The Foreign Account Tax Compliance Act (FATCA), enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act, is an effort to combat tax evasion by U.S. persons holding investments in foreign accounts. Under FATCA, some U.S. taxpayers holding accounts overseas must report them to the IRS, along with their regular income tax returns.
FATCA requires some U.S. taxpayers holding foreign financial assets with an aggregate value exceeding $50,000 to report certain information about those assets on a new form (Form 8938) that must be attached to the taxpayer’s annual tax return.
Reporting applies for assets held in taxable years beginning after March 18, 2010. For most taxpayers this will be the 2011 tax return they file during the 2012 tax filing season. Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification).
Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent; See FATCA
FATCA will also require foreign financial institutions (“FFIs”) to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. Click here to see the countries signed up Countries signed up for FATCA.
Zaher Fallahi, FBAR Attorney, Certified Public Accountant (CPA), advises taxpayers and businesses with undisclosed Foreign Bank Accounts (FBAR,OVDP, FATCA); See VDP