known and referred to as (FATCA) became law in March 2010. FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts.  FATCA focuses on reporting:

·         By U.S. taxpayers about certain foreign financial institution accounts and offshore assets.

·         By foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest.

The objective of FATCA is the reporting of foreign financial assets; withholding is the cost of not reporting. 

U.S. citizens, U.S. individual residents, and very limited number of non-resident individuals who own certain foreign financial accounts or other offshore assets must report those assets.  Taxpayers must report information about certain foreign accounts and offshore assets on Form 8938 and attach it to their income tax return, if the total asset value exceeds the appropriate reporting threshold.  If the taxpayer has a total value of or below $50,000 at the end of tax year, there is no reporting requirement for the year, unless the total value was more than $75,000 at any time during the tax year.  The threshold is higher for individuals who live outside of the United States.  The thresholds are different for married and single taxpayers.

Taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, regardless of the value of their specified foreign financial assets.  Penalties may apply for failure to file accurately.   

It is worthy to note that foreign financial institution may provide to the IRS third-party information reporting about financial accounts, including the identity and certain financial information associated with the account, which they maintain offshore on behalf of U.S. individual account holders.

For additional details, please consult your business attorney, tax professional, and/or review the guidelines under the IRS website here: https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca