American expats living abroad who have never filed a US expatriate tax return and who believe that the IRS would never find them should think twice. Earlier we wrote What is FBAR. Another reporting requirement has been introduced in 2011. What is FATCA? FATCA is a powerful tool that will enable the IRS to find the owners of US assets in foreign accounts.
What is FATCA?
FATCA was enacted as a part of the Hiring Incentives to Restore Employment (HIRE) Act that was signed into law on March 18, 2010. The Foreign Account Compliance Act (FATCA) aimed at foreign financial institutions, however, its primary goal is to prevent US citizens and residents from hiding assets and income in offshore accounts.
What is FATCA in the world of globalization? Although FATCA is the US law, it has an unprecedented global impact. Effective 2013 the foreign financial institutions will be required to enter into the disclosure agreements with the IRS. If these institutions fail to disclose specific details about their US investors, they will be subject to a 30% withholding tax on withholdable payments made to its proprietary account. Foreign entities which are not financial institutions will be affected if they receive U.S. income or hold U.S. investments.
What is FATCA impacting? FATCA will definitely impact the transaction systems, account opening and due diligence procedures utilized by foreign banks to gather information about its customers. Foreign financial institutions have started to prepare for the FATCA regime and some of them have already declined to open new accounts for American expats living abroad.
Who must comply with the FATCA?
American expats living abroad must file the form 8938 with an expat tax return if they meet the following requirements:
- Filing status is Married filing jointly. American expats file a joint expat tax return and the aggregate value of specified foreign financial assets exceed $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
- Filing status is Single, Married Filing Separately or Head of Household. American expats file one of these expat tax returns and the aggregate value of their specified foreign financial assets exceed $200,000 on the last day of the tax year or more than $300,000 at any time during the year.
Nonresident aliens who choose to be treated as resident aliens for tax purposes are not exempt from the FATCA requirements either. For example, nonresident aliens who are not married and live in the USA as well as the aggregate value of their foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year, are required to file the FATCA form. What is FATCA form? This is form 8938.
When is the FATCA Form 8938 due?
Form 8938 is due with a tax return including extensions. Form 8938 does not exempt American expats living abroad from the FBAR requirement. The FBAR Form TD F90-22.1 is due by June 30 and no extension is allowed for this form.
Due to the fact that the international tax law is constantly changing and the failure to comply with the new IRS requirements can cost American expats a substantial amount in fines and penalties, American expatriates are advised to contact an expat tax CPA.