FATCA was enacted in 2010 and the objective behind FATCA is to combat offshore tax evasion by requiring U.S. individuals to report their holdings in foreign financial accounts and their foreign assets on an annual basis to the IRS. The IRS requires certain U.S. individuals to report their foreign financial accounts and foreign assets if the values are above certain thresholds.
The Foreign Account Tax Compliance Act or FATCA is considered a breakthrough in U.S. efforts to fight tax evasion by American individuals that hold accounts and other financial assets abroad.
Under FATCA, American taxpayers holding financial accounts outside the United States territory are required to voluntarily report those accounts and other assets to the IRS using Form 8938, Statement of Specified Foreign Financial Assets, if certain thresholds in the year are met. Non-compliance with the FATCA reporting regulations could result in material penalties for the individuals. Not only U.S. taxpayers, but FATCA regulations has also obliged foreign financial bodies (such as foreign banks) to communicate directly to the IRS all relevant information about financial accounts held by U.S. citizens at their institution. It is also noted that not only banks are to be included in the report, but also other financial investments such as brokers, insurance companies, and investment entities. It means that if you establish a new account with a foreign financial institution, it should not come as a surprise if it asks about your nationality and your consent to report your accounts to the US authorities.
U.S. taxpayers who are living outside the US and have financial assets overseas with a total amount of more than the required limit of $200,000 (if filing single) are required to report the details about the foreign financials assets (including bank accounts, investment accounts, pension accounts etc.) on Form 8938 together with the taxpayer’s annual income tax return.
Reporting thresholds for individuals living outside the United States depend on whether you file tax return as single or jointly with your spouse. If you are single, you are required to submit Form 8938 if your financial assets have a value of more than $200,000 on the last day of the tax year or more than $300,000 at any point during the year. However, if you and your spouse jointly file, the thresholds for a requirement to report are double, i.e. your financial assets have a value of more than $400,000 on the last day of the tax year or more than $600,000 at any point during the year. The filing threshold limit for US individuals who are living in the United States however have accounts abroad are much lower.
You will be considered as living overseas if you are an American citizen or green card holder whose tax home is in a foreign country or been in a foreign country for at least 330 days within 12 months period.
FATCA was created and designed to uncover tax cheats with regards to finances and assets abroad. In this effort the IRS has successfully recovered billions of U.S. dollars in taxes from assets abroad. FATCA requires all American citizens and green card holders to report specified foreign assets directly to the IRS if they surpass certain limits, which are quite different for those Americans residing in the U.S. and those who are living overseas. In addition to this, foreign financial bodies are required to report on the accounts of their U.S. clients to the US authorities.
If you are require additional details or have any questions, please visit https://www.expatglobaltax.com/ for more information.
For your FREE consultation on any tax related matters, please contact us via the phone number or email listed below or request a call back using the forum.
