The Basics of FATCA and Form 8938
The Foreign Account Tax Compliance Act (FATCA) generally requires that foreign financial institutions and certain other nonfinancial foreign entities report on the foreign assets held by their U.S. account holders or be subject to withholding on relevant payments. Taxpayers must use Form 8938, Statement of Specified Foreign Financial Assets, to report specified foreign financial assets if the total value of all the specified foreign financial assets in which they have an interest is more than the appropriate reporting threshold.
With few exceptions, you must file Form 8938 if you are a "specified person" that has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold. You are a "specified person" if you are one of the following:
- A U.S. citizen.
- A resident alien of the United States for any part of the tax year.
- A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return.
- A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico.
The IRS imposes thresholds for specified persons for taxpayers living in the United States. If you are single or married and filing separately, you satisfy the reporting threshold if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year. For taxpayers who are married and filing jointly, the thresholds are $100,000 and $150,000.
For taxpayers living outside the United States, the thresholds are higher. For single and married-filing-separately individuals, the thresholds are $200,000 and $300,000. For the married-filing-jointly individuals, the thresholds are $400,000 and $600,000. The IRS has a strict definition of what it means to live abroad, so casual visitors cannot use occasional overseas trips to justify the higher thresholds.
Calculating the totals
One of the most complex tasks in this process is figuring out the value of your foreign accounts.
You need to take into account any financial accounts maintained by a foreign financial institution and the following foreign financial assets if they are held for investment and not held in an account maintained by a financial institution:
- Stock or securities issued by someone that is not a U.S. person (including stock or securities issued by a person organized under the laws of a U.S. possession).
- Any interest in a foreign entity.
- Any financial instrument or contract that has an issuer or counterparty that is not a U.S. person.
Other matters you may have to figure out are as follows: What is the value of an interest in a foreign trust? What is the value of an interest in a foreign estate, foreign pension plan and foreign deferred compensation plan?
This is just the beginning — there are many more provisions and exceptions. The bottom line? If you have foreign assets, be sure to work closely with a professional.