The Foreign Account Tax Compliance Act (FATCA) was passed by Congress in 2010. FATCA requires U.S. citizens, whether residing in the United States or abroad, to disclose foreign income and assets which meet certain thresholds as determined by the Internal Revenue Service (IRS). If you have an offshore bank account or other foreign financial assets, you may be affected by income reporting requirements under FATCA. It is critically important to understand these requirements, because failure to comply with FATCA can result in the imposition of serious penalties, including substantial fines. If you are a taxpayer in the U.S. or overseas with foreign income or foreign assets, the Sacramento CPA firm of Cook CPA Group can help you navigate FATCA regulations and avoid incurring costly penalties.
IRS “Foreign Assets” Definition
Provisions of FATCA require taxpayers, including individuals and business entities in the U.S. and abroad, to disclose foreign income and foreign assets whose values exceed certain thresholds. Therefore, it is vital to understand what the IRS means by “offshore income” or “foreign assets.” What, exactly, does the IRS consider to be “specified foreign financial assets”?
Speaking broadly, foreign financial assets are “financial accounts maintained by a foreign financial institution,” such as a checking account or savings account you’ve opened at a bank in a foreign country. Additionally, listed below are several examples of foreign financial assets which must be reported if held outside of a financial account for purposes of investment:
- Currency swaps, interest rate swaps, commodity swaps, equity swaps, and similar arrangements with foreign entities
- Foreign pensions
- Interest in foreign estates or foreign retirement plans
- Partnership interests in foreign business partnerships
- Securities and stocks issued by foreign corporations
However, FATCA generally does not require taxpayers to report:
- Bank accounts and financial accounts with U.S. branches of foreign banks
- Foreign real estate (such as a house or rental property)
- Tangible assets, such as vehicles, artwork, and jewelry
If you have any doubts at all as to whether an asset must be reported under FATCA, you should contact our Sacramento tax preparation service for guidance. Keep in mind that noncompliance with FATCA can lead to extremely expensive penalties – even when an error is accidental.
FATCA Requirements for Reporting Foreign Income and Assets
Foreign checking accounts, foreign savings accounts, foreign brokerage accounts, and other types of specified foreign financial assets must be disclosed if their aggregate value exceeds or exceeded the applicable reporting thresholds. These thresholds vary depending on factors like:
- Whether the taxpayer is married or single
- Whether the taxpayer resides in the United States or a foreign country
- The date or time of year at which the account’s value exceeded a specific level
Based on these factors, FATCA reporting thresholds are as follows:
- $50,000 – Single or married filing separately; U.S. resident; account value exceeded on final day of tax year
- $75,000 – Single or married filing separately; U.S. resident; account value exceeded at any point during tax year
- $100,000 – Married filing jointly; U.S. resident; account value exceeded on final day of tax year
- $150,000 – Married filing jointly; U.S. resident; account value exceeded at any point during tax year
- $200,000 – Single or married filing separately; non-U.S. resident; account value exceeded on final day of tax year
- $300,000 – Single or married filing separately; non-U.S. resident; account value exceeded at any point during tax year
- $400,000 – Married filing jointly; non-U.S. resident; account value exceeded on final day of tax year
- $600,000 – Married filing jointly; non-U.S. resident; account value exceeded at any point during tax year
These thresholds are current as of August 2017, but may be adjusted in the future. You should periodically revisit FATCA regulations, with assistance from your Sacramento tax accountant, to ensure that you are current on the IRS’ latest rules and requirements.
FATCA applies to you if your foreign financial assets are or were valued above the pertinent reporting threshold – for example, above $50,000 on the final day of the tax year, if you are an unmarried U.S. resident. You must report your foreign financial assets by using Form 8938 (Statement of Specified Foreign Financial Assets), which asks for information such as:
- Contact information for the bank or financial institution where the account is maintained
- The number and value of foreign deposit accounts
- The tax items attributable to the assets, such as interest, dividends, royalties, deductions, and credits
- Whether a foreign currency exchange rate was used to convert an asset’s value into USD
- Whether the account is owned individually or jointly with the taxpayer’s spouse
You must attach your completed Form 8938 to your federal income tax return, both of which are due on the same date. Of course, that is nearly a full year from now – but it’s never too early to start familiarizing yourself with the rules and requirements that may affect you next tax season.
Sacramento CPA Firm Providing FATCA Tax Preparation and Filing Services
If you currently maintain, previously maintained, or intend to open an offshore bank account, you may be affected by FATCA reporting requirements in 2018. If you believe that you or a loved one may be required to disclose foreign assets under FATCA, you should discuss your reporting responsibilities with an experienced Certified Public Accountant for U.S. citizens abroad and at home.
Equipped with over 20 years of experience providing tax preparation services for individuals and businesses in California and around the globe, the accountants, CPAs, and tax consultants of Cook CPA Group are ready to aid you with FATCA compliance, tax audit representation, and related tax matters, such as FBAR compliance (Report of Foreign Bank and Financial Accounts) and OVDP eligibility (Offshore Voluntary Disclosure Program). To discuss how we can help you in a free and confidential consultation, contact Cook CPA Group at (916) 724-1665 today.