Foreign Account Tax Compliance Act (FATCA) - NEW REPORTING REQUIREMENTS
The Foreign Account Tax Compliance Act (FATCA) is an important development in U.S. efforts to improve tax compliance involving foreign financial assets and offshore accounts.
Under FATCA, U.S. taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS. This reporting will be made on Form 8938, which taxpayers attach to their federal income tax return, starting with the 2011 tax filing season. In addition, FATCA will require foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest. Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty of up to $50,000 for continued failure after IRS notification).
*** Please contact Feeley & Driscoll's Boston Accounting team by email or call 1 (888) 875-9770 to assist you in determining whether you would be required to comply with the new FATCA regulations based on the thresholds below.
Specified foreign financial assets generally include the following assets:
- Any financial account maintained by a foreign financial institution.
- To the extent held for investment and not held in a financial account, any stock or securities issued by someone that is not a U.S. person, any interest in a foreign entity, and any financial instrument or contract with an issuer or counterparty that is not a U.S. person.
The reporting threshold varies depending on whether an individual lives in the United States or files a joint income tax return with his or her spouse.
If you satisfy the "reporting threshold" that applies to you below, you are required to File Form 8938 with your income tax return.
- Unmarried taxpayers living in the U.S. - total value of your foreign financial assets exceeds $50,000 on the last day of the tax year or more than $75,000 at any time during the year.
- Married taxpayers filing a joint tax return & living in the U.S. - total value of your foreign financial assets exceeds $100,000 on the last day of the tax year or more than $150,000 at any time during the year.
- Married taxpayers filing separate tax returns & living in the U.S - total value of your foreign financial assets exceeds $50,000 on the last day of the tax year or more than $75,000 at any time during the year.
- Taxpayer living abroad (not filing a joint return) - if your tax home is in a foreign country, you meet one of the "presence abroad" tests below & the total value of your foreign financial assets exceeds $200,000 on the last day of the tax year or more than $300,000 at any time during the year.
- Taxpayer living abroad (filing a joint return) - if your tax home is in a foreign country, you meet one of the "presence abroad" tests below & the total value of your foreign financial assets exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
You satisfy the "presence abroad" test if you are one of the following:
- A U.S. citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
- A U.S. citizen or resident who is present in a foreign country or countries at least 330 full days during any period of 12 consecutive months that ends in the tax year being reported.
The filing of Form 8938 does NOT relieve you of the requirement to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), if you are otherwise required to file Form TD F 90-22.1.
U.S. persons are ALSO required to file a Report of Foreign Bank and Financial Accounts or FBAR (Form TD F 90-22.1) each year if they have a financial interest in any financial account, including bank, securities or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year. In addition, a person who has signature authority over a foreign bank or financial account must also file Form TD F 90-22.1. Accordingly, many U.S. companies that have control over their foreign subsidiaries will be required to file a Report. Form TD F 90-22.1 does NOT get attached to your annual return and must be RECEIVED by the IRS on or before June 30th. We recommend mailing the form 3 to 4 days prior to the deadline to ensure timely filing.
Updated June 2012
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