FATCA News
Foreign Account Tax Compliance Act (FATCA)
Taxpayers have long been required by the Bank Secrecy Act to report certain foreign accounts. Now, there is a new reporting requirement in the Foreign Account Tax Compliance Act of 2010. The IRS is requiring certain taxpayers to report their specified foreign financial assets in which they have an interest in tax years starting after March 18, 2010. For most individual taxpayers, the IRS has explained that this means they will start reporting by filing new Form 8938, Statement of Specified Foreign Financial Assets, with their 2011 income tax return. This is in addition to any reporting requirement under the Bank Secrecy Act using the so-called “FBAR” form. The new reporting requirement is significant and is expected to impact many taxpayers.
Reporting Obligations by U.S. Individuals and Entities:
Starting with the 2011 tax year, U.S. taxpayers who meet the following thresholds must file Form 8938 (Statement of Specified Foreign Financial Assets) for each financial asset.
Value of Foreign Financial Assets at End of Year |
Value of Foreign Financial Assets ANY time in the tax year |
|
|---|---|---|
While Living in the United States: |
||
a) Single |
$50,000 |
$75,000 |
b) Married Filing Jointly |
$100,000 |
$150,000 |
c) Married filing separately |
$50,000 |
$75,000 |
| While Living Abroad: | ||
d) Not filing joint return |
$200,000 |
$300,000 |
e) Filing joint return |
$400,000 |
$600,000 |
Assets reported on Forms 3520/3520A, 8621, 5471, 8638, 8891 are not duplicated on Form 8938. Instead, these forms are identified on Form 8938.
Reporting By Foreign Financial Institutions to the IRS:
FATCA also requires foreign financial institutions (“FFIs”) to report information directly to the IRS about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. To properly comply with these new reporting requirements, an FFI will have to enter into a special agreement with the IRS by June 30, 2013. Under this agreement a “participating” FFI will be obligated to:
- Undertake certain identification and due diligence procedures with respect to its accountholders;
- Report annually to the IRS on its accountholders who are U.S. persons or foreign entities with substantial U.S. ownership;
- Withhold and pay over to the IRS 30-percent of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income, made to (a) non-participating FFIs, (b) individual accountholders failing to provide sufficient information to determine whether or not they are a U.S. person, or (c) foreign entity accountholders failing to provide sufficient information about the identity of its substantial U.S. owners.
