Freeman Tax Law can help you navigate complex FATCA reporting & compliance requirements.
FATCA, or the Foreign Account Tax Compliance Act , was enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act. It is an important development in U.S. efforts to combat tax evasion by U.S. persons holding investments in offshore accounts.
FATCA was designed as a two-pointed statute which obligates the individual account holder, as well as the financial institution holding the account to report certain information. Such an approach effectively monitors on both sides so that any non-compliant individuals are uncovered. The extensive list of Countries and jurisdictions who have reached agreement to implement the tax reporting and withholding procedures associated with FATCA can be found here.
Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS. In addition, FATCA will require foreign institutions to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.
FATCA REPORTING REQUIREMENTS
FATCA requires certain U.S. taxpayers holding foreign assets with an aggregate value exceeding $50,000 to report certain information about those assets on a new form (Form 8938) that must be attached to the taxpayer’s annual tax return. Reporting applies for assets held in taxable years beginning after March 18, 2010. For most taxpayers this would have been the 2011 return they filed during the 2012 filing season. Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.
2014 marks the first year as to which the IRS will receive, directly or through a local authority, from foreign financial institutions (FFI) financial information about American clients. Most Foreign Institutions will begin sending information – batched and electronically – beginning September 30, 2015. For tax year 2014, this information will normally include: name, address, Social Security Number, account number, account balance or value. This information will expand in tax year 2016 to include revenue earned on that account(s) (dividends and interest) and in 2017 will include capital gains realized.
The IRS will be in a position for the first time to match the reporting from foreign financial institutions with your reporting on Form 8938, which is attached to your Form 1040. As a result, it’s extremely important that individuals are reporting the correct information.
An FFI reporting to the IRS under the FATCA rules should provide the recipient of the interest or dividends a Form 1099. In lieu of an official Form 1099, foreign institutions can substitute its own form, but it must contain the information that would be put in a Form 1099. This is a new procedure and FFIs may not be familiar with the very detailed rules applicable to US tax information reporting.
DO I NEED A FATCA ATTORNEY?
Unlike most other nations, the U.S. taxes citizens, green-card holders and residents on income earned anywhere in the world. It also imposes complex reporting requirements that come with severe potential penalties for those who fail to comply.
Yet many people don’t know the FATCA rules, and others don’t follow them. An estimated 7.6 million U.S. citizens live abroad, and millions of others have green cards that subject them to U.S.A. laws—a huge majority of which are not filing the required tax or disclosure forms annually. The new FATCA regulations will make it much easier to identify those people who are not in compliance with foreign income reporting requirements.
The FATCA attorneys at Freeman Tax Law are uniquely positioned to assist taxpayers and foreign entities in becoming compliant with these laws due to our vast experience with international tax compliance, international tax planning and resolving tax controversies involving offshore banking matters.
If you are U.S. taxpayer that is holding financial assets outside the United States and are not in compliance with the required reporting obligations, please contact our office for a consultation regarding why it is critical to come forward and make a voluntary disclosure of the noncompliance before the IRS comes to you or your company. Please contact Freeman Law for a consultation regarding FATCA.