Tax Defense Network‘s mission is to help all taxpayers with tax debt. Part of this mission is to educate taxpayers about tax law, so that we can help prevent future tax debt. With FATCA, the Foreign Account Tax Compliance Act, showing up more and more in the news, Tax Defense Network would like to take this opportunity to explain the basics.
So, what exactly is FATCA? FATCA is an attempt to stop US taxpayers from hiding assets in foreign accounts. For US taxpayers, it means that anyone with certain financial assets overseas must report them to the IRS on their annual tax return using form 8938.
“The IRS is trying to cut back on all the legal ways people commit tax evasion,” Kay Wolfson of Tax Defense Network Business Development explains. “Tax evasion costs the government billions in lost tax revenue every year. With FATCA, taxpayers need to report their foreign accounts and assets on their tax return.”
Taxpayers are required to report their foreign financial assets only if those assets fall above a certain threshold. Single taxpayers living in the US are required to report their foreign assets if the total value of those assets is above $50,000, or if the value of the assets was more than $75,000 at any time during the tax year. The thresholds for married taxpayers filing jointly is double that for single taxpayers: they must report assets over $100,000 or assets that rose above $150,000 at any time during the tax year.
The thresholds are different for US taxpayers living abroad. Under FATCA, single taxpayers living abroad are required to report foreign assets valued above $200,000 or if those assets were above $300,000 at any point during the tax year. The thresholds for taxpayers living abroad who file jointly are double those thresholds.
FATCA also affects financial institutions in other countries. The United States has signed FATCA Agreements with several countries, including notorious tax havens Ireland, Switzerland, and the Cayman Islands. In these countries, foreign financial institutions, such as banks, private equity funds, brokers, etc., are required to report certain holdings of their US account holders.
“So if you don’t report your foreign assets, those FFIs [foreign financial institutions] will,” Kay Wolfson at Tax Defense Network explains, shaking her head. “When the IRS finds out that you did not report your assets, the penalties are not pretty.”
The penalty for failure to file is $10,000. There is an additional penalty of up to $50,000 for continued failure to file after IRS notification. There is also a 40% penalty on any understatement of tax attributable to non-disclosed assets.
If you are unsure about the filing requirements for your foreign assets, the best thing to do is contact a tax professional. They will best be able to guide you regarding FATCA and other tax regulations and help you get into compliance if you are behind on your tax obligations.
Tax Defense Network is a tax debt resolution company with headquarters in Jacksonville, FL. Its tax team of licensed tax professionals, CPAs, and enrolled agents helps individuals and small businesses across the country. Tax Defense Network is A+ rated by the Better Business Bureau.