Awards & Recognition
The Foreign Account Tax Compliance Act (FATCA) was passed by Congress in 2010 as part of a broader transportation act. FATCA, which was enacted in an effort to stymie the spread of tax evasion overseas, is a two-part law with some components that affect banks, and others that directly impact U.S. taxpayers.
The two core components of FATCA are as follows: first, FATCA requires certain U.S. taxpayers to report to the IRS information about offshore income and specific types of foreign assets. Taxpayers who fail to comply are penalized harshly, as discussed below in greater detail. Second, FATCA requires foreign banks and financial companies, called “foreign financial institutions” (FFIs), to report to the U.S. government information about accounts that are held or controlled by U.S. taxpayers. FFIs that do not comply are subject to stiff fines, which gives foreign banks strong incentives to report their customers to the IRS.
See our 2011 OVDI Q and A Library
See our FBAR Compliance and Disclosure Q and A Library
See our Foreign Audit Q and A Library
Who is Affected by Federal FATCA Requirements?
Only certain taxpayers need to worry about FATCA requirements. However, those who are affected must take care to comply – or otherwise, face costly consequences. You may be affected by FATCA if you meet the following criteria:
- You are a U.S. citizen, a resident alien, or a non-resident alien for tax purposes.
- You have financial interest in, or signature authority over, a foreign bank account or other types of foreign investments or assets, including but not limited to foreign partnership interests, foreign mutual funds, foreign hedge funds, and foreign private equity funds.
- The combined value of your foreign assets or accounts exceeds one of the following thresholds, depending on your marital status and time of the tax year: $600,000; $400,000; $300,000; $200,000; $150,000; $100,000; $75,000; or $50,000.
Is FATCA the Same as Filing an FBAR (Foreign Bank Account Reporting)?
In short: no. FATCA and FBAR are related, but separate, foreign financial account and foreign income generating asset reporting requirements. They are often confused with one another due to the fact that, besides sharing similar acronyms, both involve the disclosure of foreign assets held by U.S. taxpayers.
To reiterate, FATCA is the Foreign Account Tax Compliance Act. FATCA is a federal tax law that requires citizens, residents, and non-residents to disclose foreign income and certain foreign securities to the IRS by filing Form 8938 (Statement of Specified Foreign Financial Assets). The reporting threshold under FATCA is generally $50,000.
FBAR is the Foreign Bank Account Report, also known as “FinCEN Form 114.” While FATCA is a law, the FBAR is a document. The law that requires taxpayers to file an FBAR is the Bank Secrecy Act (BSA), which predates FATCA by decades.
The reporting threshold for FBAR is much lower than the FATCA threshold: $10,000, versus $50,000 for FATCA. Unlike Form 8938, which is filed with the IRS, the FBAR is submitted to a government agency called “FinCEN,” or the Financial Crimes Enforcement Network.
Filing an FBAR does not relieve you of your duty to comply with FATCA, nor does filing Form 8938 relieve you of the duty to file an FBAR. If you have foreign bank accounts or assets of any kind, you should discuss your situation in detail with an experienced international tax lawyer to ensure that you compliant – or that you are taking appropriate steps to make yourself compliant. It may be possible to avoid prosecution or mitigate penalties by making a voluntary disclosure, but only if you begin before the IRS contacts you.
Penalties for FATCA Violations
Taxpayers covered by FATCA must file Form 8938 with the IRS. Taxpayers who carelessly or forgetfully fail to fulfill this requirement will be subject to costly penalties. Those who willfully fail to comply may have criminal tax exposure. Recently, the first taxpayer was criminally prosecuted for FATCA violations, setting a precedent for future cases. Even when non-willful, the failure to file Form 8938 can trigger a fine of up to $10,000 per violation. It is extremely important to note that continued noncompliance following IRS notification will result in the continued accumulation of penalties, until the taxpayer complies, or the penalty reaches its cap ($60,000 total).
See our Criminal Tax Law Q and A Library
International FATCA Tax Attorneys in Sacramento, CA
FATCA tax compliance can be a perilous area for businesses and taxpayers, with potential for high penalties even in non-willful cases. Avoid or minimize penalties – and design a solid tax strategy for your future – by working with the award-winning Sacramento FATCA and FBAR tax lawyers at the Tax Law Office of David W. Klasing. Call our Sacramento tax office at (916) 290-6625 to arrange a reduced-rate consultation, or contact us online to request an appointment. Please note that all meetings at our Sacramento office must be arranged in advance.
FATCA Tax FAQs
For additional information about FATCA tax compliance, refer to the FAQs listed below, and be sure to review your matter confidentially with a trusted and diligent tax professional.
- How does FATCA affect foreign account holders?
- What are the rules and requirements for reporting foreign trusts to the IRS?
- What should you do if you received a FATCA letter from your bank?
- What types of foreign investments must I report to the IRS?
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