How to Avoid a FATCA Penalty – IRS FATCA Penalty Prevention Tips
FATCA Penalty: If you have unreported foreign accounts abroad, there is a chance you may end up on the receiving end of an IRS FATCA Penalty.
FATCA Penalties can be steep, and typically the IRS can also “add-on” to the FATCA Penalty, by issuing additional penalties for non-FBAR compliance, and more.
For individuals, the FATCA penalty originates with non-compliance in filing Form 8938.
As provided by the IRS:
“You may be subject to penalties if you fail to timely file a correct Form 8938 or if you have an understatement of tax relating to an undisclosed specified foreign financial asset.
Failure-To-File Penalty: If you are required to file Form 8938 but do not file a complete and correct Form 8938 by the due date (including extensions), you may be subject to a penalty of $10,000.
Continuing failure to file.
If you do not file a correct and complete Form 8938 within 90 days after the IRS mails you a notice of the failure to file, you may be subject to an additional penalty of $10,000 for each 30-day period (or part of a period) during which you continue to fail to file Form 8938 after the 90-day period has expired.
The maximum additional penalty for a continuing failure to file Form 8938 is $50,000.
5 Ways to Avoid the FATCA Penalty
There are various ways you can work to try to limit or avoid a FATCA Penalty.
Learn About FATCA Compliance before Filing
There are plenty of good resources online regarding FATCA, including who has to file the form, when the form is due, and what is included on the form.
You can search to our free international tax law library to learn pretty much anything you need to know about the basics.
Put Out the Fire when it is Small
Let’s say in 2017 you made a mistake and did not report your foreign accounts or assets on Form 8938. If you recognize this mistake before submitting your 2018 tax return, is important to take action before filing another years return. Because, the further you get out of noncompliance, the harder it is to get back into compliance. This will also impact the ability to prove non-willfulness.
Do Not Submit a Quiet Disclosure
A quiet disclosure is when you attempt to sneak one past the IRS by submitting documents forms without using one of the approved Amnesty programs. This is a bad idea
- General Article about IRS Disclosures and Why they are Bad
- Specific Article on FBAR Quiet Disclosures
- 10 Reasons Not to File a Quiet Disclosure with the IRS
Learn the Different Options for Compliance
The IRS has developed multiple amnesty or “voluntary disclosure” programs designed to help people safely get into compliance. Each program has its own set of pros and cons associated with submission
We have provided summary references to each program below:
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.