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If you have offshore financial accounts, foreign income or income producing assets, you may be subject to a little-known but important tax law known as the Foreign Account Tax Compliance Act, or FATCA. Be sure to discuss foreign account and income reporting requirements with a knowledgeable and experienced international tax professional, like the FATCA attorneys and CPAs at the Tax Law Office of David W. Klasing. Providing international tax services from our San Diego office, our award-winning tax firm represents citizens and expatriates in locations around the world. With our comprehensive knowledge of international tax treaties, IRS audit procedures, and voluntary disclosures, we guide taxpayers and corporations through FATCA compliance step by step, working strategically to mitigate penalties, reduce tax liabilities, and ensure that taxpayers are treated fairly during foreign account tax audits.
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What is the Foreign Account Tax Compliance Act (FATCA)?
FATCA is an acronym that stands for the Foreign Account Tax Compliance Act, a federal law that was passed by Congress in 2010. While few taxpayers have heard of FATCA, hundreds of thousands are directly impacted, including U.S. citizens and dual citizens, U.S. residents, non-resident taxpayers, and various U.S. entities, such as trusts, estates, and businesses.
It is vital to understand how FATCA regulations might affect you, your spouse, or your small business, as failure to comply with FATCA exposes you to substantive penalties. Depending on the nature of a FATCA violation, you may even be in jeopardy of having criminal charges filed against you.
Who Must Report Foreign Accounts Under FATCA?
U.S. citizens, residents, and non-residents may be affected by FATCA, in addition to U.S. trusts, partnerships, and corporations. It depends on whether the taxpayer meets additional criteria specific to factors like:
- Whether the taxpayer is an entity or an individual
- Whether the taxpayer is unmarried, married filing separately, or married filing jointly
- Whether the taxpayer resides in the United States or abroad
- The value of the taxpayer’s assets:
- On any date during the year
- On the final day of the tax year
Depending on these factors, the FATCA reporting threshold ranges from $50,000 to $600,000.
If you are impacted by FATCA, you are likely also affected by a similar law called the Bank Secrecy Act, which requires some foreign account holders to electronically file FinCEN Form 114, also known as the FBAR. If you have foreign assets, you may need to file an FBAR in addition to filing separate, FATCA-related forms, which are discussed in the next section.
Which FATCA Form to Use
If you meet FATCA criteria, you must report foreign assets that meet or exceed specified thresholds, as we discussed in the preceding section. But on which forms must these assets be reported?
The most important IRS form that you will need to comply with FATCA is Form 8938 (Statement of Specified Foreign Financial Assets), which will ask you to provide detailed information about current or recent offshore accounts and assets. For instance, you will be asked about whether you opened or closed an offshore account during the year, whether you managed the account alone or with a spouse, whether you converted the currency in the account into USD, which country the account was located in, and which bank maintained the account for you.
In addition to Form 8938, you may also need to submit other documentation to the IRS. Depending on your circumstances, additional FATCA tax forms you may need to file include the following:
- Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts)
- Form 5471 (Information Return of U.S. Persons with Respect to Certain Foreign Corporations)
- Form 8865 (Return of U.S. Persons with Respect to Certain Foreign Partnerships)
A qualified international tax attorney or accountant can help you determine which forms you are responsible for filing, then assist you with preparing and reviewing your documents for accuracy.
Failure to File Form 8938 Penalties
Civil and/or criminal penalties may result from a FATCA violation, depending on the nature of the violation – in particular, whether the taxpayer’s conduct was deliberate, or “willful,” based on the available evidence. Undisclosed foreign accounts demand urgent action to mitigate civil and criminal penalties to the greatest extent possible. (For more information about these penalties, see our previous article discussing what happens if you don’t report a foreign account.)
If you have received a FATCA letter from your bank, it is only a matter of time before your information is reported to – and investigated by – the Internal Revenue Service. The best course of action is to be proactive and get ahead of the situation by strategizing now with an international San Diego tax lawyer.
Civil FATCA Penalties
The IRS may impose a fine of up to $10,000 per failure to file Form 8938. Additionally, another $10,000 fine may be imposed per each subsequent month of ongoing noncompliance, to be capped at a maximum penalty of $50,000, where applicable.
Criminal FATCA Penalties
In 2018, the U.S. Department of Justice prosecuted, for the first time since the law’s inception, a taxpayer on criminal charges related to FATCA. The defendant, a former banking executive, pleaded guilty to conspiracy after being extradited to the United States. At sentencing, he will face up to five years in federal prison, according to a DOJ press release.
FATCA-related tax evasion or conspiracy is a felony offense. The IRS and DOJ work together, partnering with law enforcement agencies throughout the U.S. and around the globe, to relentlessly track down and, where necessary, extradite taxpayers suspected of offshore tax and information reporting fraud.
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Foreign Account Tax Compliance Lawyer and CPA in San Diego, CA
Even well-intentioned taxpayers can struggle to navigate the complex stipulations of FATCA, making tax compliance a challenge. Work with a proficient and experienced tax attorney-CPA who understands the deadlines, procedures, and regulations impacting you and your small business.
At the Tax Law Office of David W. Klasing, we have established a reputation for providing sophisticated legal and accounting services, with a strong emphasis on the areas of FATCA compliance, FBAR compliance, and voluntary disclosures. For assistance with these or related tax issues, contact the Tax Law Office of David W. Klasing online for a reduced-rate consultation, or call our San Diego office at (619) 780-2538. You can also reach us by calling our main office in Irvine at (800) 681-1295. Please note that meetings at our San Diego tax office are by appointment only.
Note: If you have concerns about the privacy of our initial or subsequent communication and are unable to easily travel to our Irvine / Orange County Main Office, consider scheduling a GoToMeeting to safely and securely establish an initial or maintain an existing attorney client relationship. With end-to-end encryption, strong passwords and top-rated reliability, no one is messing with your meeting. To schedule a reduced rate initial consultation via GoToMeeting follow this link. Call our office and request a GoToMeeting if you are an existing client. We are generally happy to travel to any of our appointment only satellite offices for a subsequent meeting in appropriate circumstances once a relationship is established via a signed engagement letter and the payment of an initial retainer or where enough retainer is available where a current client to cover the reasonable travel time and time required for the meeting.
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