The Foreign Account Tax Compliance Act (FATCA) is a U.S. tax law enacted in 2010 to prevent tax evasion by U.S. taxpayers who hold assets in foreign financial institutions. FATCA requires foreign financial institutions (FFIs) to report information about financial accounts held by U.S. taxpayers to the Internal Revenue Service (IRS).
Under FATCA, FFIs are required to enter into an agreement with the IRS to identify and report information about U.S. account holders. The information required to be reported includes the name, address, and taxpayer identification number of each account holder, as well as the account balance and any income earned on the account.
FFIs that fail to comply with FATCA can be subject to a 30% withholding tax on certain types of U.S.-source income, including dividends, interest, and certain capital gains.
FATCA has been controversial, with some arguing that it places an undue burden on FFIs and violates privacy rights. However, the U.S. government has argued that the law is necessary to prevent tax evasion and to ensure that U.S. taxpayers pay their fair share of taxes.
Reporting Thresholds
Specified individual include U.S citizens, resident aliens, and certain non-resident aliens and specified entities include certain domestic corporations, partnerships, and trusts.
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In or Outside of US |
Filing status |
Reporting threshold |
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Specified individuals living in the United States |
Individual or individual filing separately |
$50,000.00 on the last day of the year or more than $75,000.00 at any time during the year |
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Married individual filing jointly |
$100,000.00 on the last day of the year or more than $150,000.00 at any time during the year |
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Specified individuals living outside the United States |
Individual or individual filing separately |
$200,000.00 on the last day of the year or more than $300,000.00 at any time during the year |
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Married individual filing jointly |
$400,000.00 on the last day of the year or more than $600,000.00 at any time during the year |
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Specified Domestic entities |
Domestic entities |
$50,000.00 on the last day of the year or more than $75,000.00 at any time during the year |
The Form 8938 is filed along with your annual tax return and it is due by the same date as of your annual tax return.
Failure to file this information may attract a penalty up to $10,000.00 and an additional $10,000.00 for each 30 days from the date of IRS notice, but up to a potential maximum of $60,000.00.
Financial foreign assets include bank accounts, deposits, stocks or securities held with a foreign financial institution, accounts that you an authorized signatory, foreign partnership interests, foreign mutual funds, and foreign life insurance annuity or cash value.
FATCA has also led to increased cooperation between the U.S. and other countries in the area of tax enforcement. Many countries have entered into intergovernmental agreements (IGAs) with the U.S. to implement FATCA, and similar laws have been enacted in other countries, such as the Common Reporting Standard (CRS) developed by the Organisation for Economic Co-operation and Development (OECD).
Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information.