In 2010 Congress passed the Foreign Account Tax Compliance Act (FATCA) in an effort to identify U.S. taxpayers with foreign accounts and assets shielded by the secrecy laws of foreign banks.
FATCA focuses primarily on reporting:
- By U.S. taxpayers about certain foreign financial accounts and offshore accounts
- By foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers have a substantial ownership interest
U.S. citizens, U.S. individual residents, and a very limited number of nonresident individuals who own certain foreign financial accounts or other offshore assets (specified foreign financial assets) must report those assets.
Taxpayers with a total value of specified foreign financial assets below a certain threshold do not have to file Form 8938:
- If the total value is at or below $50,000 at the end of the tax year, there is no reporting requirement for the year, unless the total value was more than $75,000 at any time during the tax year;
- The threshold is higher for individual who live outside the United States;
- Thresholds are different for married and single taxpayers;
- Taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, regardless of the value of their specified foreign financial assets;
- Penalties apply for failure to file accurately.
Examples of “specified foreign financial assets” include:
- Financial accounts (deposit and custodial) held at foreign financial institutions;
- Foreign stock or securities held in a financial account;
- Foreign partnership interests;
- Foreign mutual funds;
- Foreign issued life insurance or annuity contract with a cash value; and
- Foreign hedge funds and foreign private equity funds.
Note: The reporting for Form 8938 requirements is separate from the reporting requirement for the FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) (formerly TD F 90-22.1). An individual may have to file both forms and separate penalties may apply for failure to file each form.
See the IRS website for comparison of Form 8938 and FBAR requirements.
Please contact us if you have any questions regarding the Foreign Account Tax Compliance Act.