To File or Not to File: What is a Reportable Foreign Financial Asset Under FATCA?
Many U.S. taxpayers who own financial assets overseas owe reporting obligations to the Internal Revenue Service (IRS). While there are reporting thresholds and not all financial assets qualify as “foreign financial assets” under the Foreign Account Tax Compliance Act (FATCA), taxpayers cannot simply assume that they fall outside of FATCA’s requirements. The penalties for non-compliance are steep, and criminal prosecution is a possibility in some cases. Here, Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains when taxpayers need to file IRS Form 8938 in order to comply with FATCA.
Reportable vs. Non-Reportable Foreign Financial Assets
Only certain types of foreign financial assets trigger reporting obligations under FATCA. Crucially, this list is not the same as the list of financial accounts that are subject to FBAR reporting. As a result, U.S. taxpayers, both domestic and abroad, must separately assess their FATCA and FBAR obligations, and they must file both an FBAR and IRS Form 8938 if their foreign assets trigger both filing requirements.
FATCA Reporting Thresholds
So, what types of foreign financial assets are subject to FATCA? First, we need to talk about thresholds. If a taxpayer’s foreign financial assets do not exceed the relevant thresholds under FATCA, then the taxpayer is not required to file IRS Form 8938—even if the taxpayer’s assets fall into reportable categories. The current FATCA thresholds are:
- Domestic Individual Taxpayers – $50,000 on the last day of the tax year or $75,000 at any point during the tax year.
- Domestic Married Taxpayers Filing Jointly – $100,000 on the last day of the tax year or $150,000 at any point during the tax year.
- Domestic Entities – $50,000 on the last day of the tax year or $75,000 at any point during the tax year.
- Individual Taxpayers Residing Abroad – $200,000 on the last day of the tax year or $300,000 at any point during the tax year.
- Married Taxpayers Filing Jointly Residing Abroad – $400,000 on the last day of the tax year or $600,000 at any point during the tax year.
“Foreign Financial Assets” Under FATCA
If a taxpayers’ foreign assets exceed (or have exceeded) an applicable threshold, then the next step is to determine which of the taxpayer’s assets are reportable under FATCA. Assets that qualify as “foreign financial assets” for purposes of FATCA include:
- Financial accounts held at foreign financial institutions
- Foreign stocks and securities not held in a financial account
- Foreign partnership interests
- Foreign mutual funds
- Foreign hedge funds and private equity funds
- Foreign accounts and investment assets held by a foreign or domestic trust for which the U.S. taxpayer is the grantor
- Foreign-issued life insurance policies and annuity contracts with a cash value
Assets that do not qualify as “foreign financial assets” under FATCA include:
- Financial accounts held at a foreign branch of a U.S. bank
- Foreign real estate (although the value of real estate held by a foreign entity must be considered in determining the entity’s value for purposes of FATCA reporting)
- Foreign currency held outside of an account
- Precious metals held outside of an account
- Personal property held outside of an account (i.e. antiques, artwork or collectibles)
- Benefits received under a foreign government program similar to U.S. Social Security
Talk to a Washington D.C. Tax Lawyer about Your FATCA Reporting Obligations
Are you required to file IRS Form 8938 in order to comply with FATCA? Are you behind on your FATCA reporting obligations? To discuss your situation with Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, call 202-349-4033, email firstname.lastname@example.org or request a confidential consultation online today.