To identify and reduce tax evasion through offshore tax accounts, US citizens are required to annually report assets held in foreign bank accounts. FATCA is a regulation that requires just such a filing.
FATCA is the acronym for the Foreign Account Tax Compliance Act. When you comply with FATCA, you provide identifying information to the IRS concerning your foreign financial assets.
As tax attorneys, our work involves advising and assisting our clients on how to stay compliant through accurate, timely filing of their FATCA and FBAR reports. Remaining current with these regulated filings is important to avoid serious fines and penalties that can include:
- Fines up to $10,000 for an initial failure to file Form 8938
- If you are notified by the IRS and continue to avoid filing under FATCA, you can be subject to an additional $50,000 penalty
- For understated or undisclosed assets, a 40 percent tax on those assets may be levied
For high wealth individuals, it is critical to understand whether you qualify as a “specified individual’ under FATCA. This definition involves components of your citizenship, type of foreign financial interests, and the value of those assets.
A specified individual is a US citizen, a resident alien of the US at any time during the tax year, non-resident aliens who elect to be treated as resident aliens, or bona fide residents of American Samoa or Puerto Rico.
A specified foreign financial asset is any financial account held by a foreign financial entity. It also includes assets of value like stocks, an interest in a foreign concern, or a financial instrument or contract.
The FATCA requires US citizens who hold a certain amount of foreign assets to file Form 8939 with their annual tax return. The thresholds for reporting vary between resident and non-resident US citizens. While there are exceptions for filing the report, individual thresholds for filing look like this:
- Single taxpayers residing in the US with more than $50,000 in a foreign bank account at the end of the tax year, or $75,000 held by a foreign entity at any time of the tax year
- Joint filers living in the US with $100,000 held in a foreign bank account by the end of the tax year, or $150,000 at any time during the tax year
- Married taxpayers filing separately who live in the US have similar requirements to individual filers.
- Taxpayers living abroad with specified assets of more than $200,000 at the end of the tax year, or $300,000 at any time during the tax year.
FATCA also requires foreign financial entities to report information directly to the IRS. These entities could be holding companies, banks, investment businesses, insurance companies, or brokers. Institutional reporting requirements are lessened for financial entities that operate mainly within their own country as a service to their own resident and non-resident citizens.
Staying compliant with FATCA is important to avoid penalties and tax controversy. When you need assistance with offshore tax reporting requirements, speak with an experienced tax lawyer.
Highly qualified legal representation with IRS audits or criminal tax defense in Cleveland and Chicago
From offices in Cleveland and Chicago, the law offices of Robert J. Fedor, Esq., LLC provide confidential, knowledgeable legal representation and strategic tax solutions to challenges of tax fraud, offshore tax issues, and criminal tax matters. Call us at 800-579-0997 today.