Learn Why Expats Have to File FATCA: Who, Why and When

Learn Why Expats Have to File FATCA: Who, Why and When

Learn Why Expats Have to File FATCA

Over the past several years, the Internal Revenue Service has significantly increased enforcement of international tax and offshore compliance-related matters. While the FBAR (Foreign Bank and Financial Account Reporting, aka FinCEN Form 114) tends to get the most press, there is another equally important form for taxpayers to file which is regarding FATCA (Foreign Account Tax Compliance Act). FATCA filing is required for taxpayers who are considered U.S. persons and that includes US expats or Americans that live overseas. Let’s walk through some of the basics of FACTA and why Expats have to file.

U.S. Person and Worldwide Income/Reporting

Preliminarily, it is important to note, that the United States follows a citizenship-based taxation/worldwide income tax model. That means taxpayers who are considered U.S. persons are required to report their worldwide income as well as include their foreign accounts, assets, and investments on their tax return each year when they file when the threshold requirements for filing are met.

What is FATCA?

FATCA is the Foreign Account Tax Compliance Act.  The purpose of FATCA is to reduce offshore and international tax evasion and increase transparency for global reporting of accounts, assets, and investments, both in the United States and abroad. For the 110+ countries that have entered into FATCA agreements, the parties to the agreement agree to provide taxpayer information to the other country in order to ensure that that taxpayer is compliant in the other country. For example, since the United States and Singapore have entered into a FATCA Agreement, the United States supplies Singapore with information about the U.S. accounts held by Singaporeans, and likewise, Singapore provides the United States with account information at foreign financial institutions held by U.S. persons.

When Do Foreign Financial Institutions Report to the U.S.?

Typically, Foreign Financial Institutions (FFIs) report either quarterly, or semi-annually, and included in their reporting is a list of accounts that the U.S. person has at the institution that is reporting and may also include any income generated from the account. The goal is to make sure that the US person is both reporting the foreign accounts on the various international information reporting forms such as FATCA Form 8938 — as well as including any income generated on their U.S. tax return.

What Forms Do Taxpayers File for FATCA?

For purposes of a U.S. tax return, beginning in 2012, taxpayers had to start filing an IRS Form 8938 to comply with FATCA for their 2011 tax return. Since the introduction of the form back in 2012, the form has not changed all that much, and while it is similar to the FBAR it is also more encompassing.

For example, the taxpayer may have to include the maximum value of a particular FATCA asset or account but also must include any income generated from the asset such as interest income, dividend income, capital gains, royalties, etc.

Expat vs Non-Expat FATCA Filing

It is important to note, that US taxpayers who are considered expats are required to file the form just as they lived in the United States – but the threshold for having to file the form is higher. In other words, a taxpayer who lives overseas as an expat may have certain foreign assets that would otherwise be reportable as a US resident but due to the increase in threshold requirements for a foreign resident who is considered a U.S. Person they may not have to file the form, so expats must be sure to review the threshold requirements before filing the form.

What Foreign Assets are Included for FATCA

All different types of foreign assets are reportable, such as:

      • Bank Accounts

      • Investment Accounts

      • Pension Plans

      • Stock Accounts

      • Stock Certificates

      • Mutual Funds

      • Foreign Life Insurance

Failure to File FATCA Forms

When a person fails to file Form 8938 in conjunction with FATCA, they may become subject to significant fines and penalties, although these penalties may be mitigated, avoided, or abated through one of the IRS offshore amnesty programs.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

Contact our firm today for assistance.