Greenback Explains What US Expats Need to Know About FATCA
New York, NY (PRWEB) July 30, 2013 -- Beginning in 2013, US citizens will be required to comply with the Foreign Account Tax Compliance Act (FATCA). FATCA was developed in 2010 as part of the “HIRE” legislation by the government and was primarily designed to combat offshore tax evasion. The act requires overseas financial institutions to report financial accounts held by US citizens, resident aliens or foreign entities substantially owned by US taxpayers directly to the IRS. Expats should be aware that foreign financial institutions are reportedly wary about working with US clients due to the extensive reporting requirements under FATCA and may find it more difficult to find a cooperative institution to bank with.
FATCA also requires the individuals to report these assets directly to the IRS if they are over the threshold for reporting. US persons meeting the thresholds listed below are required to file Form 8938, the Statement of Specified Foreign Financial Assets, and include it with their federal income tax return.
*See threshold chart attached.
Some of the accounts reported on Form 8938 will also be reported on the Treasury Department’s FBAR form, which must be filed by June 30th, but the filing requirements are not exactly the same. As such, US expats may be required to file one or both of these forms as part of their expat tax package if they meet the filing thresholds and have one of the accounts listed below.
Do you own foreign accounts or specified account?
Although not an exhaustive list, accounts that qualify for reporting via Form 8938 include:
- Financial accounts held at foreign financial institutions
- Foreign stock or securities not held in a financial account
- Foreign partnership interests
- Foreign mutual funds
- Foreign hedge funds and private equity funds
- Foreign accounts and investment assets held by foreign or domestic grantor trust for which taxpayer is grantor
- Foreign issued life insurance or annuity contract with a cash value
It should be noted that if you are not required to file a US expat tax return for the tax year, you will not be required to file Form 8938, even if the value of your specified foreign assets is more than the appropriate reporting threshold. In addition, you do not have to report financial accounts maintained by a U.S. domestic financial institution, the foreign branch of a U.S. financial institution, or the U.S. branch of a foreign financial institution.
Impact on US Expats
Among the more striking aspects of FATCA is the requirement placed on foreign financial institutions to report accounts held by US taxpayers. This additional layer of reporting means that US expats who are non-compliant due to lack of knowledge or understanding of the applicable regulations may still have their accounts reported directly to the US Government by their foreign financial institution. Institutions failing to report accounts face a 30% withholding tax, meaning financial institutions are being forced to comply. In order to avoid the costly and time consuming regulatory issues that reporting involves, a number of financial institutions, including Deutsche Bank, Commerzbank, HSBC, ING, and Credit Suisse are reported to be closing the accounts of US expats and advising them to bank elsewhere. (Editions Financial, August 30, 2012, http://www.editionsfinancial.co.uk/2012/08/30/when-banks-pay-the-price/)
Currently, the US has initiated negotiations with more than 50 jurisdictions regarding FATCA reporting requirements. Norway, United Kingdom, Mexico, Denmark, Ireland, Switzerland, and Spain have signed or initialed agreements with the US. This could introduce a level of data sharing amongst countries that has never been seen before and which could potentially obliterate money laundering.
The current impact on US expats is the additional burden of reporting more of their financial accounts to the US Government, potentially having all of their financial accounts also reported to their host country government and potentially having their financial accounts closed by their local bank. The IRS’s willingness to reach beyond the borders of the USA to ensure tax compliance and the willingness of other countries to cooperate shows how desperate countries are to ensure every penny of tax revenue is raised.
More About Greenback Expat Tax Services
For more information about Greenback Expat Tax Services or other US expat tax issues, please email Greenback Expat Tax Services at info(at)greenbacktaxservices(dot)com. You can also visit us at http://www.greenbacktaxservices.com.
Greenback Expat Tax Services specializes in the preparation of US expat taxes for Americans living abroad. Greenback offers straightforward pricing, a simple, hassle-free process, and CPAs and EAs who have extensive experience in the field of expat tax preparation. For more information, please visit http://www.greenbacktaxservices.com.
Danielle Buglino, Greenback Expat Tax Services, http://www.greenbacktaxservices.com, 1-888-362-5032, [email protected]
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