What are FATCA reporting requirements?
The Foreign Account Tax Compliance Act (FATCA) is designed to prevent tax evasion by U.S. individuals who have foreign accounts and other offshore financial assets. FATCA requires taxpayers holding such assets to file a Statement of Specified Foreign Financial Assets (Form 8938) with the IRS as part of their annual tax filing. The Act also requires foreign financial institutions, including banks, investment firms, brokers, and certain insurance companies, to report information about the foreign accounts being held by U.S. taxpayers.
FATCA Reporting Requirements at a Glance
Generally, U.S. taxpayers living in America who hold foreign financial assets must report that information on Form 8938. This seems straight forward, but the filing requirements are determined by different threshold levels with respect the value of the assets, the taxpayer’s filing status (single, married but filing separately, or filing jointly), and the country of residence.
For example, a single filer residing in the U.S. whose foreign assets are more than $50,000 on the last day of the year, or greater than $75,000 at any time during the year, is required to report these holdings. The amount doubles for a married individual filing a joint return. The threshold is $200,000 for taxpayers living abroad who are single or filing separately from their spouse. So, if the value of these assets meets that threshold on the last day of the year, or is more than $300,000 at any time during the year, form 8938 must be filed. The threshold doubles for joint filers and still applies even if only one spouse is living abroad.
What are Specified Foreign Financial Assets?
Assets that must be reported under FATCA include foreign financial accounts and other investments such as foreign stock and securities, foreign financial instruments, contracts with non-US persons, and interests in foreign entities. Exceptions to the reporting requirement include:
- A financial account maintained by a U.S. payor
- An interest in a social security, social insurance, or other similar program of a foreign
- Specified foreign financial assets that are reported on other forms
- Certain trusts and other assets held by legal residents of U.S. territories
- Assets or accounts designated as mark-to-market elections under applicable IRS rules
The value of the assets is determined by a reasonable estimate of the their highest market value during the tax year, based on publicly available information from reliable financial information sources. Moreover, if the assets are held in a currency other than U.S. dollars, the value must be converted based on the Treasury Departments foreign exchange rate, unless it is not available, in which case another publicly available exchange rate may be relied upon.
FBAR Filing Requirements
A filing made under FATCA does not eliminate the requirement to file the Report of Foreign Bank and Financial Accounts (FBAR – FinCEN Form 114). This report was a pre-existing requirement under the Bank Secrecy Act. The FBAR must be filed for those who have a financial interest or signatory authority over offshore financial accounts in excess of $10,000. Currently, the due date for filing FBAR for the 2015 tax year is June 30, 2016. While the deadline for the 2016 tax year has been changed to April 15, 2017 to streamline the tax filings, extensions will be available for U.S. citizens and those living abroad.
In addition, it is important to note that there are differences in how Form 8938 and FinCEN Form 114 are filed. The FBAR is filed electronically through the Financial Crimes Enforcement Network while form 8938 is filed with the IRS along with the annual tax return. Moreover, the types of assets that must be reported under each filing are not necessarily the same. For this reason, and due to the complicated nature of identifying and valuing the reportable assets, you are well advised to engage the services of an experienced international tax attorney.
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