If you're a US taxpayer, whether domestic and abroad, you may have more tax compliance obligations than you know; make sure you understand your FATCA filing requirements to avoid any unnecessary fees or penalties.
What is FATCA?
The US government passed the Foreign Account Tax Compliance Act (FATCA) in 2010. Its inception was based around seeking out undeclared foreign assets and requires anyone with a US tax liability to be compliant with a set of laws in the US tax code. In addition, certain business and financial institutes are required by law to divulge sensitive taxpayer information. The IRS is responsible for the collection of information and declaration of penalties (as if they aren't already overburdened with work as it is).
FATCA also entails intergovernmental agreements (IGAs) between the US and various countries stating an event exchange of tax-related information, though it seems like the IRS is doing all the taking and none of the giving.
You might be wondering if your country and the IRS have an agreement (and it probably does). For a list of countries and applicable IGAs, take a look at the US Department of Treasury's site.
FATCA Filing Requirements: Form 8938
The main filing requirement for individuals is Form 8938 – the "Statement of Specified Foreign Financial Assets." It is filed with your annual tax return and applies to those with foreign assets above the reporting thresholds (dependent on the location of residence and filing status). There are different requirements for domestic and foreign taxpayers:
Domestic taxpayers
Unmarried taxpayers:
If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
Married taxpayers filing a joint income tax return:
If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
Married taxpayers filing separate income tax returns:
If you are married and file a separate income tax return from your spouse, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
Foreign taxpayers
Unmarried taxpayers:
If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.
Married taxpayers filing a joint income tax return:
If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.
Married taxpayers filing separate income tax returns:
If you are married and file a separate income tax return from your spouse, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year.
On this form, those required to file the 8938 must declare all foreign assets including mutual funds, life insurance, real estate, and more. Note: if you are not required to file an income tax return, you do not need to file an 8938 even if you are over the reporting threshold.
Thanks Congress! I didn't need those 5 hours anyways…
Penalties for non-compliance is a minimum of $10,000, and up to $50,000 plus 40% penalty on an "understatement of tax attributable to non-disclosed assets". The IRS estimates almost 5 hours for the average individual — be prepared to spend substantially more if you're unsure at any point. And the kicker? You still have to file an FBAR.
If you're reading this just a little too late and have racked up large amounts of penalties and fees, you may want to look into the Domestic and Foreign streamlined disclosure programs. If you need assistance getting into compliance, contact us. We can help.
