What is this 'FATCA'?
FATCA stands for 'Foreign Account Tax Compliance Act' and is a federal law that requires all US taxpayers, even those living outside of the US, to report their non-US financial accounts yearly. It also requires all non-US financial institutions to search their records for suspected US persons and report their identities and assets to the US treasury.
How to report these accounts
You are going to use Form 8938, the 'Statement of Specified Foreign Financial Assets' Form.
"Unless an exception applies, you must file Form 8938 if you are a specified individual that has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold. If you are required to file Form 8938, you must report the specified foreign financial assets in which you have an interest even if none of the assets affects your tax liability for the year."
Ugh. Thanks IRS, for that super easy to understand information
Let's break it down into human terms, starting with "what the heck is a 'specified individual'”?
- A US Citizen
- A resident alien of the US for any part of the tax year
- A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return
- A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico
If you are an individual then don't look for other forms, Form 8938 is the one you need! Right now, businesses are in the clear when it comes to Form 8938 but we don't know how long that will last. IRS.gov states:
"The IRS anticipates issuing regulations that will require a domestic entity to file Form 8938 if the entity is formed or used to hold specified foreign financial assets and the assets exceeds the appropriate reporting threshold. Until the IRS issues such regulations, only individuals must file Form 8938."
You have to report worldwide income no matter how little it is, with the exception being if your entire income falls below the filing threshold. But if you do have to file, then any amount of income must be reported. You'll have to check the box in part III of Schedule B (Foreign Accounts and Trusts)on your 1040/1040A if you have a foreign bank account, regardless of how much money is in the account. Even if you fill out Form 8938, you do still need to fill out an FBAR if your foreign accounts add up to $10,000 or more.
A kinder, gentler IRS?
The IRS estimates that it will take the average taxpayer about 5 hours to complete Form 8938, and we can say from experience that is grossly underestimated. Maybe the IRS experienced 'feelings' for a second, because they decided that you don't need to report some assets on Form 8938 if you have other, more painful forms to file:
- Form 3520 – Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
- Form 3520-A – Annual Information Return of Foreign Trust With a U.S. Owner
- Form 5471 – Information Return of U.S. Persons With Respect To Certain Foreign Corporations
- Form 8621 – Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund
- Form 8865 – Return of U.S. Persons With Respect to Certain Foreign Partnerships
- Form 8891 – U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans ***As of December 2014, Form 8891 is obsolete. Even though it is still on www.irs.gov, they released RP-14-55 that states: Form 8891 is obsolete as of December 31, 2014***
However, you do still have to identify on Part IV of your Form 8938 which and how many of these forms report the specified foreign financial assets.
Form 8938 must be filed with your 1040 tax return. For taxpayers living in the United States: Generally federal individual tax returns are due on April 15 of each year. You can also request an extension until October 15th.
For expats, the due date is June 16th, unless you get an extension until October 15th (or possibly even December 15th).
To request an extension for filing Form 1040, use Form 4868 to apply for 6 more months (4 if out of the country and a U.S. citizen or resident).
If you omitted Form 8938 when you filed your income tax return you should file Form 1040X (Amended U.S. Individual Income Tax Return) with your Form 8938 attached. There are serious penalties for not reporting these financial assets that we'll talk about more in depth as we continue our series on FATCA.
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