What is FATCA?
FATCA stands for Foreign Account Tax Compliance Act and it became a law in March 2010. FATCA has many provisions but its main objectives are:
- Targeting tax non-compliance by U.S. taxpayers with foreign accounts
- Ensuring reporting by U.S. taxpayers about certain foreign financial accounts and offshore assets and foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest
- Ensuring compliance by imposing a withholding tax on foreign financial institutions that do not comply
Why is FATCA different?
FATCA re-empasizes the reporting of foreign financial assets by US individuals, trusts and businesses. However, FATCA requires foreign banking institutions to report to the IRS all US individuals and businesses that have foreign financial accounts. In effect, both US taxpayers and foreign banking institutions are now jointly responsible for reporting.
What are the effects on US taxpayers?
The IRS now has the ability to locate US taxpayers that have offshore financial assets. In effect, the reporting by foreign financial institutions is similar to US financial entities reporting income to taxpayers and the IRS on Forms 1099. The IRS will now have the ability to match information received from foreign financial institutions to filed tax returns and immediately issue Notices.
For more information on FATCA, you can go to the IRS FATCA Information page by clicking here.