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Foreign Account Tax Compliance (FATCA)

Summary

Form 8938 is required for U.S. expats to report foreign financial assets if they meet certain thresholds. The types of assets to report include foreign bank accounts, stocks, retirement accounts, insurance policies, and other foreign investments. Penalties for failing to file Form 8938 can be significant, including $10,000 fines and possible additional penalties for continuing non-compliance. U.S. expats should carefully assess their foreign holdings to ensure that they meet FATCA reporting requirements and consult with a tax professional to comply with both FATCA and FBAR.

Description

FATCA (Foreign Account Tax Compliance Act) is a U.S. tax law enacted in 2010 to combat offshore tax evasion by U.S. taxpayers. It requires U.S. persons, including U.S. expats, to report certain foreign financial assets and accounts to the IRS. FATCA is designed to ensure that U.S. taxpayers report their foreign income and assets, and it requires foreign financial institutions (FFIs) to report information about U.S. account holders to the IRS.

Key FATCA Reporting Requirements for U.S. Expats

  1. Form 8938 (Statement of Specified Foreign Financial Assets):
    • U.S. expats who meet specific thresholds of foreign assets are required to file Form 8938, reporting specified foreign financial assets. This form is attached to the annual U.S. income tax return (Form 1040).
    • The reporting thresholds vary based on filing status and whether the taxpayer lives in the U.S. or abroad.

FATCA Reporting Thresholds (For Form 8938):

  • For U.S. taxpayers living in the U.S.:
    • Single or Married Filing Separately: More than $50,000 in foreign assets at the end of the tax year, or more than $75,000 at any point during the year.
    • Married Filing Jointly: More than $100,000 in foreign assets at the end of the year, or more than $150,000 at any point during the year.
  • For U.S. taxpayers living abroad:
    • Single or Married Filing Separately: More than $200,000 in foreign assets at the end of the tax year, or more than $300,000 at any point during the year.
    • Married Filing Jointly: More than $400,000 in foreign assets at the end of the year, or more than $600,000 at any point during the year.
  1. Types of Foreign Financial Assets to Report:
    • Foreign bank accounts (e.g., checking, savings, and investment accounts).
    • Foreign stocks and securities (even if they are held in a foreign mutual fund or ETF).
    • Foreign partnership interests.
    • Foreign retirement accounts (if they are not already reported via other forms like FBAR).
    • Foreign insurance policies with a cash value or an investment component.
    • Foreign real estate (if held through a foreign corporation or partnership).
    • Foreign trusts (if you are a beneficiary or have ownership interests).
  2. Filing Form 8938:
    • Form 8938 must be filed along with your Form 1040 (your U.S. tax return). If you fail to file Form 8938, the IRS can impose significant penalties.
    • The form requires detailed information about each foreign asset, including account numbers, names of institutions, maximum value during the year, and the type of asset.
  3. Penalties for Non-Compliance:
    • Failure to file Form 8938 can result in severe penalties:
      • $10,000 for failure to file or late filing.
      • An additional penalty of $10,000 for each 30-day period after the initial due date, up to a maximum of $50,000.
      • Criminal penalties may apply if the failure to file is deemed willful.
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