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Foreign Account Tax Compliance Act (FATCA): The Basics

The Foreign Account Tax Compliance Act generally requires: (1) U.S. persons to report information on their foreign financial accounts to the IRS, (2) foreign financial institutions (FFIs) to report information on their U.S. clients to the IRS, and (3) withholding on payments to FFIs that fail to comply with FATCA. As final implementation on this 2010 legislation begins, withholding on U.S. source income subject to FATCA generally takes effect July 1, 2014.

Individuals

If you are a U.S. citizen or a U.S. resident alien who is required to file a federal income tax return, you must generally file a Form 8938 with your federal income tax return if you have an interest in foreign financial assets and the total value of those assets exceeds certain thresholds.

File Form 8938
If Your Foreign Assets Exceed the Appropriate ThresholdYou Live in the United StatesYou Live outside the United States
Married Taxpayer Filing JointlyOther TaxpayersMarried Taxpayer Filing JointlyOther Taxpayers
On the last day of the year, or$100,000$50,000$400,000$200,000
At any time during the year$150,000$75,000$600,000$300,000

Foreign financial assets generally include foreign financial accounts and foreign non-account assets held for investment (as opposed to held for use in a trade or business), such as foreign stock and securities, foreign financial instruments, contracts with non-U.S. persons, and interests in foreign entities.

Foreign financial assets do not include financial accounts maintained by a U.S. payer (including a domestic branch of a foreign bank or insurance company, and a foreign branch or subsidiary of a U.S. financial institution--e.g., U.S. mutual fund accounts, IRAs, 401(k)s, qualified U.S. retirement plans, and brokerage accounts maintained by U.S. financial institutions). There are other exceptions as well.

If you fail to file a required Form 8938, you may be subject to an initial penalty of up to $10,000. Other penalties may also apply. If you have any questions about this requirement, talk to a tax professional.

Foreign financial institutions

In order to avoid withholding on payments made to them, an FFI can register with the IRS and agree to report to the IRS certain information about its U.S. accounts. Registration can be done on the IRS website or using Form 8957. As part of the agreement, the FFI may be required to withhold 30% on certain payments to foreign payees if the payees do not comply with FATCA.

U.S. financial institutions

Starting July 1, 2014, U.S. financial institutions and other U.S. withholding agents must withhold 30% on certain U.S. source payments made to FFIs that do not document their FATCA status. (Payments on certain grandfathered debt obligations outstanding on July 1, 2014, may be exempt from withholding.) They must also report to the IRS information about certain non-financial foreign entities with substantial U.S. owners. Failure to comply may result in liability for the tax that should have been withheld and penalties.

Governments

The United States has collaborated with other countries to develop intergovernmental agreements (IGAs) implementing FATCA. Under such an agreement, the reporting and other compliance burdens on the financial institutions in the jurisdiction may be simplified.



IMPORTANT DISCLOSURES Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.