FATCA – short for the Foreign Account Tax Compliance Act – is a US law aimed at tackling offshore tax evasion.
The law affects all US taxpayers, not just those living overseas.
To comply with FATCA, all taxpayers holding accounts with foreign financial institutions must file a Form 8938: Statement of Specified Foreign Financial Assets with their annual tax returns
Taxpayers should also be aware that from July 1, 2014, foreign financial institutions will be obliged to report the details of accounts they hold for US taxpayers for the Internal Revenue Service (IRS) to cross reference against Forms 8938.
What is FATCA looking for?
The IRS wants to make sure US taxpayers with foreign earnings or capital gains are paying tax in full
How will FATCA help the IRS check foreign earnings?
FATCA will build a database of US taxpayers with offshore accounts and holdings for the IRS. The IRS will then compare Forms 8938 filed by taxpayers with the database to make sure the details tally.
If they do not match, the IRS will then ask the taxpayer to explain any discrepancy.
Who has to file a Form 8938?
Form 8938 should be filed by taxpayers:
- At the tax year end if the level is more than $50,000 or $100,000 if married and filing jointly
- At any time when the level hits $75,000, or $150,000 if married and filing jointly
Expats living abroad all year have an increased reporting threshold.
- When the value of foreign assets at the year-end is more than $200,000, or $400,000 if married and filing jointly
- When the value of foreign assets during the tax year is more than $300,000, or $600,000 if married and filing jointly
What is declared on a Form 8938?
The form asks for information about income and gains from foreign accounts and assets – like:
- Financial accounts held with foreign financial institutions
- Stock or securities not held in a financial account
- Partnership interests
- Mutual funds
- Hedge funds and private equity funds
- Accounts and investment assets held by foreign or domestic trust involving the taxpayer
- Life insurance or annuity contracts with a cash value
When should a Form 8938 be filed?
Using the asset guidelines, the form should either be filed at the year-end together with a tax return, or when foreign earnings or assets hit a certain level during the year, taxpayers should contact the IRS and let them know.
Where can taxpayers find a Form 8938?
