FATCA Requirements for Individuals

The IRS recently released guidance regarding new reporting requirements under the Foreign Account Tax Compliance Act (FATCA).  Under FATCA, the IRS requires that certain U.S. taxpayers with “specified foreign financial assets” exceeding certain thresholds report those assets to the IRS by attaching form 8938 to their income tax return this year. Generally, taxpayers living in the U.S. and holding foreign financial assets must file form 8938 if:

  1. the aggregate value of their foreign holdings exceeds $50,000 ($100,000 for joint returns) on the last day of the taxable year (increasing to $200,000/$400,000 for taxpayers living abroad); or
  2. the aggregate value exceeded $75,000 ($150,000 for joint returns) at any point during the taxable year (increasing to $300,000/$600,000 for taxpayers living abroad).

Taxpayers may be subject to a penalty of $10,000 for a failure to file form 8938 when required, increasing to $50,000 for a continued failure after IRS notification.  Additionally, underpayments of tax resulting from undisclosed foreign financial assets are subject to an understatement penalty of 40 percent.  The IRS hopes that such penalties, coupled with reporting requirements for foreign financial institutions regarding their U.S. accountholders, will result in increased tax compliance and reduced tax evasion (see http://www.irs.gov/pub/irs-pdf/i8938.pdf for further information).

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