In March 2010, the Foreign Account Tax Compliance Act (FATCA) became a federal U.S. tax law, and its requirements become effective July 1, 2014. FATCA enforces foreign financial asset reporting by U.S. taxpayers. It is important to understand who is covered and what assets are covered to effectuate compliance. Although FATCA generally does not subject non-U.S. citizens or non-U.S. taxpayers to report assets, financial institutions and other types of businesses globally may become subject to disclosure about assets held for required reporters.
Who is covered? “Specified Individuals” who are U.S. citizens, U.S. individual residents, and some nonresident individuals with offshore assets or foreign financial accounts are subject to reporting. The IRS accepts reporting on Form 8938 Statement of Specified Foreign Assets, and it can be submitted annually with the Form 1040 submitted for Income Tax.
What is the threshold for asset reporting? Reporting is only required of taxpayers who have a total value of specified foreign financial assets above $50,000 USD at the end of the tax year. If at any time during the tax year the value of specified foreign financial assets exceeds $75,000 reporting is required at the end of the tax year regardless of the value of assets at that time. Married taxpayers filing a joint income tax return are subject to combined asset thresholds of over $100,000 and $150,000 for the reporting described above. Married taxpayers filing income tax individually each must follow the over $50,000 and $75,000 value thresholds.
Who is a “specified individual” for FATCA purposes and subject to reporting? A specified individual is:
- A U.S. citizen
- A resident alien of the United States for any part of the tax year
- A nonresident alien who makes an election to be treated as resident alien for purposes of filing a joint income tax return
- A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico
And has an interest in specified foreign financial assets that are required to be reported.
And the aggregate value of the specified foreign financial assets is more than the reporting thresholds that apply to the taxpayer as described above, or if the taxpayer is living abroad. If a taxpayer is living abroad he/she must file if:
- He/she is filing a return other than a joint return and the total value of the specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or
- He/she is filing a joint return and the value of the specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
Coincidental to the requirement to report assets, the IRS will commence evaluations in July 2014 of financial institutions outside the U.S. to identify reportable accounts, those that require reporting based on the asset definitions and thresholds. At this time, several foreign countries have agreed to cooperate with the IRS in this effort. Canada currently complies with a tax treaty with the U.S. to exchange tax information for law enforcement purposes, but, not for preemptive reporting purposes.