FATCA 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.
We've had some in depth discussions about the reporting thresholds and filing deadlines for FATCA Form 8938. Once you've determined that you need to file a Form 8938, you'll need to know what to report. The IRS has not made it a simple, quick process, and some of the requirements cause duplicate reporting.
The IRS posted the following information on their website. What we've done is try our best to offer explanations on items we thought needed some more detail, see our additions in italics:
What are the specified foreign financial assets that I need to report on Form 8938?
- Financial (deposit and custodial) accounts held at foreign financial institutions: Yes – Just like an FBAR
- Financial account held at a foreign branch of a U.S. financial institution: No
- Financial account held at a U.S. branch of a foreign financial institution: No
- Foreign financial account or asset for which you have signature authority: No, unless any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return – If you have signatory authority only, and none of the money is yours. This usually means you’re managing someone else’s money and you have no claim to it…but you do have to report it on your FBAR
- Foreign stock or securities held in a financial account at a foreign financial institution: The account itself is subject to reporting, but the contents of the account do not have to be separately reported – We think they mean “additionally”, not “separately”
- Foreign stock or securities not held in a financial account: Yes
- Foreign partnership interests: Yes – But this is also reported on Form 8858, so on Form 8938 you'll refer to Form 8858. This does not undo Form 8858 filing requirements
- Indirect interests in foreign financial assets through an entity: No
- Foreign mutual funds: Yes – But this is also reported on PFIC Form 8621, so on Form 8938 you'll refer to Form 8621. This does not undo Form 8621 filing requirements
- Domestic mutual fund investing in foreign stocks and securities: No – This is the ‘payoff’ that Wall street got in The Tax Reform Act of 1986. PFIC’s were invented to punish foreign mutual funds and give domestic mutual funds an advantage (ironic – even if the domestic mutual fund is investing in foreign stocks and securities, as someone on Wall Street is still getting their cut)
- Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor: Yes as to both foreign accounts and foreign non-account investment assets – But this is also reported on Forms 3520 and 3520-A, so on Form 8938 you'll refer to Forms 3520 and 3520-A. This does not undo Forms 3520 and 3520-A filing requirements
- Foreign -issued life insurance or annuity contract with a cash-value: Yes – However, just because it’s foreign issued life insurance don’t think that the IRS is going to consider it life insurance for IRC section 7702. It actually doesn’t meet their definition for foreign life insurance so they're going to call it an investment that may require Form 8621 (PFIC); you also might have a Form 720 (Quarterly excise tax) due on the premium, even though the IRS said it wasn’t foreign insurance. Then how can there be an excise tax? When it benefits them they’ll switch the words. It's not foreign life insurance for income tax purposes because they want the money, so they're going to call it life insurance for excise tax purposes because they want the money. But! Make sure you report it because if not there will be penalties. (So you see why it is so easy to make mistakes?)
- Foreign hedge funds and foreign private equity funds: Yes – Watch out…this might be a PFIC! Even though it’s not a mutual fund, it’s a passive foreign investment company. The PFIC law was created so that people wouldn’t want to invest in foreign mutual funds (See note about Wall Street lobby above). You’re probably going to have to file a Form 8621. Remember that if you do file Form 8621, you’ll need to refer to it on Form 8938. This does not undo Form 8621 filing requirements
- Foreign real estate held directly: No – If it’s held in your name…but…
- Foreign real estate held through a foreign entity: No, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate – But if it’s held indirectly through a foreign corporation, then yes. Even if it’s just a holding company or if there’s no income tax there will be a penalty if you do not report it
- Foreign currency held directly: No
- Precious Metals held directly: No
- Personal property, held directly, such as art, antiques, jewelry, cars and other collectibles: No – But if it’s held indirectly through a foreign corporation, then yes. You may need to fill out a Form 5471. If you do file Form 5471, you’ll need to refer to it on Form 8938. This does not undo Form 5471 filing requirements
- 'Social Security’- type program benefits provided by a foreign government: No
There are various penalties for filing incorrectly or not filing at all. If you realize you should have been reporting your accounts but have not, there are options such as OVDP (the Offshore Voluntary Disclosure Program) or Streamlined disclosure.
If you're concerned about any misfiled or unfiled forms, contact us to schedule a complimentary, confidential consultation. We can advise you as to which program would be best for you.
