Notes

What Constitutes Being Exempt From Fatca Reporting?
Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. There are serious penalties for not reporting these financial assets . This FATCA requirement is in addition to the long-standing requirement to report foreign financial accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (formerly TD F 90-22.1). U.S. taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, regardless of the value of their specified foreign financial assets. As with the FBAR, not filing a FATCA will have serious penalties.

FATCA requires individuals to report specified foreign financial assets on Form 8938 and it comes separately from FBAR, which means they don’t substitute each other. If you fail to file Form 8938, then you will face a penalty of $10,000 and an additional $10,000 added for each month the failure continues, beginning 90 days after the taxpayer is notified of the delinquency (up to a maximum of $50,000 per return). There is also an additional substantial understatement penalty of 40% on underpayments of tax that is attributable to non-disclosed foreign financial assets. The Foreign Bank Account Reporting is introduced so as to prevent taxpayers from avoiding taxes by hiding their financial assets abroad. You need to file FinCEN 114 if you have one or more foreign financial accounts with an aggregate total value that exceeds $10,000 at any time during the tax year.

“FATCA” requires specified individuals to report ownership of specified foreign financial assets if the total value exceeds the applicable reporting threshold. Form 8938, Statement of Specified Foreign Financial Assets, was created for this purpose. Failure to include the Form 8938, if required, could lead to significant penalties.

Signed into law in 2010, the purpose of FATCA is to combat tax evasion in the wake of the financial crisis of 2008, as part of the HIRE Act. For details on what these thresholds are, please read our previous blogs on the subject. For now, we will focus on the financial and legal ramifications of FATCA for those entities and people who are required to report.

(IRS Form 1116 is normally used to credit foreign taxes upon passive income.) Another source from which FATCA intends to raise revenue is in the identification of a wider population of US persons. However, the majority (82%) of overseas US persons filing owe no tax to the US .

Automatic extensions for expats living abroad or additional extensions to October 15 can provide more time to collect needed information from foreign financial institutions and determine your filing requirements. If you are a specified domestic entity, you satisfy the reporting threshold only if 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.

The maximum penalty in non-willful nondisclosure is $50,000 per tax return. As of January 2013, only individuals are required to report their foreign financial assets. At a later time, a limited set of U.S. domestic entities also may have to report their foreign financial assets, but not for tax years starting before 2013. There are some exceptions to the requirement that you file Form 8938. For example, if you do not have to file a U.S. income tax return for the year, then you do not have to file Form 8938, regardless of the value of your specified foreign financial assets.

And, keep in mind, these penalties are in addition to any back taxes that must be paid, along with interest on said back taxes. Unlike the FBAR, which is mainly focused on items such as accounts an insurance policies, FATCA Form 8938 is more comprehensive.

FFIs that do not comply with FATCA will face a 30% withholding of their own from U.S.-source income. This is a steep penalty to pay for many FFIs that do regular business with U.S.-based individuals and entities. The Foreign Account Tax Compliance Act is a key provision of U.S. international tax law.

The purpose of FATCA is to prevent tax evasion of U.S. individuals who own offshore assets and accounts. FATCA states that particular U.S. taxpayers with financial assets outside of the U.S. must report them on the “Statement of Specified Foreign Financial Assets,” also known as Form 8938. When filing Form 8938, it must be attached to the taxpayer’s standard annual income tax return. As Form 8938 is filed with your U.S. income tax return, due dates applicable to Form 1040 apply.

While this may seem like a pricey option, it is no doubt better than incurring tens or hundreds of thousands of dollars in penalties. As discussed, this also applies to Foreign Financial Institutions — a 30% withholding of U.S.-source income in this context could easily mean millions of dollars. Thus, it becomes of the utmost importance to keep in line with this specific regulatory filing. FFIs that have any U.S. clientele tend to have a lot of U.S. clientele, as dedicating the resources necessary to have proper reporting is costly.

Overall, the FATCA expands the IRS’ ability to track down unreported accounts, and punishments for discovery are even more severe. Foreign financial institutions (and even certain non-financial) institutions may be forced to provide the IRS with information about accounts held by Americans. While the targets of these provisions are obviously foreign banks and brokerage firms, foreign hedge funds, private equity funds, and trusts may also be classified as foreign financial accounts under the FATCA. The Foreign Account Tax Compliance Act is an important development in U.S. efforts to combat tax evasion by U.S. persons holding accounts and other financial assets offshore.

If you are not married, you satisfy the reporting threshold only if 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 tax year. If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets Example.

what is de minimis safe harbor election For example, a U.S. beneficiary of a domestic bankruptcy trust or a domestic widely held fixed investment trust is not required to report any specified foreign financial asset held by the trust on Form 8938. The value of the foreign financial assets reported on these forms is included in determining the total value of assets for the reporting threshold, but you do not have to list the assets on Form 8938.

In this situation, identify on Form 8938 which and how many of these form report the specified foreign financial assets. Reporting thresholds vary based on whether you file a joint income tax return or live abroad. If you are single or file separately from your spouse, you must submit a Form 8938 if you have more than $200,000 of specified foreign financial assets at the end of the year and you live abroad; or more than $50,000, if you live in the United States. You are considered to live abroad if you are a U.S. citizen whose tax home is in a foreign country and you have been present in a foreign country or countries for at least 330 days out of a consecutive 12-month period.

Certain foreign financial accounts are reported on both FBAR and Form 8938. The reporting threshold is higher for certain individuals, including married taxpayers filing a joint annual income tax return and certain taxpayers living in a foreign country. Furthermore, FATCA specifies that expats who have a total value of foreign financial assets over $200,000 on the last day of the year, or over $300,000 at any time during the year, are required to report them on form 8938, which should be filed at the same time as form 1040. 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 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.

Different rules, key definitions (for example, “financial account”), and reporting requirements apply to Form 8938 and FBAR reporting. Because of these differences, certain foreign financial accounts may be reported on one but not both forms. A chart comparing Form 8938 and FBAR filing requirements is available at Comparison of Form 8938 and FBAR Requirements. 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. For purposes of calculating the value of your specified foreign financial assets in applying this threshold, include one-half the value of any specified foreign financial asset jointly owned with your spouse.

It also applies to accounts that you have control over, such as a signature authority, for example. The FATCA applies to foreign assets in which your beneficial interest is of a type that would require you to report any gains, losses or distributions on your federal tax return, whether or not there is any actual gain loss or distribution to report. FBARs apply any time you are the owner of record or title holder for a particular account.

A higher reporting threshold applies to U.S. persons who are overseas residents and file jointly . Account holders would be subject to a 40% penalty on understatements of income in an undisclosed foreign financial asset. Understatements of more than 25% of gross income are subject to an extended statute of limitations period, six years. It also requires taxpayers to report financial assets that are not held in a custodial account, i.e. physical stock or bond certificates.

FATCA also added 26 U.S.C.§ 1298 requiring shareholders of a passive foreign investment company to report certain information. The Foreign Account Tax Compliance Act is a 2010 United States federal law requiring all non-U.S. financial assets annually to the Internal Revenue Service on form 8938, which is in addition to the older and further redundant requirement to report them annually to the Financial Crimes Enforcement Network on form 114 (also known as 'FBAR'). Like U.S. income tax law, FATCA applies to U.S. residents and also to U.S. citizens and green card holders residing in other countries. The best option, as always, is to hire an experienced, reputable tax professional to guide you through the reporting and taxation of your offshore assets.

Russian banks are required to obtain client consent first but can deny service if that consent is not given. Bangladeshi banks, which have accounts of US taxpayers, may report to the IRS, However they need prior approval of their clients. The intention of locating US persons and their non-US financial accounts was to increase tax revenues from the interest, dividends, and gains of those assets. The majority of assets located was expected be the international equivalent of standard checking and savings accounts, where the applicable interest was less than 0.5% during 2015. The majority of that income is already attributable to the country where it resides.

You will also have to file an FBAR if you or your agent or representative has signature authority or direct control over the foreign account even if you have no personal financial interest in the account. The IRS has a number of ways it tracks and taxes foreign assets and accounts held by U.S. taxpayers. Some, like the Foreign Account Tax Compliance Act , add pages to your tax return. Failure to file either one could result in substantial fines, penalties, or even criminal consequences.

If you have a financial interest in or signatory authority over an offshore financial account, you must report the account on an FBAR (Form 114 (formerly TD F 90-22.1)), regardless of your obligation to file Form 8938. Certain foreign financial accounts are reported on both Form 8938 and the FBAR. However, the information required by the forms is not identical in all cases.

Also, if you report interests in foreign entities and certain foreign gifts on other forms, you may just list the submitted forms on Form 8938, without repeating the details. For most American expats, the annual filing of their U.S. tax return is not the real issue to worry about - it's the required disclosure reporting! Some of the most draconian IRS penalties are associated with the non-filing or incorrect filing of the various disclosure reports that you need to file if you hold foreign investments, foreign bank accounts, or foreign business interests.

You may have to file additional forms to Form 8938 regarding foreign assets. These can include FinCEN Form 114, Report of Foreign Bank and Financial Accounts.

FATCA tax reporting is a required disclosure for individuals with total assets over a certain threshold. The aggregate value thresholds of specified foreign financial accounts vary depending on how you file your tax return. Even if a foreign financial asset is reported on one of the forms listed above, it still must be included it in your calculation of specified foreign financial assets. If you are required to file a Form 8938 and you have a specified foreign financial asset reported onForm 3520, Form 3520-A, Form 5471, Form 8621, Form 8865, or Form 8891, you do not need to report the asset on Form 8938. On the Form 8938, however, you do have to identify which and how many of each of these forms you file.

Residents and entities in U.S. territories also have to file FBARs, but not FATCA forms. See Determining the Reporting Threshold That Applies to You, earlier. In such case you are subject to the failure-to-file penalties if you do not file Form 8938. FATCA added 26 U.S.C.§ 6038D which requires the reporting any interest in foreign financial assets over $50,000 after March 18, 2010. FATCA also added a requirement in 26 U.S.C.§§ 1471–1474 that U.S. payors withhold taxes on payments to foreign financial institutions and nonfinancial foreign entities that have not agreed to provide the IRS with information on U.S. accounts.

FATCA is part of the Hiring Incentives to Restore Employment Act, which was designed to enforce higher tax compliance among U.S. taxpayers with foreign accounts and assets. FATCA created Form 8938, an additional foreign account reporting requirement over and above the Report of Foreign Bank and Financial Accounts that needs to be filed with the U.S. If a taxpayer has more than a certain amount of foreign assets, Form 8938 is included as part of their annual 1040 filing and requires reporting an expanded list of foreign assets not covered by FBAR. The FATCA applies to individual citizens, residents, and non-resident aliens with taxable interests. FBARs are required for a broader range of entities, including trusts, estates, and domestic entities with interests in foreign financial accounts.

Note that the Form 8938 is also referred to as “FATCA” which can cause confusion since that term also refers to the regulations themselves. If you are a U.S. citizen or green card holder living abroad and have foreign assets or foreign bank accounts, you may need to file Form 8938 when you file your U.S. tax return if the value of your assets exceeds certain thresholds. FATCA reporting requirements for financial institutions overseas mandates them to disclose information about U.S. citizens who hold accounts overseas. Your foreign bank may have you fill out a U.S. tax document (form W-9) so they can comply with these rules. If you have a financial interest in or signatory authority over an offshore financial account, you must report the account on a Foreign Bank Accounting Report Form 114 (formerly TD F 90-22.1), regardless of your obligation to file Form 8938.

Failure to properly report foreign financial assets can result in a penalty of $10,000 with additional penalties of up to $50,000 for continued failure to disclose after receiving a request from the IRS. Additional penalties can be assessed if there is unpaid tax on unreported income. A six-year statute of limitations could apply to assess unpaid tax and applicable penalties if more than $5,000 of income is omitted from the taxpayer’s return and such income is attributable to assets reportable on Form 8938 . In recent years, the IRS and US Treasury have stepped up their efforts toward tracking down delinquent tax payers and enforcing payment of overdue taxes. One of these initiatives has been labeled the “Foreign Account Tax Compliance Act”.

This section is very important, as there are serious penalties for failing to report foreign financial assets. If you are unsure if you fall under the classification of people who should file Form 8938, it is wise to consult and international tax law specialist. U.S. taxpayers holding foreign financial assets worth at least $50,000 in aggregate value must file Form 8938. In 2010, the United States created a federal law to combat foreign asset tax evasion called the Foreign Account Tax Compliance Act .

The reporting requirements are in addition to the one that all U.S. persons report non-U.S. This notably includes Form 114, "Report of Foreign Bank and Financial Accounts" for foreign financial accounts exceeding US$10,000, required under Bank Secrecy Act regulations issued by the Financial Crimes Enforcement Network . The IRS previously instituted a qualified intermediary program under 26 U.S.C.§ 1441 which required participating foreign financial institutions to maintain records of the U.S. or foreign status of their account holders and to report income and withhold taxes.

FATCA reporting applies to U.S. taxpayers and depends on a monetary threshold of foreign financial assets. Internal Revenue Service Form 8938 is used to report these financial assets and is filed together with individual annual tax filings.

However, report the entire value on Form 8938 if you are required to file Form 8938. You are married and 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. 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. This makes it very difficult for FFIs to hide the assets of their foreign payees, and requires them to withhold 30% of specific payments to payees that are noncompliant with FATCA.

a U.S. person is required to report, depending on the value, foreign financial accounts and foreign assets regardless if the accounts or assets produce income. And, for foreign assets, regardless of their percentage of ownership interest. Russia, while not ruling out an agreement, requires full reciprocity and abandonment of US extraterritoriality before signing an IGA. Russian President Vladimir Putin signed a law on June 30, 2014 that allowed Russian banks to transfer FATCA data directly to US tax authorities—after first reporting the information to the Russian government.

The predetermined threshold amounts for this form can vary based on whether you live abroad, or in the U.S and on your filing status . Taxpayers meeting these requirements may also need to file FinCen Form 114, Report of Foreign Bank and Financial Accounts to the Department of Treasury. 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.

Don't risk losing your hard-earned international financial accounts to IRS penalties, work with a tax professional experienced in the international reporting requirements. Find out whether you need to file a Report of Foreign Bank and Financial Accounts , Form 8938 under the Foreign Account Tax Compliance Act , or both.

The other significant form of noncompliance is non-willful noncompliance, meaning that there was no intent on the part of the individual filing to hide the specified foreign financial assets in question from the IRS. And while these penalties are not as harsh, they can pile up very quickly. The penalty for non-willful nondisclosure of specified foreign financial assets under FATCA is $10,000 per year for every year of nondisclosure up to the six-year limit. However, there are additional penalties for a failure to file Form 8938 — this is a separate penalty from filing the form while participating in non-willful nondisclosure. This is not where the penalties for non-willful nondisclosure end, though.

It requires reporting for ownership of certain assets, such as an interest in a business or foreign corporation. The level of ownership of the foreign business, partnership, or corporation is important — because you don’t want to duplicate file the form 8938 and other forms . FATCA reporting and filing requirements can be complex, with severe financial implications. As a US Taxpayer, it is important to understand relevant aspects of offshore financial assets, and how they affect taxes.

If you are not married, you satisfy the reporting threshold only if 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. With many other international reporting forms such as the FBAR, it is required to be filed even if a tax return is not required – but this is not true of the form 8938. , and their requirement to properly file the reporting forms each year to disclose specify foreign financial assets. Additional exceptions from reporting are made for certain trusts, certain assets held by bona fide residents of U.S. territories, and assets or accounts for which mark-to-market elections have been made under Internal Revenue Code Section 475.

You will then want to ensure that the form for your institution is filed accurately. If you are unlucky enough, however, the monetary penalties may be just the beginning of your woes. If the IRS determines that there has been fraud, in addition to any nondisclosure of specified foreign financial assets, the statute of limitations and penalty caps are then removed. On the other hand, there are mitigation guidelines to these penalties, meaning that if the IRS is convinced that your case merits special consideration on the basis of the degree of non-reporting, the penalty may be reduced. These guidelines only apply to accounts worth under a quarter of a million dollars, and while they can seriously reduce the amount of fines, the individual guilty of nondisclosure will still usually incur a fine commensurate with the amount of money not disclosed.

Nonresident aliens who choose to be treated as resident aliens for tax purposes are not exempt from the FATCA requirements either. The statute of limitations is extended to six years after you file your return if you omit from gross income more than $5,000 that is attributable to a specified foreign financial asset, without regard to the reporting threshold or any reporting exceptions. If you fail to file or properly report an asset on Form 8938, the statute of limitations for the tax year is extended to three years following the time you provide the required information. If the failure is due to reasonable cause, the statute of limitations is extended only with regard to the item or items related to such failure and not for the entire tax return. If you do not have to file an income tax return for the tax year, you do not have to file Form 8938, even if the value of your specified foreign financial assets is more than the appropriate reporting threshold.

One report included a statement of a finding that participation in the QI program was too low to have a substantive impact as an enforcement measure and was prone to abuse. An illustration of the weakness in the QI program was that UBS, a Swiss bank, had registered as a QI with the IRS in 2001 and was later forced to settle in the UBS tax evasion controversy with the U.S.

Detailed information is required to successfully submit Form 8938. This information can be difficult to gather, especially when dealing with foreign entities.

Failure to file, or filing your tax forms incorrectly, affects the statue of limitations that the IRS has to audit you. If you fail to file Form 8938 or report a specified foreign financial asset that you are required to report, the statute of limitations for the tax year may remain open for all or a part of your income tax return until three years after the date on which you file Form 8938. If you do not include in your gross income an amount that relates to one or more specified foreign financial assets, and the amount you omit is more than $5,000, any tax you owe for the tax year can be assessed at any time within six years after you have filed your return. Specified individuals who own specified foreign financial assets, the value of which exceed the applicable reporting threshold, are required to complete Form 8938 as part of their income tax returns. Specified individuals include U.S. citizens, U.S. resident aliens for any part of the year, nonresident aliens who make an election to be treated as residents for joint filing purposes, and nonresident aliens who are bona fide residents of American Samoa or Puerto Rico.

FATCA requires certain U.S. taxpayers who hold foreign financial assets with an aggregate value of more than the reporting threshold (at least $50,000) to report information about those assets on Form 8938, which must be attached to the taxpayer’s annual income tax return. The reporting threshold is higher for certain individuals, including married taxpayers filing a joint annual income tax return and certain taxpayers living in a foreign country . Non-compliance with the reporting requirements can result in substantial penalties.
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