Do you have a foreign bank account? If so, you’ve probably received correspondence from your bank advising you that they will be providing your financial information to the IRS. When foreign governments sign the Foreign Account Tax Compliance Act (FATCA) agreements with the United States, these notices always follow to U.S. bank account holders.
The Foreign Account Tax Compliance Act (FATCA) is a U.S. law that requires U.S. taxpayers to file yearly reports on certain foreign accounts they hold. When it was passed in 2010 as part of the HIRE Act to encourage transparency in the international financial services sector, it was unclear how many countries would participate, but in the years that followed, over 100 countries agreed to disclose information about U.S. taxpayers to U.S. authorities. This information includes:
- Your name, address, and tax identification number
- Your account number
- The account balance
- Any deposits and withdrawals made that year.
U.S. residents who do not report foreign assets and account holdings that exceed $50,000 that year are subject to penalties. As of January 2013, only individuals are required to report these assets.
How Does FATCA Apply to You?
FATCA attempts to stop tax evasion by U.S. individuals and businesses that earn, invest, or handle taxable income in foreign countries, but the strict compliance requirements can cause problems for taxpayers who don’t fully understand them.
These requirements include reporting information about your assets on Form 8938, which is attached to your income tax returns. According to the IRS, if you don’t have to file an income tax return for the year, then you do not have to file Form 8938, regardless of the value of your foreign financial assets.
Your reporting threshold varies based on whether you live abroad or file a joint tax return. For example, you must file Form 8938 if:
- You live abroad, are unmarried, and have more than $200,000 of certain foreign financial assets by year’s end or over $300,000 at any time during the year. (The IRS regards you as living abroad if your tax home is in a foreign country and you have been residing there for at least 330 days out of a 12-month period.)
- You live abroad, are filing a joint return with your spouse, and the value of your foreign financial assets is more than $400,000 at the end of the tax year or over $600,000 at any time during the year.
- You live in the U.S., are unmarried or filing a separate tax return, and have more than $50,000 in foreign financial assets at the end of the tax year or over $75,000 at any time during the tax year.
- You live in the U.S., are filing a joint income tax return with your spouse, and the total value of your foreign financial assets is more than $100,000 on the last day of the tax year or over $150,000 at any time during the tax year.
Penalties for noncompliance include:
- $10,000 for each year that you fail to file Form 8938
- A fine of up to $50,000 for ongoing failure to comply after IRS notification
- A 40% penalty if you didn’t pay tax on any income from your foreign assets
With so much at stake, it is essential that you work with a tax attorney who understands the law and regulations governing FATCA and can assist you in understanding and meeting your obligations.
Contact a New Jersey Tax Debt Attorney
FATCA has such precise reporting requirements that it’s easy for U.S. taxpayers at home and abroad to make mistakes. At Paladini Law, we have the experience and tax law knowledge to help you understand your tax obligations under FATCA, correct any deficiencies, and maintain compliance with U.S. tax laws and regulations.
Attorney Brad Paladini has successfully guided clients through the Offshore Voluntary Disclosure Program and helped them achieve compliance with the IRS via payment plans, offers in compromise, and similar forms of tax relief. To learn more about how we can help you understand and comply with FATCA’s strict reporting requirements, please contact us or call 201-381-4472.