FATCA (Foreign Account Tax Compliance Act) is a federal law that requires US taxpayers to report their foreign financial accounts and offshore assets to the IRS, and also requires foreign financial institutions to report information about their US account holders to the IRS. Specifically, FATCA requires US taxpayers to report their foreign financial accounts and offshore assets to the IRS if the total value of those assets exceeds certain thresholds. Foreign financial institutions are required to report information about their US account holders to the IRS if they meet certain criteria.
The purpose of FATCA is to combat tax evasion by US taxpayers who hold assets in foreign countries. The law was enacted in 2010 and has since been implemented through various regulations and agreements with foreign governments and financial institutions, allowing for the exchange of information between the US and foreign tax authorities. This has allowed the US to improve its efforts to identify and combat tax evasion by US taxpayers who hold assets in foreign countries. Failure to comply with FATCA reporting requirements can result in significant penalties and fines.
Under FATCA, U.S. taxpayers with foreign financial accounts are required to report certain information about those accounts on their tax returns, including the highest value of each account during the year. The reporting thresholds for US taxpayers under FATCA are as follows:
- For individual taxpayers living in the United States, the reporting threshold for foreign financial assets is $50,000 at the end of the tax year or $75,000 at any time during the tax year.
- For married taxpayers filing jointly and living in the United States, the reporting threshold for foreign financial assets is $100,000 at the end of the tax year or $150,000 at any time during the tax year.
- For taxpayers living abroad, the reporting threshold for foreign financial assets is $200,000 at the end of the tax year or $300,000 at any time during the tax year. Different reporting thresholds may apply for certain taxpayers with specified foreign financial assets, such as foreign trusts, foreign corporations, or foreign partnerships.
It’s important to note that these thresholds are subject to change, and there may be other reporting requirements under FATCA depending on a taxpayer’s specific circumstances. It’s always best to consult with a tax professional for guidance on FATCA reporting requirements.
The penalties for not filing Form 8938 or failing to include all required information on the form can be significant. The following are the general penalties for failure to file or incomplete filing of Form 8938:
- Failure to file penalty: If you are required to file Form 8938 and fail to do so, you may be subject to a penalty of up to $10,000 for each year the form is not filed. The penalty can increase up to $50,000 for continued failure to file after IRS notification.
- Accuracy-related penalty: If you underreport your tax liability because you did not report income from foreign financial assets that should have been reported on Form 8938, you may be subject to an accuracy-related penalty of 40% of the understated tax.
- Foreign asset disclosure penalty: If you fail to disclose a foreign asset that should have been reported on Form 8938, you may be subject to a penalty of 5% of the value of the asset per month, up to a maximum of 25%.
- Criminal penalties: In certain cases, failure to file Form 8938 may result in criminal penalties, including fines and imprisonment.
It’s important to note that the above penalties are subject to change and may vary depending on the specific circumstances of each case. It’s always best to consult with a tax professional for guidance on your reporting obligations and potential penalties for noncompliance.
U.S. taxpayers who are required to file an FBAR (Report of Foreign Bank and Financial Accounts) are also generally required to comply with the reporting requirements under FATCA (Foreign Account Tax Compliance Act). FATCA and FBAR (Report of Foreign Bank and Financial Accounts) are both tax reporting requirements for U.S. taxpayers with foreign financial accounts, but they are separate and distinct requirements with different purposes. The FBAR is a reporting requirement for U.S. taxpayers with foreign financial accounts, while FATCA is a law that requires foreign financial institutions to report information about those accounts to the IRS. The filing threshold for FATCA (Form 8938) is generally higher than the reporting threshold for the FBAR. Failure to file either form can result in penalties and other consequences. Notably, while there is some overlap between FBAR and FATCA reporting requirements, the two forms are separate and distinct requirements with different reporting thresholds and filing deadlines.
