The Foreign Account Tax Compliance Act (FATCA) is a US law enacted as a part of the Hiring Incentives to Restore Employment Act (HIRE Act) on March 18, 2010. The purpose of FATCA is to ensure that the United States can identify and collect the appropriate tax from US persons holding financial assets outside the USA.
What is FATCA reporting?
The Foreign Account Tax Compliance Act (FATCA) requires that qualifying taxpayers who hold foreign financial assets with a maximum aggregate value exceeding the filing threshold for Form 8938, report the maximum value of each individual asset during the tax year to the IRS. These maximum values are converted into US dollars using the IRS treasury rates and are reported on Form 8938 within the individuals annual Federal income tax return. The threshold for filing Form 8938 is dependent on two aspects, filing status (i.e. single, married filing jointly etc) and whether the taxpayers lives in the US or a foreign country.
Form 8938 Filing Thresholds
Taxpayers living in the United States.
If you are single or filing separate from your spouse (married filing separately), you will need to file if the aggregate value of your specified foreign financial assets exceeds $50,000 on the last day of the tax year or if the aggregate maximum values at any time during the year is in excess of $75,000.
If you are married filing a joint return, the threshold doubles. Filing is required if the aggregate value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or if the aggregate maximum values exceed $150,000 at any time during the tax year.
Taxpayers living abroad
If you are single or filing separate from your spouse, you will need to file Form 8938 if the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or if the aggregate maximum values at any time during the year is in excess of $300,000.
If you are married filing a jointly, similar to individuals living in the US, the threshold for filing Form 8938 doubles. If the total value of your and your spouse specified foreign financial assets is more than $400,000 on the last day of the tax year or if the aggregate maximum values at any time during the year is in excess of $600,000. These thresholds apply even if only one spouse resides abroad.
For full guidance on thresholds and exclusions see the IRS website or seek guidance from a specialist tax advisor.
Who must file Form 8938?
If you hold foreign financial assets that fall in the thresholds highlighted above, you will need to file Form 8938. FACTA applies to specified persons which includes US residents, US citizens and green card holders residing abroad. Some examples of foreign (non-US financial assets which need to be reported on Form 8938 are as follows:
• A financial account maintained by a foreign financial institution.
• Other assets held for investment purposes however not held in an account. This includes stocks and securities issued by a non US person, a financial instrument or contract that has an issuer or counter party that is not a US person and an interest in a foreign entity e.g. a foreign trust.
Foreign financial accounts includes but is not limited to the following:
• Cash accounts.
• Collective investment vehicles and funds.
• Pension plans and annuities.
Filing Form 8938 is mandatory and failure to complete and correct Form 8938 by the federal filing due date may result in a $10,000 penalty.
Do I need to file FBAR and Form 8938?
You may be required to complete both forms. Certain financial accounts will need to be reported on both, however, some may be reported on one, but not both. The IRS provides a comparison of Form 8938 and FBAR requirements. Take a look at our FBAR overview and FAQs for guidance on your obligations or, get in touch to discuss your affairs.
Get up to date with FATCA compliance
If you have not filed, or need to make corrections to your Form 8938, it is strongly advised that your get up to date with your tax returns. Get in touch with our specialist tax team for advice on your individual tax obligations and how to bring yourself into compliance.