The Foreign Account Tax Compliance Act (FATCA) is a law that requires certain U.S. taxpayers holding financial assets outside the country to report those assets to the IRS. FATCA was enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts. The goal of FATCA is to stop tax evasion by U.S. citizens living at home or abroad. FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. FATCA created new information reporting and withholding for payments made to certain foreign financial institutions and foreign entities.
Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938: Statement of Specified Foreign Financial Assets. The FATCA filing rules require certain U.S. taxpayers who hold foreign financial assets with an aggregate value of more than the reporting threshold (at least $50,000) to report information about those assets on Form 8938, which must be attached to the taxpayer’s annual income tax return.
In summary, FATCA reporting is a required disclosure for individuals with total assets over a certain threshold, and it is designed to make it easier for the US government, specifically the IRS, to keep track of US persons and businesses earning income through foreign bank accounts.
