In the first article in our international tax series, we discussed how the Panama Papers have reignited the secrecy versus disclosure debate of foreign affairs. While the Panama Papers may be a spotlight on this issue, the U.S. has had some foreign account reporting requirements for some time. We discussed one foreign disclosure filing, the Report of Foreign Bank and Financial Accounts (FBAR), in the second article in this series.
One may assume that disclosing all foreign accounts on an FBAR is enough to satisfy the Department of Treasury’s reporting requirements. Unfortunately, that is not the case. U.S. persons who have foreign financial accounts must also abide by the Foreign Account Tax Compliance Act (FATCA), which has a distinct set of rules and disclosures. While the thresholds for FATCA filings may be somewhat higher than FBAR thresholds, they are definitely not limited to the wealthy jet-setters of the world.
Who are the Frequent FATCA Flyers?
U.S. citizens, resident aliens, and certain non-resident aliens with foreign accounts that exceed particular thresholds must file Form 8938, Statement of Specified Foreign Financial Assets to meet their FATCA disclosure requirements. FATCA also imposes reporting mandates on certain foreign and U.S. financial institutions and entities that want to avoid withholding 30% of certain payments.
What is the Minimum Foreign Account Balance “Altitude” for Filing?
A person’s FATCA reporting threshold varies according to his or her location and marital status. The chart below summarizes the different thresholds.
|FATCA Reporting Thresholds|
| ||For taxpayers living in the U.S.||For taxpayers living outside the U.S.|
|Single*||Married Filing Jointly||Single*||Married Filing Jointly|
|Threshold for end-of-year total value of foreign financial assets ||$50,000||$100,000||$200,000||$400,000|
|Threshold for value of foreign financial assets at any time during the year||$75,000||$150,000||$300,000||$600,000|
*Single also includes married filing separately
For example, a single taxpayer living in the U.S. with a total foreign financial account balance of $45,000 on December 31 may not have to abide by FATCA. However, foreign account holders should carefully examine their balances throughout the year. If one of the single taxpayer’s foreign accounts has a high-flying foreign stock that peaks early in the year and causes the account value to exceed $75,000, then that person would still have to file Form 8938.
Which Accounts Need a Full Scan?
The foreign financial assets subject to disclosure include the following:
- financial accounts (i.e., deposit, savings, securities) held at foreign institutions;
- foreign mutual funds;
- ownership in a foreign business entity, such as a partnership;
- foreign private equity funds;
- certain foreign insurance products;
- beneficiary of a foreign estate or trust; and
- foreign pension and deferred compensation plans.
Neither foreign investments held at a U.S. financial institution nor financial accounts held at a U.S. branch of a foreign bank are reportable under FATCA.
What are the Ticket Costs?
A person whose foreign account balance meets the reporting threshold but fails to file Form 8938 could pay a penalty of up to $10,000. The IRS imposes an additional penalty of $10,000 per 30-day period on those who fail to file within 90 days of receiving a failure-to-comply notice. It’s important to note that the penalties for not complying with FATCA are separate from those for not filing an FBAR – even if a person must report the same financial assets on both forms. Thus, a person who willfully fails to file both an FBAR and a Form 8938 could pay $110,000 or more in penalties!
Let CRI Be Your FATCA “Travel Buddy”
Even those without their own private jets can fall under FATCA regulations. Regardless of how high your foreign account balance may be, CRI can travel alongside you as you navigate your reporting requirements. Contact us if you are unsure if your investments are subject to FATCA. Our tax professionals are well versed in FATCA’s requirements and are ready to help you ensure that you remain compliant.