FATCA or Foreign Account Tax Compliant Act came into being in 2010. The reporting requirements are part of a broader effort by the U.S. government to combat offshore tax evasion, and its tentacles are impacting many Americans who have assets abroad.

FATCA (Foreign Account Tax Compliance Act)

U.S. persons who receive proceeds from foreign financial accounts that have an aggregate balance exceeding certain thresholds (see below) are required to file Form 8938.

• US persons include citizens, permanent residents, and non-residents that file a joint tax return with a U.S. citizen;
• Foreign financial accounts or assets include: banks accounts, brokerage accounts, mutual funds, annuities, life insurance policies with cash value, and financial interest in a foreign partnership
• The threshold for expats filing an individual tax return is $200,000 aggregate balance on the last day of the year, or $300,000 aggregate balance at any point during the year;
• The threshold for expats filing a joint tax return is $400,000 aggregate balance on the last day of the year, or $600,000 aggregate balance at any point during the year
• Form 8938 is included with your income tax filing

The maximum penalty for failing to file Form 8938 is $60,000 for each foreign asset that you failed to report (even more onerous than for the FBAR).

FATCA – Intergovernmental Agreements

The US government is busy inking deals with other countries whereby foreign financial institutions (FFIs) will be required to:

• Identify accounts of US persons;
• Report certain information to the IRS regarding those accounts;
• Withhold a 30% tax on certain payments to non-participating FFIs and account holders unwilling to provide the required information

As of this article, over 100 countries have signed intergovernmental agreements with the United States. Prior to FACTA, the reporting of foreign assets by US persons was basically an honor system. Now, it’s a completely different story. The US government has your information, and if you fail to report accurately, there may be problems.

FATCA (Form 8938) vs. FBAR (FinCEN 114)

American expats often get FATCA and FBAR confused with one another. They are two distinct requirements. To see a side-by-side comparison, click here.

For general information on US expat taxation, please read: US Taxes for Americans Living Abroad – Ultimate Guide.