FATCA Overview

What is FATCA?

FATCA is the Foreign Account Tax Compliance Act. It was enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act and is aimed to help combat tax evasion by U.S. persons holding investments in offshore accounts.

What are FATCA reporting requirements?

FATCA requires certain U.S. Taxpayers holding Specified Foreign Financial Assets with an aggregate value exceeding $50,000 to report certain information about those assets on a new form (Form 8938) that must be attached to the taxpayer's annual tax return. Reporting applies for assets held in taxable years beginning after March 18, 2010. For most taxpayers this will be the 2011 tax return they file during the 2012 tax filing season.

What constitutes a Specified Foreign Financial Asset?

  • Financial accounts maintained by a foreign financial institution
  • The following foreign financial assets if they are held for investment and not held in an account maintained by a financial institution
    • Stock issued by a foreign corporation
    • A capital or profits interest in a foreign partnership
    • A note, bond, debenture, or other form of indebtedness issued by a foreign person
    • An interest in a foreign estate or trust
    • An interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement with a foreigh counterparty
    • An option or derivative instrument with respect of any of these examples or with respect to any currency or commodity that is entered into with a foreign counterparty or issuer

Are there penalties for not filing Form 8938?

Yes, two different penalties will be assessed.

  1. $10,000 penalty for failure to report foreign financial assets. (up to $50,000 for continued failure after IRS notification)
  2. 40% understatement penalty for the underpayments of tax attributable to the non-disclosed foreign financial assets.

Are there exceptions to reporting Form 8938?

No, but in specific cases you may only have to check a box identifying that you have already reported the specified foreign financial asset on another form in the same tax year. This duplicative reporting applies to Forms 3520, 3520-A, 5471, 8621, 8865, 8891. Note that an FBAR filing is NOT one of the forms that falls under duplicative reporting rules. Any FBAR filings are in addition to filing Form 8938.

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