Foreign Account Tax Compliance Act (FATCA)
Overview of the Foreign Account Tax Compliance Act (FATCA)
Enacted in 2010, the Foreign Account Tax Compliance Act (FATCA) is aimed at uncovering and combatting tax evasion by U.S. persons who attempt to hide their assets in accounts with financial institutions located outside of the United States. Under FATCA’s requirements, certain U.S. taxpayers residing in the United States or abroad that have foreign financial assets totaling $50,000 or more at the end of the tax year (or exceeding $75,000 at any time during the tax year), must report their assets to the IRS when filing their annual tax returns. Taxpayers whose assets meet or exceed the IRS threshold amounts must attach Form 8938 to their federal income tax return.
If a taxpayer fails to submit Form 8938 by the due date, the taxpayer will be subject to a $10,000 penalty for each year that the taxpayer fails to submit the form. If the taxpayer receives a notice of failure to file from the IRS and continues to fail to file Form 8938, the taxpayer may be subject to additional monetary penalties up to $50,000.
Foreign Financial Institutions
FATCA also establishes requirements for foreign financial institutions (FFIs) to provide the IRS with information about their U.S. accountholders. In order to avoid a 30 percent withhold on all financial transactions conducted by the FFI in the US, the FFI may elect to register with the IRS, obtain a Global Intermediary Identification Number (GIIN) and agree to disclose certain information about the accounts they maintain offshore on behalf of U.S taxpayers. In general, financial institutions that enter into these types of agreements with the IRS are required to report the U.S. taxpayer’s name, social security number, address, account number and account balance.
Intergovernmental Agreements to Implement FATCA
FATCA also includes a component to encourage countries around the globe to enter into Intergovernmental Agreements (IGAs) with the United States. When a jurisdiction executes an IGA, the nation is agreeing to cooperate with the U.S. to help facilitate the implementation of FATCA. According to the IRS, these intergovernmental agreements “remove domestic legal impediments to compliance” and simplify the burdens on the FFIs in the jurisdiction.
Many countries throughout the world have already agreed to cooperate with FATCA implementation. To date there are over 100 nations included on the IRS list of jurisdictions that have signed an IGA or reached an agreement in substance with the U.S. to exchange information. With more and more countries executing intergovernmental agreements, FATCA is proving to be a powerful tool to help U.S. authorities identify and investigate suspected tax evaders.
A Virginia Tax Attorney Can Help
If you have offshore assets and accounts that have not been properly reported to the IRS, you should consult with an experienced international tax compliance attorney. The Thorn Law Group can explain your obligations and help you determine the best path to bringing your foreign accounts and assets back into legal compliance.
Depending upon your individual situation, an IRS tax amnesty program may allow you to voluntarily disclose your accounts in exchange for reduced penalties and the avoidance of a potential criminal prosecution. To learn more about how we can help, contact the Virginia law offices of Thorn Law Group today.