Enacted last 2010, the Foreign Account Tax Compliance Act (FATCA) is a federal law that requires reporting on and by US citizens living abroad of their foreign accounts and income. It also looks out for foreign individuals, trusts, and companies that receive income from the US. And countries which have entered into an agreement with the US where taxation is concerned also provide bank account information, whether disclosed by account owners or not.
Basically, FATCA is a more concentrated effort by the US government to prevent offshore tax evasion. If you are an American expatriate, you should make sure you know exactly what you’re required to disclose or report to avoid unpleasant consequences stemming from any “mistakes” or “oversights”. In the case of FATCA, you are required to:
- Report all earned interest on your US income tax return. Where reporting before was done on the basis of honor, FATCA today delivers all vital information straight to IRS computers. Your filed US tax return will then be checked against your earned interest report, and identifying discrepancies or faults will be automatic. Some banks also require expats to file a W-9 form to match a foreign account with a US tax return. While it is not legally mandatory to fill out such a form, the bank may close the account if you decline.
- File Form 8938 (FATCA).Form 8938 is included in your income tax filing, and you need to file it if your aggregate balance (or combined balance from all your accounts) as an individual taxpayer reaches $200,000 on the last day of the year, or $300,000 at any point in the year.For joint tax returns, the form must be filed for balances that reach $400,000 on the last day of the year, and $600,000 at any point during. Failure to report has a penalty of $60,000 for each foreign asset.
- File FBAR (FincCen 114).The Foreign Bank Account Report is a separate informational report that you need to file if the aggregate balance from all your foreign financial accounts reaches $10,000 at any point during the year. The FBAR must be filed by the 30th of June, with no extensions. Non-willful non-compliance will earn you a penalty of $10,000, while willfully not filing the report carries a penalty of $100,000 or 50% of your assets, whichever is greater.
So what can you do?
First, arm yourself with the right information. A healthy respect for what is required of you by your government is part and parcel of avoiding costly penalties or more dire consequences.If you already have some catching up to do, however, the IRS is offering a chance to settle their filing requirements.
Whether or not you have been tax-compliant, it is in your best interest to hire a taxation professional who is knowledgeable, skilled, and experienced. A brilliant legal mind in your corner can sometimes make the difference between an expensive crisis situation and a non-event. And you will have the guidance that you need to make sure living abroad does not take its toll on your personal life or impact negatively on your tax records.
Kevin Thorn of US International Tax Advisors is a strong advocate for his broad range of clients who include individuals, tax professionals, partnerships, trusts, banks, closely-held businesses, accounting firms, law firms, and corporations. He is an experienced DC tax attorney with sought after expertise in all stages of civil and criminal tax controversies including international tax law, offshore bank accounts and disclosures, civil examinations, criminal investigations, IRS administrative appeals, collection alternatives, ethics investigations, and other types of complex civil litigation.