The Foreign Account Tax Compliance Act (FATCA) is a federal law that obligates many holders of foreign accounts to report their accounts and assets to the IRS on an annual basis. The law was passed by Congress due to concerns that wealthy Americans were utilizing offshore tax havens to conceal income and assets. Congress believed that these actions were contributing to a record tax gap – the difference between projected tax receipts and actual tax receipts.
While Congress’ intention may have been to target only extremely wealthy Americans, the way FATCA has developed means that nearly all Americans with foreign accounts and assets must be aware of this and other foreign disclosure laws. The failure to comply with FATCA reporting obligations can lead to significant fines and penalties. In situations where it appears that your noncompliance was intentional or a voluntary disregard of a known legal duty, you may even face criminal tax penalties.
If you have concerns regarding FATCA reporting and FATCA compliance the tax attorneys of the NewPoint Law Group may be able to assist you. To schedule a confidential initial consultation with legal counsel, call 1-800-358-0305 today or contact us online.
How Do I Know that I Need to File Reports to Satisfy FATCA in California?
Like, one’s potential duty file a report of Foreign Bank and Financial accounts (FBAR), the reporting duty under FATCA is triggered when the taxpayer has a certain amount of foreign assets. However, unlike the threshold for filing FBAR that is set at $10,000 for all taxpayers, the threshold to file FATCA varies depending on the taxpayer’s circumstances. The two factors that govern a number of foreign assets one can hold prior to triggering an FATCA disclosure duty are marriage status and current country of residence. As a general rule, married taxpayers filing jointly and taxpayers who are living abroad can hold more foreign assets before an FATCA disclosure obligation is triggered.
Consider that a taxpayer who is a sole filing taxpayer living in the United States can hold up to $50,000 in foreign assets on the final day of the year or $100,000 at any time before he or she needs to make a report. By contrast, married taxpayers filing jointly and living in a foreign nation can hold up to $400,000 in foreign assets on the final day of the tax year or up to $600,000 at any time during the year. Thus, while a sole filing taxpayer living in the U.S. can hold the least amount of foreign assets before he or she needs to file, a married taxpayer filing jointly and living abroad can hold the greatest amount of foreign assets before a duty to disclose is triggered.
FATCA and FBAR Are Independent Disclosure Obligations
However, it is important to note that FBAR and FATCA represent independent disclosure duties. Even if you do not have a duty to disclose under FATCA, you may have a duty to file an FBAR. Assessing each obligation independently is an essential step in maintaining foreign account compliance. Working with a tax lawyer who is familiar with foreign asset and account disclosure obligations is an extremely prudent step to take.
What Foreign Accounts Count toward FATCA Asset Thresholds?
An array of finical accounts and assets can be included in the aggregation of your foreign financial assets. If you exceed the relevant filing threshold, these accounts must be reported when you file IRS Form 8938 to satisfy your disclosure obligation. These accounts include foreign stocks and securities, foreign financial accounts, foreign investments, contracts with foreign entities and individuals, foreign non-account investment assets. Other accounts are exempted from an FATCA reporting duty due to their nature or because they are already reported through other means. For instance, while many foreign pension and retirement accounts must be reported through FATCA, Canadian retirement savings plans receive special treatment and are disclosed on IRS Form 8891. Likewise, certain passive investment accounts already reported on IRS Form 8621 are also exempted. Corporate interests that are reported via IRS Form 5471 can also be exempted in some cases.
However, taxpayers should not rely on the above as tax or disclosure advice. There is a great deal of complexity and nuance involved in foreign account reporting and certain accounts may not always be what they appear at first glance. If you have foreign accounts and assets it is always wise to consult with an attorney regarding your potential tax and disclosure obligations to avoid extremely costly mistakes.
Folsom Tax Attorneys Provide Foreign Account FATCA Disclosure Guidance
If you have concerns regarding foreign accounts and your duty to file FATCA and other disclosure reports, the tax lawyers of the NewPoint Law Group may be able to provide advice and guidance. To schedule a confidential FATCA consultation call 1-800-358-0305 today or contact us online.