FATCA

Am I required to report my foreign financial assets to the IRS?

In 2010, Congress enacted The Foreign Account Tax Compliance Act (FATCA), which requires U.S. taxpayers, whether living abroad or in the United States, who own financial assets outside of the United States and meet the filing requirements listed below, to report the fair market value of those assets on an annual basis to the IRS. The assets are reported on the new IRS Form 8938 which is submitted with the taxpayer’s income tax return.

FATCA also requires foreign financial institutions, such as banks, insurance companies, mutual funds and brokers/dealers to report certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

I am living overseas. When must I file Form 8938, Statement of Specified Foreign Financial Assets?

Individuals who are required to report their foreign assets to the IRS under FATCA on the Form 8938 currently include:

• U.S. citizens

• any non-citizen who meets the substantial presence test

• a non-resident alien who makes an election to be treated as a resident alien for purposes of filing a joint tax return, and

• a non-resident alien who is a bona fide resident of American Samoa or Puerto Rico.

AND

If you are a taxpayer living abroad:

• You are filing a return other than a joint return and 

The total value of your specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year.

OR

• You are filing a joint return and

• the value of your specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

Which types of foreign assets are reportable?

Financial (deposit and custodial) accounts held at foreign financial institutions

Yes

Financial account held at a foreign branch of a U.S. financial institution

No

Financial account held at a U.S. branch of a foreign financial institution

No

Foreign financial account for which you have signature authority

No, unless you otherwise have an interest in the account as described above

Foreign stock or securities held in a financial account at a foreign financial institution

The account itself is subject to reporting, but the contents of the account do not have to be separately reported

Foreign stock or securities not held in a financial account

Yes

Foreign partnership interests

Yes

Indirect interests in foreign financial assets through an entity

No

Foreign mutual funds

Yes

Domestic mutual fund investing in foreign stocks and securities

No

Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor

Yes, as to both foreign accounts and foreign non-account investment assets

Foreign-issued life insurance or annuity contract with a cash-value

Yes

Foreign hedge funds and foreign private equity funds

Yes

Foreign real estate held directly

No

Foreign real estate held through a foreign entity

No, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate

Foreign currency held directly

No

Precious Metals held directly

No

Personal property, held directly, such as art, antiques, jewelry, cars and other collectibles

No

‘Social Security’- type program benefits provided by a foreign government

No

How do I determine the total value of my specified foreign financial assets?

The taxpayer must report the maximum fair market value for the taxable year of their foreign financial assets converted to US dollars. To convert to US dollars, the taxpayer will use the end of the taxable year exchange rate.

If I file the Form 8938, Statement of Specified Foreign Financial Assets, do I still have to file the Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR)?

Yes. If the filing requirements for the FBAR are met, you are still required to file the FBAR in addition to Form 8938. The Form 8938 does not replace the FBAR.

When is the Form 8938 due?

The Form 8938 is due by the due date, including the extended due date, if applicable, of your income tax return. It is filed together with you income tax return.

What are the penalties if I do not comply with the filing requirements?

The taxpayer can be penalized up to $10,000 for their failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000. A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed. In addition, criminal penalties may also apply.