FATCA Reporting Requirements
What You Need to Know About FATCA Reporting Requirements
The Foreign Account Tax Compliance Act was passed by the federal government of the United States in 2010 as a part of a national and an international effort to fight tax evasion. The Foreign Account Tax Compliance Act, or FATCA as it is also called, was passed as a part of the Hiring Incentives to Restore Employment (HIRE) act, but the law has been controversial since its passage because of the substantial burden that the law imposes upon banks, upon offshore investors and even upon expatriates who happen to be living abroad and who just want to bank where they live.
If you currently have any money invested in a financial institution that is located outside of the United States, if you have held money in an account at a financial institution outside of the United States in recent years, or if you plan to hold money at a financial institution outside of the United States in the future while still remaining connected to this country and still having ongoing tax obligations, it is important that you have a full understanding of how FATCA works and of how this complex law can impact you.
Thorn Law Group has helped more than 500 clients with legal issues related to the Foreign Account Tax Compliance Act and related to other similar tax obligations. We have unparalleled experience advising offshore investors and expatriates on FATCA compliance and advising them on the steps that must be taken as a result of a failure to comply.
Our legal professionals come to your case with backgrounds working for the IRS as tax attorneys and with backgrounds working with the U.S. tax court, as well as with extensive experience helping taxpayers to resolve criminal and civil tax cases that the IRS has initiated against them. Our firm is a trusted resource for major news publications including the Wall Street Journal, and we have proved time-and-again that we have the knowledge to provide the type of comprehensive advice that clients need to comply with the complex tax regulations – such as FATCA -- that govern the world of offshore financial investment accounts
The stakes are high because the penalties can be grave if you have not complied fully with FATCA, so you should give Kevin Thorn, a Virginia FATCA attorney, a call at our firm right away. We can explain everything that you need to know about the Foreign Account Tax Compliance Act and we can provide you with personalized help. We will assist you both with your reporting requirements and also with voluntary disclosure programs that you could potentially take part in if you failed to fulfill these reporting requirements in the past. Give us a call today to find out more about the assistance that we can offer in helping you avoid financial loss from the IRS.
What is FATCA and What Does it Require of U.S. Taxpayers?
The Foreign Account Tax Compliance Act aims to combat tax evasion through the use of offshore investment accounts by requiring taxpayers who hold financial assets at certain financial institutions outside of the U.S. to report their assets to the IRS using Form 8938.
Foreign financial institutions are also required to provide information to U.S. tax authorities. Banks, brokers, some insurance companies and a variety of other financial institutions are all subject to FATCA reporting requirements and must submit the required information to avoid financial sanctions being imposed by the United States.
FATCA reporting requirements are distinct from and are separate from requirements to file a Report of Foreign Bank and Financial Accounts (FBARs). If you have offshore funds, you may be required to both comply with FATCA and submit Form 8938 as well as to comply with the rules for submitting FBARs.
Thorn Law Group knows the laws applicable to taxpayers and the laws applicable to foreign financial institutions where U.S.-connected people bank. If you have offshore investments, we will work with you to determine if you should have filed reports in the past under FATCA and to determine what your current obligations are under the law. We will also discuss the risks if you are not in compliance with FATCA's reporting rules but if your bank reports your offshore accounts to the IRS. An experienced attorney at our firm will work with you to create an appropriate plan to lessen any consequences that could result from past non-compliance.
How are Taxpayers Impacted?
All U.S. connected individuals who wish to maintain offshore accounts are impacted by FATCA if they are subject to its reporting requirements. Among the taxpayers who are most affected are expatriates who are living in foreign countries and who wish to open bank accounts in the country where they reside.
Some foreign banks, in an effort to avoid dealing with complexities associated with reporting U.S. connected accounts, have simply stopped allowing American citizens to open financial accounts of any type at their institution. Foreign financial institutions have also indicated their intent to close accounts of U.S. affiliated accountholders in an effort to not have to comply with burdensome, costly, and time-consuming bureaucratic requirements for reporting. When expatriates cannot bank in the country they reside in, this causes significant hardship and makes doing basic tasks like cashing a check or paying online bills downright impossible.
Those who own property abroad and who wish to maintain foreign accounts to cover property costs -- or investors who simply wish to diversify their investments by keeping money offshore -- also can experience difficulty finding a willing financial institution. Once a financial institution has been found, complying with reporting requirements after successfully opening an account is also vital.
When Does Information Need to be Reported to the IRS and What Must You Disclose?
FATCA does not require every single taxpayer with a foreign bank account to file a report with the IRS. Taxpayers must meet reporting thresholds, which vary depending upon whether the taxpayer lives abroad and which vary depending upon income and account value:
- If you live in the United States and you are single, or file your taxes as married filing separately, you must submit Form 8938 to the IRS if you have more than $50,000 in foreign financial assets at the end of the year. If you file your taxes as married filing jointly, you are required to submit this form if you have more than $100,000 in funds in an offshore account at the end of the year.
- If you live abroad and you are single or you file your taxes as married filing separately, you must submit Form 8938 if you have more than $200,000 in foreign financial assets at the end of the year. If you are married and file your taxes as married filing jointly, you only must submit a report of your foreign bank account if the balance at the end of the year is more than $400,000. However, if you have more than $600,000 in the account at any time during the year for married couples, or $300,000 for singles, you also must make a report.
As you can see, those who live abroad have higher reporting thresholds. You are defined for IRS purposes as living abroad, rather than living in the United States, if you have a tax home in a foreign country and if you have been present in that foreign country (or in other foreign countries) for at least 330 total days out of the prior year-long calendar period.
The higher reporting thresholds aim to make it easier for expatriates to be able to bank, but unfortunately many banks still decline to allow U.S. connected persons to open accounts at foreign financial institutions because of concern that they could inadvertently end up in violation of FATCA or because of concerns associated with the cost and time of making reports.
What if You Don't Comply with Your Filing Obligations?
A failure to comply with your reporting obligations under the Foreign Account Tax Compliance Act can have dire financial consequences. Failing to submit a mandatory Form 8938 could result in:
- A $10,000 penalty for failure to file.
- An additional penalty of as much as $50,000 if you are notified by the IRS of your failure and you continue to not file Form 8938.
- A 40 percent penalty assessed on assets that were not disclosed and on any understatement of taxes that is attribute to the assets that were not disclosed.
The IRS has a long time to pursue action against you in order to try to obtain the fees that are associated with your failure to comply with FATCA. If you file a return and you fail to report to the IRS more than $5,000 in income attributed to your undeclared foreign financial assets, the statute of limitations for the IRS to act is extended to a six-year period following your return on which you failed to disclose.
If you do submit Form 8938 as required but you fail to properly report foreign assets on this form, the statute of limitations for the IRS to take action is extended to three years from the time that you provided your incomplete report to the IRS.
However, if you had reasonable cause for your failures, as determined on a case-by-case basis, the statute of limitations will only be extended for the items on the tax return that are directly related to the failure to report. The statute of limitations would not be extended for any other civil or criminal actions that the IRS might wish to pursue after reviewing your returns.
What Should You Do If You’re Not Current on Filing Obligations
If you are not in compliance with the rules for reporting your offshore accounts, you could have a serious problem because of the substantial penalties that you're looking at.
You also need to keep in mind that foreign financial institutions are also subject to reporting requirements and are under a lot of pressure to work with the IRS. The Swiss Bank Program, for example, gives foreign financial institutions the chance to come clean and avoid criminal prosecution by giving the IRS details on U.S. account holders. Because of the FATCA reporting mandates and the other strong incentives in place, your bank has probably given your information to the IRS already or will be giving it to the IRS.
You typically want to take part in a voluntary disclosure program before the IRS discovers your non-compliance with FATCA. A voluntary disclosure program, such as the Offshore Voluntary Disclosure Program, gives you the chance to let the IRS know of your past failure to follow reporting rules. In exchange for you actually coming forward on your own and admitting to not following the rules, the IRS is more lenient. You will benefit from facing a reduced civil penalty and will be able to avoid criminal prosecution for tax-law violations associated with your failure to follow reporting rules.
There are different kinds of amnesty programs that you could take part in by essentially confessing your failure to report your offshore accounts, and these programs are not interchangeable. For example, you could participate in streamlined filing compliance procedures, such as the streamlined procedures which had been made available to Americans residing offshore, or you could participate in programs for either willful or non-willful violators.
How Can a FATCA Attorney Help You?
A FATCA attorney at Thorn Law Group can provide you with personalized help with FATCA compliance issues. Whether you live in the U.S. or abroad, we can explain your obligations and help you to comply with the Foreign Account Tax Compliance Act. We can also provide assistance with making your reports, or with determining the best course of action to resolve legal issues associated with past non-compliance.
The legal team at Thorn Law Group has more than 80 years of combined experience representing clients with tax issues and we have been assisting clients with FATCA issues since the law was passed. To find out more, give us a call today.