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FATCA – short for the Foreign Account Tax Compliance Act – is a US law aimed at tackling offshore tax evasion. The law affects all US taxpayers, not just those living overseas. To comply with FATCA, all taxpayers holding accounts with foreign financial institutions must file a Form 8938: Statement of Specified Foreign Financial Assets with their annual tax returns. Taxpayers should also be aware that from July 1, 2014, foreign financial institutions will be obliged to report the details of accounts they hold for US taxpayers for the Internal Revenue Service (IRS) to cross reference against Forms 8938.

The IRS wants to make sure US taxpayers with foreign earnings or capital gains are paying tax in full. FATCA will build a database of US taxpayers with offshore accounts and holdings for the IRS. The IRS will then compare Forms 8938 filed by taxpayers with the database to make sure the details tally. If they do not match, the IRS will then ask the taxpayer to explain any discrepancy.

In the case of taxpayers living abroad, Form 8938 must be filed if:

  • You are NOT filing a join return and the value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $400,000 at any time during the tax year.
  • You are married and file a joint return and the valued of all specified foreign financial assets you or your spouse owns is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.

The form asks for information about foreign accounts and assets – like: Financial accounts held with foreign financial institutions, Stock or securities not held in a financial account, Partnership interests, Mutual funds, Hedge funds and private equity funds, Accounts and investment assets held by foreign or domestic trust involving the taxpayer, Life insurance or annuity contracts with a cash value…