Foreign Account Taxation Compliance Act (FATCA)

legal advice

The Foreign Account Taxation Compliance Act (FATCA) is a multi-faceted law that affects many different aspects of the financial sector. This page is dedicated to the US tax filing obligations imposed by FATCA, specifically the Form 8938.

FATCA was passed into law in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA is seen as a response to the disclosures that some wealthy U.S. citizens living in the U.S. had been holding large sums of money in foreign banks and not reporting the interest or other income earned on those accounts on their U.S. tax returns.

Unfortunately, FATCA is making it significantly more difficult for U.S. citizens living abroad. Many foreign financial institutions are refusing to open or maintain accounts for U.S. citizens, freezing these U.S. citizens out of the banking systems of the countries of their residence.

For the U.S. citizen residing outside the U.S. FATCA requires U.S. taxpayers holding foreign financial assets with an aggregate value over certain threshold to report those financial assets on Form 8938. For a U.S. citizen that is single or filing separate from their spouse and residing outside the U.S., the threshold to file Form 8938 is $200,000 at the end of the year or $300,000 at any time during the year.

The FATCA filing requirement should not be confused with Foreign Bank Account Reporting (FBAR) reporting requirement. Unlike the FBAR, Form 8938 is filed with the person’s annual U.S. tax return. In addition, while the FBAR is focused on foreign accounts like bank account, FATCA requires disclose of foreign assets. So foreign stocks held directly would not be reported on the FBAR, they are a reportable asset on Form 8938 under FATCA. Similarly, partnership interest and interests in foreign hedge funds should be disclosed on the Form 8938 but are not disclosed on the FBAR.

How Flott and Co. PC Helps You

A failure to file a complete and correct Form 8938 may subject a U.S. person to a civil penalty not to exceed $10,000. This penalty can escalate if the Internal Revenue Service (IRS) contacts you and requests a completed and correct Form 8938. If a correct and completed Form 8938 is not providing to the IRS within 90 days of such request there is an additional $10,000 penalty for every 30 days the Form 8938 is not provided. This additional penalty is capped at $50,000.

Our company assists in preparing individual tax returns including preparing Form 8938, providing you with all the details, and helping you respond to disputes as we represent businesses and individuals in their quest to manage their financial matters with the best tools available.

Please contact us to learn more.