What Is FATCA?
Under the Foreign Account Tax Compliance Act (FACTA), US taxpayers holding financial assets outside the US must report those assets to the IRS using Form 8938, Statement of Specified Foreign Assets, if you meet the following criteria:
- You are required to file Form 1040 and,
- For unmarried or married taxpayers filing separate returns who live in the US, if the value of your foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any point during the year, or
- For unmarried or married taxpayers filing separate returns who live outside the US, if the value of your foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any point during the year or,
- For married taxpayers filing joint returns who live in the US, if the value of your foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any point during the year or,
- For married taxpayers filing joint returns who live outside the US, if the value of your foreign financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any point during the year
One exception to the above thresholds is if you are not required to file Form 1040; in that case you are not required to file Form 8938.
While not a part of FATCA, it is important to know that additional reporting of these foreign financial assets may be required. FinCen Form 114, Report of Foreign Bank and Financial Accounts (FBAR) is required if the aggregate value of your foreign bank accounts exceeds $10,000 at any point during the year.
The IRS makes available a comparison table to help you determine which assets need to be reported on either form, how to determine the value and convert to US dollars, how to handle income associated with these assets, and other useful information. This is not an all-encompassing list and can be confusing as to which assets are required to be reported on each form. While some taxpayers assume the IRS is unlikely to find out about their foreign financial assets, many foreign financial institutions are now required to provide to the IRS third-party information about financial accounts, including the identity and certain financial information associated with the account, which they maintain offshore on behalf of US individual account holders. Additionally, not filing Form 8938 or FinCen Form 114 when required can lead to substantial penalties. Inadvertently not filing the forms can lead to non-filing penalties up to $10,000, but willfully not filing the forms can increase the penalties up to 50 percent of the account value.
These forms represent complex issues and require careful analysis to determine your reporting requirements. R&A's experts can help--give us a call.
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About this Author
Adam specializes in international tax planning and analysis. Since 2012 he has coordinated offshore compliance submissions, international tax training relating to foreign pension plans, foreign investment in US property, and general foreign compliance. In addition, in conjunction with legal counsel, he assists international families regarding planning, entity structure, and transaction analysis.