Foreign Account Tax Compliance Act (FATCA)
The Foreign Account Tax Compliance Act (FATCA) is intended to detect and to combat tax evasion by U.S. persons (including taxpayers residing outside of the U.S.) who attempt to hide their assets in secret foreign financial accounts. FATCA was enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act and came into effect in 2014.
What Taxpayers Need to Know About the FATCA Requirements
FATCA requires U.S. taxpayers holding certain financial assets outside of the U.S. to disclose information about their assets to the IRS. Under FATCA’s strict reporting requirements, U.S. taxpayers with foreign financial assets exceeding $50,000 must disclose their assets to the federal government on Form 8938 (Statement of Specified Foreign Financial Assets). Taxpayers who fail to submit Form 8938 when filing their annual federal income tax return are subject to a $10,000 penalty for each year that they fail to provide the form to the IRS. Additionally, any underpayments attributable to the non-disclosed offshore assets are subject to a 40 percent penalty.
It is important to recognize that the reporting requirements under Form 8938 are separate from the FBAR reporting requirements connected with FinCen Form 114. In many cases, taxpayers will be required to submit both forms to the IRS and separate penalties will apply should the taxpayer fail to do so.
What Foreign Financial Institutions (FFIs) Need to Know About the FATCA Requirements
FATCA requires foreign financial institutions (FFIs) to provide the IRS with specific information about offshore accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. In order to comply with FATCA and avoid being withheld upon, FFIs may choose to register with the IRS and agree to provide certain information about their U.S. account holders directly to the IRS. In most instances, once the FFI has registered with the IRS and has been issued a Global Intermediary Identification Number (GIIN), the FFI will be required to report U.S. taxpayers’ names, social security numbers, addresses, account numbers and account balances/values. Additionally, when a financial institution enters into an FFI agreement with the IRS, the FFI may have to withhold more than 30 percent of certain payments to foreign payees where the payee fails to comply with FATCA’s requirements.
An Experienced Maryland Tax Attorney Can Assist You with FATCA Compliance
The attorneys at Thorn Law Group are well positioned to help clients navigate the complicated tax issues associated with their foreign financial accounts and assets. As former IRS attorneys, we have an in-depth understanding of FATCA reporting requirements and we will provide you with the information you need to ensure that your offshore accounts are fully compliant with U.S. tax laws and regulations. Our lawyers also counsel and assist financial institutions around the globe in developing programs for FATCA compliance.
To learn more about how the Thorn Law Group can help you address FATCA’s strict reporting requirements, contact our Maryland law offices today.