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FATCA is United States tax law that was created to reduce offshore tax evasion and fraud. All U.S. Taxpayers must disclose offshore accounts or face fines, penalties and tax liabilities. Moreover, foreign financial Institutions, and certain other non-financial foreign entities, must report on the foreign assets held by their U.S. account holders or be subject to withholding on withholdable payment.
As stated by the IRS, “U.S. citizens, U.S. individual residents, and a very limited number of nonresident individuals who own certain foreign financial accounts or other . . . specified foreign financial assets[] must report those assets” using Form 8938. However, individual reporting requirements are subject to certain thresholds which vary based upon country of residence (U.S. or foreign), marital status and other factors
Interests in foreign businesses, trusts and foundations are “specified foreign financial assets” that are subject to FATCA’s reporting requirements. The value of the entity’s assets is taken into consideration when determining whether the threshold for reporting is satisfied.
There are numerous important factors involved in reporting foreign financial assets to the IRS. To ensure that you are not unnecessarily exposing yourself to an audit or investigation, it is critical that you carefully adhere to the reporting requirements that are applicable to your particular offshore holdings and financial circumstances. Three of the top issues to consider when preparing to submit Form 8938 are:
Foreign financial institutions are subject to FATCA reporting obligations as well; and, if your overseas bank believes you may be obligated to report assets in its possession to the IRS, it will send you a “FATCA letter.” While this is a standard form letter and receiving one does not necessarily mean that you need to file Form 8938, it is important to take the letter seriously and determine whether you need to file.
Form 8938 is the primary form taxpayers must use to report foreign financial assets to the IRS under FATCA. However, if you have already reported these assets on another form, then you do not also need to report them using Form 8938. Other forms that may be used to report certain types of foreign financial assets include:
Critically, if you file Form 8938, you may still also need to file an FBAR (Foreign Bank Account Reporting Form) with the Department of Treasury. For more information about the forms used to satisfy the IRS’s foreign financial requirements, you can read: What Are the Foreign Financial Reporting Requirements or Forms That Should Be Filed With the Internal Revenue Service (IRS) for Individuals, Businesses, Trusts and Foundations?
The FBAR (FinCEN Form 114) is used to report financial interests in, and signature authority over, foreign bank accounts, brokerage accounts, mutual funds, trusts and certain other foreign financial assets. Similar to the reporting requirements under FATCA, the FBAR requirements (which exist under the Bank Secrecy Act) are subject to minimum reporting thresholds. Also similar to FATCA reporting, if you fail to file an FBAR, you can face steep federal penalties.
Maybe, but not necessarily. While FATCA applies to “foreign financial assets,” the Bank Secrecy Act applies to “foreign financial accounts.” If you are required to report a foreign asset other than a financial account, then you may only need to file Form 8938.
Yes. The IRS advises: “If you have an interest in a foreign pension or deferred compensation plan, you have to report this interest on Form 8938 if the value of your specified foreign financial assets is greater than the reporting threshold that applies to you.”
The IRS’s streamlined filing procedures allow taxpayers who mistakenly failed to report their foreign financial assets under FATCA to avoid certain penalties due to non-payment of federal taxes. In order to be eligible to take advantage of the streamlined filing procedures, a taxpayer must be able to, “certify[] that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part.”
The FATCA legislation became effective on July 1, 2014, and you may have already received a FATCA letter. If so, your assets at the foreign institution may have already been frozen or cancelled. You will need to show proof that you have complied with the FATCA requirements for filing.
The good news is that we can help. The international tax attorneys at Thorn Law Group have the knowledge necessary to help navigate clients through the complex reporting requirements imposed by FATCA. As former IRS attorneys, our skilled legal team has a keen understanding of the tax laws and regulations designed to control and monitor offshore bank accounts and other foreign property and assets.
The following types of foreign assets, income and accounts are required to be disclosed:
Even if you do not have any U.S.-based income, if you qualify, you need to file a FATCA. Now, what qualifies for types of income?
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