Foreign Account Tax Compliance Act (FATCA)

FATCA is legislation that was enacted to combat tax evasion by U.S. persons with foreign financial assets. Under FATCA, U.S. tax payers holding financial assets outside of the U.S. must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, if they exceed a certain threshold. Not reporting these assets can result in serious penalties, including $10,000 for failure to file, an additional penalty of up to $50,000 for continued failure to file after your receive notification from the IRS, and a 40% penalty for under reporting of tax attributable to non-disclosed assets, not to mention an unlimited statute of limitations. In other words, don’t take your FATCA reporting lightly.

 

If you are a U.S. taxpayer living in the U.S., you are required to file Form 8938 if you file an income tax return and:

 

    • You are unmarried and the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year

 

    • You are married filing a joint income tax return and the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.

 

    • You are married filing separate income tax returns and the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

 

 

If you are a U.S. taxpayer that is considered a foreign resident, you are required to file Form 8938 if you file an income tax return and:

 

    • You are married filing a joint income tax return and the total value of your specified foreign financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year. These thresholds apply even if only one spouse resides abroad. Married individuals who file a joint income tax return for the tax year will file a single Form 8938 that reports all of the specified foreign financial assets in which either spouse has an interest.

 

    • You are not a married person filing a joint income tax return and the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year.

 

 

Specified foreign financial assets may include foreign financial accounts and foreign non-account assets or investments. Investments would include foreign stock and securities, foreign financial instruments, contracts with non-U.S. persons, and interest in foreign entities.

 

There are also numerous exceptions to the reporting requirement related to trusts and social security. In addition, you may have other forms that need to be completed and filed aside from Form 8938, including FBAR reporting and FinCEN Form 114.

 

If you mistakenly believe that your assets will not be discovered, think again, because pursuant to FATCA Foreign Financial Institutions (“FFIs”) must turn over information on accounts owned by, or for the beneficial interest of, U.S. persons to the IRS. Failure to do so will result in 30% withholding tax on certain payments to the FFI. So the FFI’s have an incentive to report your assets to the IRS. By “motivating” FFIs to report certain information on U.S. clients to the IRS, the assumption is that taxpayers will come forward voluntarily before the FFIs report them.

 

While the definition of an FFI can be very broad, usually it includes banks, brokerage houses, insurance companies, partnerships, and investment companies.

 

As mentioned above, failure to report or mistakes can be costly. That is why you need an expert to ensure you are in full compliance with the law.

 

Esquire Group will determine which of your assets are reportable, complete the forms required by FFIs, and help you complete and file all of the forms necessary to keep you in compliance with the IRS.

 

 

 

Why Choose Esquire Group? Find out here

 

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