How FATCA will affect individual U.S. taxpayers

Compensation and Benefits Bulletin
How FATCA will affect U.S. taxpayers.The Foreign Account Tax Compliance Act (FATCA), originally enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act, has created a lot of confusion for individual U.S. taxpayers. In essence, the FATCA regulations, finalized in 2013, require that U.S. taxpayers with foreign holdings report those holdings to the IRS. With FATCA, the IRS has gone a step further, requiring that foreign financial institutions report to the IRS information about their U.S. account holders. This development makes it more important than ever that taxpayers self-report foreign holdings in their tax filings.

To make it easier for foreign countries to comply with FATCA, the U.S. Department of the Treasury introduced a model Intergovernmental Agreement (IGA), to be used between the United States and other countries. IGAs allow all foreign-country entities that have U.S. account holders to report this information directly to the IRS. In essence, this means that taxpayers with foreign holdings where an IGA is present will be obligated to confirm what a financial institution has already reported. Many taxpayers have been notified by their respective foreign financial institutions that their information will be reported directly to the IRS. As of Nov. 5, 2014, 45 countries have signed a version of the IGA, and another 56 countries are working on agreements. For an up-to-date list of the IGAs that are in effect, visit FATCA information on Treasury's website.

These regulations apply to anyone who is a U.S. citizen, Green Card holder/legal permanent resident, or tax resident whose foreign assets or holdings are over the thresholds that are set each year. There are two main forms that taxpayers subject to the regulations may have to complete: the Foreign Bank Account Reporting Form (FinCen Form 114a) and the Statement of Foreign Financial Assets (Form 8938). FinCen Form 114a is required if the taxpayer has an aggregate equivalent of $10,000 in non-U.S. bank and financial accounts at any point during the year. This form, due on June 30 of each year, is independent from a tax return and is e-filed directly with Treasury. The Statement of Foreign Financial Assets is attached to the taxpayer’s individual return and is due when the taxpayer’s return is due (including any extensions). Generally, a taxpayer is required to file this form if foreign assets exceed $50,000 USD, but there are multiple exceptions that increase this threshold substantially. Foreign financial assets include foreign stock, foreign retirement plans and pensions, foreign partnership holdings and many other financial assets.

The government is serious about enforcing these rules and imposing penalties for noncompliance. Make sure you assess your personal filing responsibilities, and communicate with your tax preparer if there is uncertainty about which forms, and what, to include.

Katrina Haynes
T +1 404 704 0109

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