Foreign Account Tax Compliance Act – FATCA

November 2, 2013 | FBAR

Foreign Account Tax Compliance Act – FATCA

In March of 2010, the Foreign Account Tax Compliance Act – FATCA was enacted as part of the tax law Hiring Incentives to Restore Employment Act. The purpose of this act is to target United States taxpayers with foreign accounts that are not tax compliant and are using offshore accounts to evade taxes.

Under this tax law, Foreign financial institutions face consequences if they fail to enter into an agreement with the IRS to comply with Foreign Account Tax Compliance Act – FATCA. Beginning in 2014, the foreign financial institution will face a 30% withholding tax made to a proprietary account (securities originating in the United States) for failing to comply with Foreign Account Tax Compliance Act- FACTA. Account holders of such foreign financial institutions must provide such institution with Foreign Account Tax Compliance Act – FACTA required documentation. If the account holder fails to do this, the foreign financial institution must deduct a 30% withholding tax on any “withholdable” payment credited to such account under this new tax law. In the past there were programs to solve violation issues, and there are similar programs OVDP programs now. 

The Act requires that individual United States taxpayers to report certain foreign financial accounts and offshore assets on a separate form, Form 8938, if the total asset value of such accounts exceeds the reporting threshold. In general, if the total market value of the accounts is at or below $50,000 at the end of the tax year, there is no reporting requirement. The exception is if the total value was more than $75,000 at anytime during the tax year, then the accounts must be reported. Form 8938 must be attached to the individual’s tax return (usually Form 1040). The threshold amount is higher for individuals who live outside of the United States. The threshold amount also varies depending on whether the taxpayer is single or married under this tax law.

Under the Foreign Account Tax Compliance Act, taxpayers who do not have to file an income tax return, do not need to file Form 8938, regardless of the total market value of their foreign financial accounts. It is important to note that under FACTA there are penalties for those who fail to file accurately.

By: Timothy S. Hart

Attorney Timothy Hart

Timothy S Hart, the founding partner of the tax law firm of Timothy S. Hart Law Group, P.C. is both a New York Tax Lawyer & Certified Public Accountant. His area of expertise includes innovative solutions to solve your Internal Revenue Service and New York State tax problems, including tax settlements through the Federal and New York State offer in compromise programs, filing unfiled tax returns, voluntary disclosures, tax audits, and criminal investigations. [ Attorney Bio ]