Foreign Accounts Tax Compliance Act (FATCA)
FATCA was enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts to:
- Deposit funds overseas in an attempt to avoid reporting taxable income and
- Provide an alternative way to determine if U.S. taxpayers were hiding assets overseas that were not being reported under U.S. tax law or the now superseded FBAR form.
Require foreign banks and institutions that continue to permit U.S. taxpayers to deposit funds with their institution to:
- report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest, and
- withhold 30%
Who does it affect?
- U.S. taxpayers and foreign residents in the U.S. that hold deposit assets in Foreign Financial Institutions, and
- Foreign financial institutions that permit U.S. citizens to deposit funds with their institution. Banks, investment entities, brokers, certain insurance companies and certain non-financial foreign entities.
Why is it important to act now?
- It is a top priority for the IRS to track down non reporters and the IRS has collected in excess of 6.5 billion dollars in penalties from 2009 to 2014.
- The IRS is analyzing reported data every day and it is important to disclose before they contact you.
The civil tax penalties are substantial and are increasing
- $10,000 failure to file penalty ( Per offense??)
- $50,000 for continued failure to file after IRS notification,
- 40 percent penalty on an understatement of tax attributable to non-disclosed assets.
The IRS has streamlined Procedures to permit non-resident U.S. taxpayer who wish to come into compliance with U.S. filing obligations, to be eligible for special IRS procedures.
- On June 26, 2012, the IRS announced new streamlined filing compliance procedures for non-resident U.S. taxpayers.
- These procedures recognize that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or FBARs, but have recently become aware of their filing obligations and now seek to come into compliance with the law.
- These new procedures are for non-residents including, but not limited to, dual citizens who have not filed U.S. income tax and information returns.
Why should a Tax Attorney handle this case for you?
- Your communication with your CPA and business associates is not tax privileged and can be compelled to testify against you.
- This program is managed by CID, Criminal Investigation Division of the IRS and they abide by an entirely different set of rules that CPAs are unfamiliar with.
- CPAs are not familiar with the procedural hurdles in dealing with CID.
Statute of Limitations
- The statute of limitations is six years after you file your return if you omit from gross income more than $5,000 that is attributable to a specified foreign financial asset, without regard to the reporting threshold or any reporting exceptions.
- If you fail to file or properly report an asset on Form 8938, the statute of limitations for the tax year is three years.
- If the failure is due to reasonable cause, the statute of limitations is extended only with regard to the item or items related to such failure and not for the entire tax return.
- If you come forward, you have a greater chance for abatement of some or all of the penalties. If you wait for the IRS to contact you, you have a greater chance of higher penalties and interest.
Annual threshold Amount for reporting Form 8938.
Living in the United States.
- Single or Married filing Separate. $ 50,000 in reportable assets at the end of the year or $75,000 anytime during the year;
- Married filing jointly. $100,000 in reportable assets at the end of the year or 150,000 anytime during the year.
- Single or Married filing Separate. $200,000 in reportable assets at the end of the year or 300,000 in foreign assets anytime during the tax year.
- Married filing jointly. $ 400,000 in reportable assets at the end of the year or 600,000 during the year.
- You are considered to live abroad if you are a U.S. citizen whose tax home is in a foreign country and you have been present in a foreign country or countries for at least 330 days out of a consecutive 12-month period. This includes where one spouse may be living in the U.S.
- The threshold includes foreign assets not otherwise required to be reported under FATCA but are reported under the Exception (3)(b) below.
- These requirements are in addition to the long-standing requirement to report foreign financial accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) (formerly TD F 90-22.1).
- However, if the taxpayer is not required to file a tax return, Form 8938 need not be filed regardless of the amount of foreign assets held overseas.
Specified Foreign Financial Assets
- foreign financial accounts
foreign non-account assets held for investment
- foreign stock and securities,
- foreign financial instruments,
- contracts with non-U.S. persons,
- interests in foreign entities.
Financial account maintained by a U.S. payor. A U.S. payor includes:
- U.S. branch of a foreign financial institution,
- Foreign branch of a U.S. financial institution,
- Certain foreign subsidiaries of U.S. corporations.
- A beneficial interest in a foreign trust or a foreign estate, if you do not know or have reason to know of the interest.
- Social security, social insurance, or other similar program of a foreign government.
If you reported these foreign financial assets:
- Trusts and foreign gifts reported on Form 3520 or Form 3520-A (filed by the trust);
- foreign corporations reported on Form 5471;
- passive foreign investment companies reported on Form 8621;
- foreign partnerships reported on Form 8865;
- registered Canadian retirement savings plans reported on Form 8891;
- certain trusts;
- certain assets held by bona fide residents of U.S. territories;
- assets or accounts for which mark-to-market elections have been made under Internal Revenue Code Section 475;
- U.S. beneficiary of a domestic bankruptcy trust or a domestic widely held fixed investment trust;
- Identify on Form 8938 which of these forms were report in that year.
What to do if you have failed to report these foreign assets?
Contact our office immediately.
Foreign Financial Institutions have entered into agreements with the IRS that gives the IRS access to the Foreign Financial Institutions’ customer information, including the account holders’ names, addresses, and transactions of most types of accounts.
Streamlined Procedures to Get Current with Your Filing Obligation. If you are a non-resident U.S. taxpayer who wishes to come into compliance with your U.S. filing obligations, you may be eligible for special IRS procedures.
On June 26, 2012, the IRS announced new streamlined filing compliance procedures for non-resident U.S. taxpayers. These procedures recognize that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or FBARs, but have recently become aware of their filing obligations and now seek to come into compliance with the law. These new procedures are for non-residents including, but not limited to, dual citizens who have not filed U.S. income tax and information returns.
What if I don’t know the value of the asset?
All assets are converted to a Dollar value as of the end of the tax year. Use the U.S. Treasury Department’s Financial Management Service foreign currency exchange rate to convert the denomination into U.S. dollars. If no U.S. Treasury Financial Management Service foreign currency exchange rate is available for a particular currency, use another publicly available foreign currency exchange rate to convert the value of a specified foreign financial asset into U.S. dollars. The exchange rate is determined by reference to the exchange rate on the last day of your tax year.
Use the periodic financial account statements (provided at least annually) to determine the maximum value of a financial account.
For a specified foreign financial asset that is not held in a financial account, you may rely on the year-end value of the asset if it reasonably approximates the maximum value of the asset during the tax year.
Special rules also apply for reporting the maximum value of an interest in a foreign trust, a foreign retirement plan, or a foreign estate.
You may determine the fair market value of a specified foreign financial asset based on information publicly available from reliable financial information sources or from other verifiable sources. Even if there is no information from reliable financial information sources regarding the fair market value of a reported asset, a reasonable estimate of the fair market value will be sufficient for reporting purposes.
What form do I file?
Form 8938 must be attached to the taxpayer’s timely filed annual income tax return. Remember that Form 8938 does not relieve filers of FBAR filing requirements
If you have a financial interest in or signatory authority over an offshore financial account, you must report the account on an FBAR (Form 114 (formerly TD F 90-22.1)), regardless of your obligation to file Form 8938. Certain foreign financial accounts are reported on both Form 8938 and the FBAR. However, the information required by the forms is not identical in all cases. Different rules, key definitions (for example, "financial account"), and reporting requirements apply to Form 8938 and FBAR reporting. Because of these differences, certain foreign financial accounts may be reported on one but not both forms.
The due date for filing the FBAR is June 30 for financial accounts for which the filer had a financial interest or signature authority during the previous calendar year.
The FBAR is filed electronically through the Financial Crimes Enforcement Network’s BSA E-filing System. Form 8938 is due with your annual income tax return and filed with the applicable IRS service center.
Specified foreign financial assets held outside of an account with a financial institution are reported on Form 8938, but not reported on the FBAR (Foreign Bank Account Report).
Foreign Bank Account Report (FBAR)
Stopping offshore tax cheating: This was done historically by requiring taxpayers to report any bank accounts in excess of $ 10,000.00. These rules were regularly disregarded because of low enforcement. It affects U.S. persons or entities that are holding foreign assets if the account are worth more than $10,000. U.S. persons who hold an interest in a specified foreign financial asset must disclose identifying information about the asset and disclose the maximum value of the asset during the taxable year. §6038(D).
Offshore Tax Evasion Initiative
In the 2008 financial meltdown precipitated by the bankruptcy of Lehman Brothers, the U.S. Government secured unprecedented agreements with foreign governments and foreign financial institutions to identify the financial holdings of U.S. taxpayers abroad, in order to curtail rampant tax evasion.
Contact Robison Law Firm for questions and concerns regarding foreign account taxation.