FOREIGN ACCOUNT TAX COMPLIANCE ACT – FATCA

The Foreign Account Tax Compliance Act (FATCA), enacted in 2010, is an important development in U.S efforts to combat tax evasion by U.S persons holding accounts and other financial assets offshore. 

FATCA requires specified U.S. tax payers to disclose their foreign financial assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The penalties for not reporting these financial assets are significant. The FATCA requirement is in addition to the requirement to report foreign financial accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). 

Specified foreign financial assets include foreign financial accounts and foreign non-account assets held for investment (as opposed to held for use in a trade or business), such as foreign stock and securities. 

You will need to determine the value of your specified foreign financial assets to know if the total value exceeds the threshold applicable to you. Generally, a reasonable estimate of the highest fair market value of the asset during the tax year is reported, but special rules apply to ease valuation burdens.

It is important to remember that the foreign assets reportable on the FBAR are not necessarily the same ones reported on the FATCA form and vice versa. The safest approach would be to provide detail for all foreign assets as to the type and function of each one so that your tax preparer can make the necessary distinction.  

For more information on how the FATCA rules may apply to you contact our Tax department at [email protected]