Foreign Account Tax Compliance Act (FATCA)
ACA developed and presented to Congress, the IRS, and Treasury, in our letter, a proposal for a Same Country Exemption to alleviate the problem of “lock-out” whereby some Foreign Financial Institutions (FFIs) refuse to do business with Americans because of FATCA reporting requirements. Same Country Exemption would exclude the reporting of accounts owned by Americans abroad where the account is with a Foreign Financial Institution in the same country where the individual is a resident. This would alleviate the filing burden for FATCA on Americans as well as the identification and disclosure of these accounts by the Foreign Financial Institution.
FATCA Executive Summary
The Foreign Account Tax Compliance Act, known as FATCA, was passed in 2010 as part of the HIRE act. FATCA requires foreign financial institutions (FFIs) such as local banks, stock brokers, hedge funds, insurance companies, trusts, etc. to report the accounts of all US citizens (living in the US and abroad), US "persons," green card holders and individuals holding certain US investments, to the IRS or to the government of the bank's country for further transmission to the US through Intergovernmental Agreements (IGAs) or be subject to a 30% withholding on their US investments.
FATCA also requires US citizens who have foreign financial assets in excess of $50,000 (higher for bona fide residents overseas – $200,000 for single filers and $400,000 for joint filers – see the IRS website for more details) to report those assets every year on a new Form 8938 to be filed with the 1040 tax return.
Many Americans residing overseas are reporting banking lock-out by some foreign financial institutions that have chosen to eliminate their US-person client base in order to minimize their exposure to FATCA reporting requirements, withholding fees and potential penalties.
ACA advocates a "Same Country Exemption" (SCE) to alleviate the problem of "lock-out" whereby some Foreign Financial Institutions (FFIs) refuse to do business with Americans because of FATCA reporting. Same Country Exemption would exclude the reporting of accounts owned by Americans abroad where the account is with a Foreign Financial Institution in the same country where the individual is a resident. This would alleviate the filing burden for FATCA on Americans as well as the identification and disclosure of these accounts by the Foreign Financial Institution. See: ACA's Position on FATCA and Why ACA Supports SCE .
ACA continues to advocate for a Same Country Exemption with the Treasury Department and recently submitted testimony to the House Subcommittee on Government Operations at its April 26th hearings ”Reviewing the Unintended Consequences of the Foreign Account Tax
- IRS Ending the Overseas Voluntary Disclosure Program (OVDP)
- Government Accountability Office (GAO) Report on Workplace Retirement Accounts
- Tulane Law School Academic Abstract on Offshore Tax Enforcement (ACA’s advocacy footnoted)
- ACA paper on Same Country Exemption (April 2015)
- FATCA and the Taxpayer Advocate
- Current Regulations and Guidance
ACA Letters to Treasury Concerning Same Country Exemption
- ACA letter to IRS Commissioner Koskinen concerning private-sector debt collection (April 2017)
- ACA letter to the Treasury Department concerning final FATCA regulations (August 2016)
- Explaining the "Same Country Exemption" (April 2016)
- "Same Country Exemption" Put Forward to Treasury (Sept. 2015)
- ACA letter on FATCA to Mr. Stack--Treasury (Oct. 2013)
Foreign Bank Account Report (FBAR)
In addition to the newly implemented FATCA form 8938 for financial and bank account reporting, the US Treasury requires that Americans also file a separate bank reporting form, the Foreign Bank Account Report or FBAR or FinCEN-114.
Most foreign financial accounts are reportable on form FinCEN-114; however, only certain investment and bank accounts are reportable on FATCA form 8938.
ACA advocates for the simplification in these two bank account reporting systems to reduce confusion and risk of error in filing. This is in line with recommendations by the Taxpayer Advocate to insure that the legislative goals are achieved without unduly burdening filers with double reporting.
ACA also advocates for increased vigilance by the IRS on data security for Americans abroad who are filing sensitive information on their bank account numbers, bank addresses and balances via the internet and directly through foreign bank and foreign government exchanges with the United States IRS and Treasury (IGA agreements).
FBAR Executive Summary
US Citizens (and US persons*) who own or have signatory authority on one or more foreign bank accounts which, at any point during the year, reached an aggregate balance of over $10,000 are obliged to file a Foreign Bank Account Report (FBAR) -- form FinCEN form 114 (formally known as TD F 90-22.1) with the US Treasury Department. Individuals who qualify must file regardless of whether an individual owes US taxes.
FBAR, instituted in the 1970s, has became more actively enforced in recent years, given the attention to terrorist financing and the recent interest in combating tax evasion. The Overseas Voluntary Disclosure Programs provided a way forward for those who had willfully evaded paying taxes and had not filed FBARs, however, these programs were never intended for individuals who out of ignorance or error had not filed.
In 2014 the IRS opened the "Streamlined Filing Procedure," based on a recommended proposal by ACA, for individuals looking to come into compliance but who were not willful in their oversight for not filing FBARs.
Previously the filing deadline was June 30th of each calendar year. However, beginning in tax year 2016 the FBAR filing deadline will be aligned with the April 15th 2017 deadline for US tax reporting. As with individual income tax returns, US citizens residing abroad will receive an automatic extension of time to file the FBAR until June 15th, with an additional four-month extension available to October 15th. FBARs can only be filed electronically (see details below).
* "(1) a citizen or resident of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust." To learn more about FBAR and how it might impact you, you can consult the IRS website or speak to your tax adviser for more information. Note that as of July 1, 2013 all FBAR's must be filed electronically.