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. Since tax years starting after March 18, 2010, however, the IRS has required certain taxpayers to report their specified foreign financial assets in which they have an interest. For most individual taxpayers, this means reporting by filing new Form 8938, Statement of Specified Foreign Financial Assets, along with their annual income tax return. This annual foreign-asset disclosure to the IRS is in addition to any reporting requirement to the Treasury Department under the Bank Secrecy Act using the so-called “FBAR” form. The new reporting requirement is significant and is expected to impact many taxpayers.
The IRS has developed monetary thresholds for reporting. The thresholds vary depending on the taxpayer’s status.International Cooperation
After Congress passed FATCA, the U.S. Treasury began discussing the new reporting and disclosure requirements with foreign governments, especially Canada, France, Germany, Italy, Spain, and the United Kingdom. From these discussions, model intergovernmental agreements (so-called Model IGAs) has been developed to facilitate government-to-government implementation of FATCA. To finalize additional IGAs before implementation of mandatory 30 percent U.S. withholding on all foreign financial institutions that do not disclose the names of U.S. depositors, the Treasury Department announced in July 2013 a six-month delay in mandatory withholding, from January 1, 2014 to July 1, 2014. The U.S. hopes to expand FATCA implementation of its Model IGA to many other countries within that timeline This delay does not postpone any Form 8938 reporting responsibilities required of individuals holding foreign accounts.
Penalties for noncompliance with FATCA can be substantial.