FATCA Reporting – Who Has to FATCA Report & What is Reported?
- 1 FATCA Reporting
- 2 Foreign Account Tax Compliance Act Reporting
- 3 International Tax & FATCA Lawyer Specialsits — Krantz Attorneys, A PLC
- 4 FATCA Has come Under Scrutiny by Many
- 5 Krantz Attorneys – We Specialize in IRS Offshore Disclosure
- 6 Worldwide Income
- 7 You Must have An Interest in the Account for FATCA
- 8 FATCA Filing Thresholds Vary
- 9 Only Specified Foreign Financial Assets are Reported
- 10 Foreign Real Estate & FATCA is Very Complicated
- 11 You Have to Report the Income as well
- 12 FATCA & Form 3520
- 13 FATCA & Form 3520-A
- 14 FATCA & Foreign Corporation & Partnerships (5471 or 8865)
- 15 FATCA & Passive Foreign Investment Company (PFIC)
- 16 Interested in the FATCA Reporting Amnesty?
FATCA Reporting – Who Has to FATCA Report & What is Reported?
FATCA Reporting Under the current state of the law, FATCA has become a harsh reality for millions of people. Millions of U.S. account holders must report foreign assets to the IRS each year.
FATCA is the Foreign Account Tax Compliance Act, and it requires both individuals and foreign financial institutions worldwide to report foreign account and “Specified Asset” information to the IRS using U.S. Tax Form 8938 (for individuals)
Foreign Account Tax Compliance Act Reporting
While the law has good intentions, it is detested by many — and for some, rightfully so.
Why? Because there are many individuals who reside overseas and have no other relation to the United States other than being born as a U.S. Citizen (Accidental American) or relocated from the United States to a foreign country many years ago — and then had no further interaction with the United States, who are now caught in the FATCA matrix.
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FATCA Has come Under Scrutiny by Many
Worse yet, in order to enforce FATCA, many Foreign Financial Institutions are finding it easier to simply close and/or freeze U.S. Account Holder accounts, than to take the time to properly report any individuals who may be considered a U.S. person.
This is causing major disruptions for individuals residing overseas, and making it nearly impossible to exist as a foreign resident and U.S. Citizen/Legal Permanent Resident.
To that end, we will provide a brief summary of things you need to know regarding FATCA — hopefully to help relieve some of the stress, and bring you back to reality (after all those rabbit holes you dug through, and/or fear mongering websites you landed on).
Krantz Attorneys – We Specialize in IRS Offshore Disclosure
At Krantz Attorneys, we focus exclusively on IRS Offshore Voluntary Disclosure.
The United States is one of only a handful of countries on the planet the taxes individuals on their worldwide income. What does that mean? It means that whether or not you reside in the United States or in a foreign country, you are required to report all of your US income as well as foreign source income on your U.S. Tax Return.
It also does not matter if the income you earn is tax exempt in a foreign country (PPF or Passive Income earned in many countries), or whether the income you earn in a foreign country was already taxed (although a Foreign Tax Credit or Foreign Earned Income Exclusion may apply, see below). While you may be able to obtain a credit or exemption for the taxes you paid, or income you earned in a foreign country – you are still required to report the income on your US tax return.
Moreover, it should be noted that the foreign passive income you earned is also required to be identified on the FATCA Form 8938 (thresholds vary based on their U.S. Residency Status and/or marital and filing status)
You Must have An Interest in the Account for FATCA
Another similar form is called an FBAR (Report of Foreign Bank and Financial Account Form). It is a form that is required to be filed by any US person who has ownership, joint ownership, or signature authority over a foreign account or group of accounts that in aggregate had more than $10,000 on any day of the year.
With FATCA Form 8938 (required to be filed by certain taxpayers), the person must have an interest in the account. Therefore, if you merely have signature authority over an account, chances are you may not need to file the form. Moreover, if your name is on the account but you do not have any interest in the account — that is something you should discuss with an experienced international tax attorney before completing the form.
FATCA Filing Thresholds Vary
With the FBAR, the $10,000 threshold requirement does not vary. In other words, whether or not you are single, married filing jointly, or reside outside of the United States — the $10,000 threshold is still the same.
The FATCA Form 8938 is different. Not only must you have an interest in the account, but the threshold requirements vary — depending on whether you reside in the United States or in a foreign country, and whether you are married or single.
For example, if you are single or married filing separate and reside in the United States, then the minimum threshold requirement is $50,000 on the last day of the year or $75,000 on any day of the year (if you have less than $50,000 on the last day of the year). In sharp contrast a person filing married filing jointly and residing overseas may have a minimum threshold requirement of $400,000.
Only Specified Foreign Financial Assets are Reported
Unlike the FBAR, which is mainly focused on items such as accounts an insurance policies, FATCA Form 8938 is more comprehensive. It requires reporting for ownership of certain assets, such as an interest in a business or foreign corporation. The level of ownership of the foreign business, partnership, or corporation is important — because you don’t want to duplicate file the form 8938 and other forms (such as 8938 and 5471 or 8621).
Foreign Real Estate & FATCA is Very Complicated
If a person owns foreign real estate, whether or not they report the real estate will generally be determined by whether it earns any foreign income and/or whether the person is making interest or tax payments that they would like to deduct on their US tax return.
Foreign real estate is not directly reported on a FATCA Form 8938. If a person owns an interest in a foreign corporation or business that owns real estate, the ownership interest in the foreign business or corporation is subject to FATCA reporting — but the real estate is not separately identified on its own 8938.
You Have to Report the Income as well
A form 8938 has multiple parts to it, but the introductory part asks the taxpayer to identify whether the accounts or assets listed in the 8938 (or 8938 continuation form) generates any income. If it does, the individual is required to identify whether the income is capital gains, interest income, dividend income or any other type of income and how much was earned from those accounts.
(This information will also be included on other forms such as his or her Schedule B, Schedule D, Schedule E, or other tax schedule)
FATCA & Form 3520
When a person receives a foreign gift or foreign trust distribution, they may be required to report it on a form 3520. A person has to report the receipt of a foreign gift if it exceeds $100,000 in either a single transaction or series of transactions. They have the report the receipt of a foreign gift from a corporation when it exceeds roughly $15,000, and they have to report any trust distribution.
If a is required to report the form 3520 they may not need to file a form 8938 for the same money.
FATCA & Form 3520-A
When a person owns a Foreign Trust, they are required to file a form 3520-A. if a person is required to file a form 3520-A for particular foreign trust, they are not required to file a Form 8938 for the identical trust ownership.
FATCA & Foreign Corporation & Partnerships (5471 or 8865)
The rules are somewhat different for these two forms, but essentially the same (with the 5471 being much more commonplace for U.S. investors). If you own at least 10% ownership in either type of business, you required to report the information on either a form 5471 or 8865. Both of these forms require comprehensive disclosure requirements, involving balance statements, liabilities, assets, etc. Moreover, the forms need to be filed annually, even if a person does not have to otherwise file a tax return
FATCA & Passive Foreign Investment Company (PFIC)
One of the most vilified type of financial assets/investments (from the U.S. Government’s perspective) is the infamous PFIC. A PFIC is a Passive Foreign Investment Company. The reason the United States penalized this type of investment is because it cannot oversee the growth of the investment, and/or income it generates. In other words, if a U.S. person invests overseas in a Foreign Mutual Fund or Foreign Holding Company — the assets grows and generates income outside of IRS and U.S. Government income rules and regulations.
As a result, the IRS requires annual disclosure of anyone with even a fractional interest in a PFIC (unless you meet very strict exclusionary rules).
Interested in the FATCA Reporting Amnesty?
No matter where in the world you reside, our interational tax team can get you IRS offshore compliant.
Krantz Attorneys specializes in FATCA Reporting Amnesty. Contact our firm today for assistance with getting compliant.
Ezra 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. Krantz's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
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