- 1 What is FATCA?
- 2 FATCA is Required for Taxpayers Residing Overseas
- 3 FATCA is Not the Same as FBAR – International Law
- 4 Increase in Soft Letters 6185 & 6291
- 5 Initial FATCA Penalty and Continuing Penalty
- 6 Limitations on Reasonable Cause for Avoiding FATCA Penalties
- 7 FATCA Enforcement is on the Rise
- 8 Golding & Golding: About our International Tax Law Firm
What is FATCA?
FATCA & 5 Key Facts About Foreign Account Tax Compliance: When it comes to offshore reporting of foreign assets, one of the most common forms that are required by US Taxpayers is Form 8938 which came into effect with the introduction of FATCA. FATCA is the Foreign Account Tax Compliance Act. The purpose of FATCA is to promote reporting and disclosure by requiring cooperating Foreign Financial Institutions that have entered into IGA (Intergovernmental Agreements) with the United States to provide account holder information. That information can then be used to ensure US taxpayers are in compliance with reporting requirements. Here are five important facts about FATCA for US Persons:
FATCA is Required for Taxpayers Residing Overseas
One of the first misconceptions about filing for FATCA is that it is only required for US citizens or US taxpayers who reside in the United States — but that is incorrect. Anybody who is considered a US person may be required to file a Form 8938 (if they meet the threshold) and report under FATCA, whether or not they reside in the United States or outside in a different country.
FATCA is Not the Same as FBAR – International Law
The FBAR (Foreign Bank and Financial Account Reporting) is a similar type of international reporting form but different than FATCA. FBAR is a US law that is developed for US persons to comply with the IRS’ international reporting rules. The FBAR is a FinCEN Form (FinCEN Form 114) and not an IRS form. It is regulated differently than Form 8938/FATCA. The FBAR is regulated under Title 31 (Money and Finance) and not Title 26 (Internal Revenue Code). While there are some assets that overlap and are required to be disclosed on both forms, there are also some items that are only reportable on Form 8938 in order to comply with FATCA — such as individually held shares of stock. Some taxpayers may have to report both the FBAR and FATCA Form 8938 in the same year.
Increase in Soft Letters 6185 & 6291
In the past 6-9 months, there has been a surge in the number of taxpayers who have received soft letters involving inaccurate information the IRS has on file for Taxpayers involving FATCA. In a common scenario, the Foreign Financial Institution reports one set of values, and the US taxpayer either does not report or reports a completely different set of values.
Initial FATCA Penalty and Continuing Penalty
In comparison to the FBAR and other penalties, at first glance, the FATCA noncompliance penalty for individuals filing Form 8938 does not seem so bad compared to what you may read about on the Internet — a $10,000 penalty. But, there is also a continuing penalty upwards of $50,000 for a continuing Failure to File Form 8938 each year. In addition, the US government has been beginning to use FATCA noncompliance as a criminal tool — and about a year ago, obtained its first criminal conviction for FATCA non-compliance.
Limitations on Reasonable Cause for Avoiding FATCA Penalties
As with most penalties, when a Taxpayer does not comply with FATCA, they may be able to minimize or abate penalties if they can show that they acted with a Reasonable Cause and not willful neglect. It is important to note that there are very specific limitations on Reasonable Cause when it comes to taxpayers who are non-compliant with FATCA. As provided by the IRS:
“Effect of foreign jurisdiction laws. The fact that a foreign jurisdiction would impose a civil or criminal penalty on you if you disclose the required information is not reasonable cause.”
Thus, taxpayers are required to disclose FATCA assets, even if it would violate their own country’s laws. And, the fear of violating a person’s own country’s laws is not a sufficient reason to establish Reasonable Cause to the IRS.
FATCA Enforcement is on the Rise
In conclusion, the Foreign Account Tax Compliance Act is just one of the latest types of international enforcement tools developed by the Internal Revenue Service in order to ensure compliance with international reporting rules. If a taxpayer is out of compliance for not reporting under FATCA, they may still qualify for one of the voluntary disclosure programs in order to get themselves into compliance.
Golding & Golding: About our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and compliance. Contact our firm for assistance.