US Taxpayers Dash To Tell About Offshore Accounts
US President Barack Obama’s Foreign Account Tax Compliance Act (FATCA) is really starting to bite on American taxpayers and expats with offshore bank accounts and investments.
FATCA came reached the statute books in 2010, but did not come into force until July 2014.
The law calls for hundreds of thousands of foreign financial institutions with American customers to deliver a report detailing their personal finances to the Internal Revenue Service.
The IRS has already received the first batches of data and many more are on the way.
FATCA has prompted a massive increase in the number of filings by US taxpayers declaring offshore holdings.
Record FBAR filings
US resident taxpayers have to declare any accounts or investments of more than $50,000, while expats have a much higher limit of $200,000.
The knock-on effect is the IRS has seen an average 17% a year increase in the number of FBAR posting swith tax filings since FATCA was passed.
This dropped to 8% year-on-year in 2015, but still saw a record 1.165 million FBARS received by the IRS.
The Foreign Bank and Financial Accounts forms – more commonly known as FBARs – must be filed for any foreign account worth more than $10,000 even if the account is not income producing.
The next batch of FBARS for 2015-16 are due for filing by June 30, 2016.
Form 8938 warning
The IRS is warning taxpayers not to overlook filing Form 8938, which is another requirement under FATCA to report foreign asset breaching the FATCA $50,000/$200,000 limits.
The IRS is strict about these filings – no deadline extensions are allowed other than in exceptional circumstances and hefty fines will be doled out to offenders.
Taxpayers file 300,000 Form 8938 a year on average and completing a FBAR does not mean a taxpayer can avoid sending the IRS an 8938.
FATCA is a tax reporting network allowing the automatic reporting of tax and financial information by 112 countries and around 170,000 foreign financial institutions to the IRS.
The data received is cross-checked against tax filings by US residents and expats to make sure they have declared all their foreign earnings and paid the correct amount of tax.
