Foreign Account Tax Compliance Act – Tax Experts – FBAR Representation
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The Foreign Account Tax Compliance Act ( FATCA )
The Foreign Account Tax Compliance Act (FATCA) is an important development in the United States efforts to improve tax compliance involving foreign financial assets and offshore accounts both in filing and paying taxes.
Under FATCA, U.S. taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS.
This reporting needs to be made on Form 8938, which taxpayers attach to their federal income tax return, starting this tax filing season.
Remember, this is a attachment only.
FATCA will require banks and foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest. A note to all, foreign banks are responding fearing US reprisal.
The Internal Revenue Service will continue to keep taxpayers updated on new information reporting.
The Tax Form 8938
Form 8938 will be filed by taxpayers with specific types and amounts of foreign financial assets or foreign bank or financial accounts.
It is very important for taxpayers and their representative or CPA’s to determine whether they are subject to this new requirement because the law imposes significant penalties for failing to comply. Check on our website on similar topics to learn more.
The Form 8938 filing requirement was enacted in 2010 to improve tax compliance by U.S. taxpayers with offshore financial accounts. Individuals who may have to file Form 8938 are U.S. citizens and residents, nonresidents who elect to file a joint income tax return and certain nonresidents who live in a U.S. territory.
Reporting requirements Form 8938
Form 8938 is required when the total value of specified foreign assets exceeds certain thresholds. For example, a married couple living in the United States and filing a joint tax return would not file Form 8938 unless their total specified foreign assets exceed:
A. $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year. IRS will stick to this strict guideline.
The thresholds for taxpayers who reside abroad are higher.
A case study.
A married couple residing abroad and filing a joint return would not file Form 8938 unless the value of specified foreign assets exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
Instructions for Form 8938 explain the thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted, and what information must be provided.
No filing Requirement needed.
Form 8938 is not required of individuals who do not have an income tax return filing requirement.
The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR (Report of Foreign Bank and Financial Accounts). For more go to the FBAR page on this website.
Failing to file the Required Form 8938
Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.
There is a special statute of limitation rules apply to Form 8938, which are also explained in the instructions. Call us for more details
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Foreign Account Tax Compliance Act – Tax Experts – FBAR FILING
