FATCA Reporting & Form 8938 Filing Requirements
FATCA refers to the Foreign Account Tax Compliance Act. There are many components to FATCA reporting, but for US taxpayers worldwide — the most important aspect is making sure that they file the annual IRS Form 8938 which is a form used to report specified foreign financial assets. In the past few years, the Internal Revenue Service has begun focusing on FATCA noncompliance – and specifically the failure of taxpayers to file a Form 8938. Let’s go through five important facts about FATCA reporting and compliance with IRS Form 8938.
More Than 110 FATCA Agreements
The United States developed a few different versions (models) of the FATCA agreement. In total, more than 110 different countries across the globe have entered into FATCA Agreements — otherwise, referred to as IGAs (Intergovernmental Agreements). That number is almost double the number of countries that the United States has entered into a tax treaty with. That is why it is very important to keep in mind that simply because the United States has not entered into an international tax treaty with a foreign country does not determine whether that country is reporting US account holder information to the IRS.
More Than 300,000 Foreign Financial Institutions
More than 300,000 Foreign Financial Institutions (FFIs) across the globe have agreed to report taxpayer information to the US government. That means if a US person has a foreign account at one of these FFIs, then there is a high likelihood that the Foreign Financial Institution has reported the account holder’s information to the US government.
Automatic Exchange of Information
Many times, taxpayers will ask why the IRS is seeking their specific information since they do not consider themselves a big fish. The exchange of information is not necessarily personal to each taxpayer; in other words, most of these foreign financial institutions have specific protocols they employ so that on a specific day of the month (or quarterly/semi-annually), they provide the information for all of their customers who they believe are US persons, in one fell swoop (compliance is similar to CRS).
One of the biggest dangers of FATCA reporting is that the Internal Revenue Service may already have the information about a taxpayer’s foreign accounts — but they have not let him in on the secret. Subsequently, if he is audited or under examination and he is unaware that the IRS has this information (and he did not previously report the foreign assets on Form 8938), he may be tempted to double-down during the audit and further deny that he has these types of assets. This is a bad idea. Lying to the IRS when the IRS already has information on him is the worst thing he could possibly do. This could lead to significant fines and penalties and even a special agent investigation.
Penalties and Amnesty
There are significant penalties for failing to comply with FATCA Reporting on Form 8938. The penalties are not the same as the penalties that can be issued for FBAR – but, even if FBAR is not an issue, taxpayers can still qualify to utilize one of the amnesty programs such as the streamlined procedures, delinquency procedures, reasonable cause, or IRS voluntary disclosure in order to get into compliance for missed FATCA and Form 8938 reporting in prior years.
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