what is fatca 
the foreign account tax compliance act fatca is a law that requires foreign financial institutions to report on the assets held by u s account holders it also requires u s citizens and residents living at home or abroad to file annual reports on any foreign account holdings they have the main goal of fatca is to stop tax evasion the fatca was passed in 2010 as part of the hiring incentives to restore employment hire act which is designed to promote transparency in the global financial services sector form 8938 is used to report any foreign account holdings and there are serious penalties for not reporting them 1understanding fatcathe foreign account tax compliance act fatca was signed into law by president barack obama in 2010 as part of the hiring incentives to restore employment hire act hire was largely designed to incentivize businesses to hire unemployed workers unemployment rates had skyrocketed during the 2008 financial crisis 1one of the incentives offered to employers through the hire act was an increase in the business tax credit for each new employee hired and retained for at least 52 weeks other incentives included payroll tax holiday benefits and an increase in the expense deduction limit for new equipment purchased in 2010 3fatca seeks to eliminate tax evasion by american individuals and businesses that are investing operating and earning taxable income abroad while it is not illegal to maintain an offshore account failure to disclose the account to the internal revenue service irs is illegal since the u s taxes all income and assets of its citizens on a global scale in fact the fatca was at least in part created to fund the costs of the business incentives offered in hire fatca provisions require u s taxpayers to report all financial assets held outside of the country annually and pay any taxes due on them the revenue stream produced by fatca goes toward the costs of the hiring incentives offered in the hire act penalties are imposed on u s residents who do not report foreign account holdings and financial assets that exceed 50 000 in value in any given year 2who needs to comply with fatca form 8938 needs to be filed by any american taxpayer with financial assets totaling 50 000 or more those assets may be in a bank account or may be in stocks bonds and other financial instruments there are certain exceptions one major one is an exception for assets held in a foreign branch of a u s institution or a u s branch of a foreign institution 4foreign financial institutions ffi and non financial foreign entities nffe are required to comply with this law by disclosing the identities of u s citizens with accounts and the value of the assets in those accounts to the irs or the fatca intergovernmental agreement iga ffis that do not comply with the irs will be excluded from the u s market and have 30 of the amount of any withholdable payment withheld from them as a tax penalty withholdable payments may include income generated from the u s financial assets held by these banks such as interest dividends and periodic profits ffis and nffes that agree to the law must annually report the name address and tax identification number tin of each account holder that meets the criteria of a u s citizen as well as the account number the account balance and any deposits and withdrawals on the account for the year 561the irs requires form 8938 for taxpayers living abroad under the following circumstances the reporting thresholds for foreign assets vary based on whether you file a joint income tax return and whether you live abroad according to the irs the irs requires form 8938 for taxpayers living in the united states under the following circumstances who is a u s person under fatca the fatca guidelines refer to the term united states person or usp a usp can be any of the following penalties for non compliancethere are penalties for failing to file form 8938 the irs can impose a 10 000 failure to file penalty an additional penalty of up to 50 000 if the guilty party continues to not file after notification by the irs and a 40 penalty for understating taxes attributable to non disclosed assets the statute of limitations is extended to six years after an entity files its return for income over 5 000 that is not reported and is attributable to a specified foreign financial asset also if a party fails to file or properly report an asset on form 8938 the statute of limitations for the tax year is extended to three years beyond the time when the party provides the required information if there is a reasonable cause for the failure the statute of limitations is extended only with regard to the item or items related to such failure and not for the entire tax return no penalty is imposed if the failure to disclose is found to be reasonable although this is decided on a case by case basis 4the cost of compliancealthough the price to pay for not complying with fatca is high the compliance costs for foreign financial institutions are also high nigel green ceo of devere group and co founder of the campaign to repeal fatca estimated in 20217 that 250 000 foreign financial institutions were being impacted by fatca s reporting requirements one spanish bank stated that compliance could cost one of its local bank branches 8 5 million and a global financial institution 850 million estimates of the costs to u k financial institutions ranged from 1 1 billion to 1 9 billion 8criticism of fatcaof course there are always critics of new tax laws the reuters news agency reported that fatca drew the ire of banks and business people who termed it imperialist financial institutions objected to the fact that they were expected to report on their u s clients or withhold 30 of the interest dividend and investment payments due to those clients and send the money to the irs 9tax lawyers at the swiss american chamber of commerce in zurich denounced fatca as the neutron bomb of the global economic system and said it would deter foreign investment in u s markets 9some critics argued that the cost of implementing fatca was too great a burden on foreign financial institutions and could even cause them to divest their u s assets 10foreign banks objected to the fatca on the grounds that it is burdensome to their operations american citizens abroad proclaimed that americans residing overseas need to have assets and bank accounts in their country of residence if these americans are subject to form 8938 this amounts to discrimination against americans residing overseas because americans residing in the united states are not required to report their assets for tax purposes only their income needs to be reported since federal taxes are levied only on income and capital gains overall american citizens abroad was of the opinion that fatca risked a potential loss of trillions of dollars of investment in the united states the opportunity for american companies and financial institutions to compete in a global environment and american citizens ability to reside and thrive overseas 11