If you need to file FATCA, first you’ll want to find out some essential information about the filing requirement. Check out our list of FAQs and FATCA reporting requirements below, as compiled by our expert accountants.
I received a letter about FATCA reporting requirements from my bank overseas. Why are they contacting me and what do I need to do?
FATCA, or the Foreign Account Tax Compliance Act, was enacted in 2010 by the United States to combat international tax evasion. It calls for foreign financial institutions to disclose to the US foreign accounts held by American taxpayers, and to comply with reporting, withholding, and account disclosure requirements to the US.
Why would countries comply? Due to repercussions for non-compliance; access to critical US financial markets would be lost if American taxpayer data wasn’t passed on to the U.S. Since 2010, foreign financial institutions have steadily been signing up to come on board with FATCA, with over 77,000 institutions in agreement in over 80 countries.
What are the actual reporting requirements for FATCA? What accounts do I need to disclose on Form 8938?
The IRS states that an interest in a specified foreign financial asset should be disclosed. This would include any asset where you would also report income (e.g., interest), gains (stock sales), losses, deductions, credits, gross proceeds, or distribution from holding or disposing of the asset. This includes interests in a foreign partnership, foreign-issued life insurance or annuity contract with a cash value, and foreign mutual funds.
Not all assets that are reported on Form 8938 need to be reported on the FBAR, and vice versa. For more examples, and information, see FBAR vs. Form 8938.
I have no idea what my reporting requirements are. Do I need to file FATCA?
Definitely provide the information your bank is requesting; otherwise, your bank can withhold 30% tax from you. If you are an American citizen or taxed as a resident alien and have been compliant with your taxes and other reporting requirements, there is nothing to worry about. Even if you have discovered that you omitted information that should have been reported, Greenback can help you go back and correct your situation.
FATCA expanded information reporting for US taxpayers. Taxpayers with foreign financial accounts over a certain threshold may have a requirement to file Form 8938 with their tax return. This can apply to those living in the US as well.
For example, Sally, a UK citizen, moved to New York City from the UK in 2018 and has been in the US long enough to be taxed as a resident. She is single, and before she moved to the US, she was working in the UK and saved the equivalent of $50,000 in a UK bank account that is still in existence today. The account meets the threshold to be disclosed on Form 8938 (thresholds vary depending on where you live and your filing status).
In addition to Form 8938, other reporting requirements may apply to those with foreign investments, trusts, and businesses.
I have been filing my FBARs on time every year. Do I still have additional FATCA reporting requirements?
Reports of Foreign Bank and Financial Accounts, or FBARs, are required in addition to any FATCA reporting requirements you may have. FBARs are information returns administered by the US Department of the Treasury and are separate from FATCA. An FBAR report, now called FinCen Form 114, is required to be filed by April 15th (in a typical tax year) with an automatic extension to June 15th for expats.
FBAR came into existence long before FATCA, and its filing threshold is much lower; reporting is triggered once a US person has a financial interest in or signature authority over $10,000 in foreign financial accounts.
What happens if I need to file FATCA but don’t?
The penalties for non-compliance can be substantial; for example, FBAR penalties of $10,000 can be assessed for non-willful violations, and the greater of $100,000 or 50% of the foreign account balance can be assessed for willful violations. Form 8938 carries penalties of up to $10,000 for failure to disclose accounts, and an additional $10,000 for every 30 days (up to $60,000) of non-filing after the IRS contacts you. In addition, you may face criminal penalties. The IRS offers various amnesty programs to help taxpayers comply with their filing requirements, some with minimal or no penalties assessed. Form 8938 and FBARs are information returns that carry no tax assessment; however, as noted above, failure to file these returns can come with harsh consequences.
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