Are You In FATCA Compliance?

 The Foreign Account Tax Compliance Act was enacted by the Congress in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act to combat tax evasion by US persons holding investments in offshore accounts. The United States Treasury Department and the IRS continue to develop guidance regarding FATCA. The Act generally requires foreign financial institutions to report certain information about certain financial accounts held by U.S taxpayers or by foreign entities in which U.S taxpayers hold a substantial ownership interest and pay the taxes they owe.


FATCA generally requires the reporting of foreign financial assets, including some common ones such as financial accounts held at foreign financial institutions. Foreign stocks or securities not held in a financial account. Foreign partnership interests and mutual funds. Some less commonly reported are ones such as, investment assets held by foreign or domestic grantor trusts for which you are the grantor. Foreign issued life insurance or annuity contracts with a cash value. Foreign hedge funds and foreign private equity funds.


U.S law treats U.S persons and foreign persons differently for tax purposes. U.S national refers to an individual born in the United States, Puerto Rico, Guam, U.S Virgin Islands. Individual who were born in American Samoa or were born in the Commonwealth of the Northern Mariana Islands who have elected to be treated as U.S nationals. The Child Citizenship Act, applied to both adopted and biological children of U.S citizens which provide for the automatic acquisition of U.S citizenship after meeting certain conditions. An alien is any individual who is not a U.S citizen or U.S national, you are considered a nonresident alien unless you meet one of two tests. You are a resident alien of the United States for tax purposes if you meet either the green card test or the substantial presence test for the calendar year (January 1-December 31). You are a resident, for U.S federal tax purposes, if you are a Lawful Permanent Resident of the United States at any time during the calendar year. This is known as the "green card" test. To meet the United States resident for tax purpose test, you must be physically present in the United States (U.S) on at least:


1) 31 days during the current year and


2) 183 days during the 3 year period that includes the current year and the two years immediately before that.


Under FATCA, U.S taxpayers holding financial assets outside the United States must report those assets to the IRS. It's in addition to the long-standing requirement to report with tax return known as FinCEN Form 114 Report of Foreign Bank and Financial Accounts known as FBAR. FATCA require foreign financial institutions to report directly to the IRS information about financial accounts held by U.S taxpayers or by foreign entities wherein U.S taxpayers hold a substantial ownership interest. The reporting institutions not only include banks, but other financial institutions such as investment entities, brokers, and certain insurance companies. Some non-financial foreign entities also have to report of their U.S. owners. We can see that's the reason when one try's to set up a new account with a foreign financial institution, they ask information about citizenship.


FATCA requires U.S taxpayers who hold foreign financial assets with aggregate value of more than the reporting threshold (at least $50000) to report information about those assets on Form 8938 along with tax returns. Reporting thresholds vary based on whether you file a joint income tax return or live abroad. If you are single or file separately from your spouse, you must submit Form 8938 if you have more than $200,000 of foreign financial assets at the end of the year and you live abroad or more than $50,000, if you live in the United States. US Citizen whose tax home is in a foreign country and has been present in a foreign country or countries for at least 330 days out of a consecutive 12 month period is considered to live abroad. When you are filing married joint tax return and living abroad, one should file Form 8938 when the total value of foreign financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year. These thresholds apply even if only one spouse resides abroad. If you are not married then the total value of financial assets is more than $200,000 on the last day of the tax year or more than $300,000 any time during the year.


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