FATCA
Don’t confuse FBAR and FATCA. You may need to file both. Expattax CPA’s will analyze your data to determine your FATCA filing obligations and making sure you are compliant.
FATCA is something that is much discussed yet many Expats are left wondering whether this is something that affects them. Let us explore what this Act is, who is affected by it and how to go about fulfilling this obligation.
FATCA stands for Foreign Account Tax Compliance Act, which is a law that obligates foreign financial and some non-financial institutions to report any accounts held by US citizens to the US. This is why many banks will require a US citizen to sign a Form W-9 which authorizes the institution to relay their account information to the US.
This law also affects the individual and requires US citizens to report their financial assets held abroad. This is done by filing a form 8938. In order to have this filing obligation one’s assets need to meet the required threshold.
This form should not be confused with an FBAR, although one may be reporting the same information in both. In reality, these two forms are governed by different rules and guidelines and are filed with two different divisions within the IRS. Therefore, the filing of one form does not exempt a person from filing the other.
US citizen or resident alien of the US for any portion of the tax year, as well as a non- resident alien who chooses to be regarded as a resident alien in order to file a joint income tax return, or a bona fide resident of Puerto Rico or American Samoa has to file a form 8938 if their assets are reportable and meet the threshold.
The following are all non-reportable assets:
The filing threshold varies and is dependent on one’s filing status and place of residence.
For a single taxpayer (or one who files as married filing separately) residing in the US, the threshold is $50,000 on December 31st of the tax year, or $75,000 at any point during the year. The thresholds double for those filing joint tax returns. The thresholds quadruple for taxpayers living abroad. So, for example, if you are living overseas and you file a joint tax return, you only need to file Form 8938 if the collective value of your foreign financial assets exceeds $400,000 on December 31 of the tax year or $600,000 at any point during the year.
Assets should be valued based on the highest fair market value of the asset during the tax year. If the exact amount cannot be assessed, an estimate should be reported.
Foreign assets need to be valued in the correct foreign currency and then then converted to US dollars using the year-end exchange rate.
Special guidelines exist for those assets for which the fair market value is indeterminable. Assets which are valued at below 0 do not offset other assets, rather they are reported as 0.
One who has a filing obligation for Form 8938 but fails to file faces a potential penalty of $10,000. If a taxpayer receives a notice from the IRS and still fails to file, they may face a penalty of up to $50,000. In addition, a penalty of 40% will be applied to any tax underpayment that can be attributed to non-reported foreign financial assets.
A form 8938 always accompanies a tax return filed. If a taxpayer does not have an obligation to file a tax return, then they will also have no obligation to file a form 8938. This is regardless of whether they meet the filing threshold or not.
Up to 5 accounts | $165 |
6-10 accounts | $250 |
11-20 accounts | $370 |
10% of your friend’s first year’s payment off your next year’s tax return’s invoice. Just make sure your friend lets us know who referred them!
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