Awards & Recognition
Certain U.S. citizens, residents, non-residents, business entities, and trusts are required to follow a federal law known as FATCA, or the Foreign Account Tax Compliance Act. Taxpayers affected by FATCA must report foreign financial accounts, such as offshore bank accounts, to the IRS by filing specific tax forms. Failure to do so can lead to imposition of serious civil penalties and willful noncompliance can be criminally prosecuted especially where accompany by non-reporting of offshore taxable income, making adherence to federal FATCA regulations imperative.
If you have questions about reporting foreign bank accounts to the IRS, or if you need help making a expat streamlined or domestic streamlined disclosure after failing to report foreign income in the past, the Orange County tax attorneys at the Tax Law Office of David W. Klasing can assist. Serving taxpayers in dozens of countries from our office in Irvine, our international tax lawyers and CPAs have years of experience helping businesses and individuals comply with FATCA successfully. We can work to minimize IRS penalties and reduce the risk of criminal prosecution, while making it simpler to fulfill your FATCA responsibilities.
About the Foreign Account Tax Compliance Act (FATCA)
The Foreign Account Tax Compliance Act, or FATCA, is a federal law that was passed by Congress in 2010. Though relatively recent, this law remains unknown to most taxpayers – which can have serious repercussions when taxpayers fail to fulfill their filing requirements.
FATCA targets two distinct groups: (1) foreign financial institutions (FFIs), which can be fined for failing to report U.S. customers to the Department of Justice, and (2) taxpayers with foreign financial accounts (such as foreign checking or savings accounts), who can be fined or possibly even prosecuted for failing to file certain tax forms as required by FATCA.
Because FFIs risk steep fines for helping U.S. taxpayers conceal foreign assets, they are inclined to turn information about American account holders over to the U.S. government. If you recently received a FATCA bank letter, you should discuss your next steps with an experienced international tax lawyer immediately. If you are facing an egg shell audit involving undisclosed foreign accounts, businesses, real estate, or other income generating assets coupled with unreported offshore taxable income, you are at great risk for criminal tax and willful foreign information noncompliance charges.
2019 FATCA Countries
For obvious reasons, the sustained success of FATCA depends on cooperation between governments and FFIs around the globe. To that end, the United States has entered intergovernmental agreements (IGAs) with nations around the world – including many notorious tax havens – to strengthen FATCA enforcement. FATCA countries include, but are not limited to:
- Australia
- Hong Kong
- Luxembourg
- Italy
- Japan
- Panama
- Saudi Arabia
- Sweden
- Switzerland
- United Kingdom (U.K.)
Who Must File Form 8938 Under FATCA?
If FATCA applies to a taxpayer, he or she must file Form 8938 (Statement of Specified Foreign Financial Assets) in order to be in compliance. The next question is, to whom does FATCA apply? The answer can be found by examining three IRS criteria:
- Is the taxpayer a “specified individual,” meaning a U.S. citizen, resident alien, or non-resident for tax purposes? If not, is the taxpayer a U.S. business, such as a partnership or corporation?
- Does the taxpayer have financial assets located outside the United States? For the purposes of FATCA, this includes bank accounts, stocks and other securities, “interests in foreign entities,” and potentially, even cryptocurrency wallets.
- Was the value of these assets greater than $50,000 on the final day of the tax year? Note that this threshold may be higher for some taxpayers: potentially $75,000, $100,000, or $150,000, depending on (1) taxpayer filing status and (2) when in the tax year the account surpassed reporting thresholds.
If you answered “yes” to each of these questions, you may be required to file Form 8938 under FATCA.
IRS Penalty for Not Filing Form 8938
The IRS and Department of Justice place a high priority on offshore tax evasion. As such, steep penalties are frequently imposed on noncompliant taxpayers. For instance, there is a $10,000 penalty for failure to file Form 8938 – and that is merely the initial fine. As the IRS explains, the $10,000 penalty further increases by “an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000” in total. Even more alarming is the risk of criminal prosecution for FATCA noncompliance, which can lead to prison time on top of additional fines and supervised release. Since penalties accumulate as time passes, it is crucial for taxpayers to act swiftly to resolve issues with unfiled Forms 8938.
FBAR and Other IRS Foreign Account Disclosure Requirements
If you are required to file Form 8938, there is a high likelihood that, unless an exception applies, you are also required to file an FBAR (Foreign Bank Account Report), also known as FinCEN Form 114. This is due to the fact that, despite their many similarities, FinCEN Form 114 has a lower reporting threshold than Form 8938: $10,000 at any time during the reporting period. It is critical to understand that filing Form 8938 does not “cover” or “take care of” FBAR filing requirements, as these are separate obligations.
In addition to disclosing foreign accounts on FinCEN Form 114, you are also required to acknowledge your foreign income on your federal income tax return. In particular, Schedule B (Interest and Ordinary Dividends) asks, under Part III, detailed questions about “foreign accounts and trusts,” including whether you were “required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), to report financial interest or signature authority” over an offshore account.
Foreign Account Tax Compliance Lawyers and CPAs in Orange County, CA
Failing to comply with FATCA exposes you to the risk of heavy fines – and with them, the potential for prison time and a criminal record. Be sure to work with an experienced international criminal tax defense attorney and CPA if you are dealing with FATCA tax issues. For a reduced-rate initial consultation, contact the Tax Law Office of David W. Klasing online, or call our Irvine tax office at (949) 681-3502. You can also reach us to schedule an appointment by calling (800) 681-1295.
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