Just what is FATCA compliance?
FATCA stands for the Foreign Account Tax Compliance Act. FATCA is a reporting requirement, not a tax, and was designed to seek out undeclared foreign income. It is a federal law that requires all U.S. taxpayers to report their non-US financial accounts yearly, including those individuals living outside of the States. These accounts must be reported to the IRS on form 8938 each and every year. And even if you file Form 8938, you are still required to fill out an FBAR.
Using FATCA to flex our American muscles
FATCA requires all non-U.S. financial institutions to search their records for suspected U.S. persons and report their identities and assets to the U.S. Department of the Treasury, thus creating a huge reporting burden. We were hoping there might be a worldwide rebellion against the US, but the penalties seem to have scared everyone into line. If the banks don’t comply, they’ll have a 30% withholding tax on every dollar that goes in, out, and through the U.S. Somehow, the U.S. even got the Vatican bank to report their information to the US.
Why FATCA is so frustrating
- The IRS estimates that it will take a taxpayer about five hours to fill out reporting form 8938. That's a pretty hopeful number; for most taxpayers, it's going to take much longer than that.
- You still have to complete your annual FBAR.
- The reporting requirements and penalties apply to all U.S. persons. This includes anyone who isn’t even aware that they have U.S. citizenship. All persons born in the U.S., and those born in foreign countries with American parents, are considered to be citizens.
- It actually affects non-U.S. residents/non-U.S. persons who don’t even share accounts with U.S. persons! When they go to open a bank account at a Foreign Financial Institution outside of the U.S., they must self-certify their status. If they do not, they cannot open a bank account at that institution according to FATCA Intergovernmental Agreements.
- It makes the U.S. look like a bully. We are forcing foreign countries to share their information with us, but we refuse to share with them. It is estimated that the cost for global financial institutions to implement FATCA could be over $200 billion.
Will FATCA be around forever?
***Update 2017 – We're keeping our fingers crossed that FATCA may be repealed. Nigel Green is spearheading a group to testify in front of Congress to try to get FATCA repealed***
If you are concerned that you may foreign reporting requirements but have not filed, contact us. We can help. Call us at 888-727-8796 or email info@irsmedic.com. Any information you share with us will be kept confidential.
