FATCA adds layer of complexity, penalty exposure to offshore asset reporting.

AuthorMattson, Andrew M.
PositionForeign Account Tax Compliance Act

The acronym for the Foreign Account Tax Compliance Act--FATCA--is easy to remember if one thinks of "fat cat." Unfortunately, this may be the only thing about FATCA that is easy. This item highlights the provisions of FATCA that are most likely to affect U.S. tax practitioners and their clients--the taxpayer reporting provisions of new Sec, 6038D.

Background

FATCA is a provision of the Hiring Incentives to Restore Employment (HIRE) Act, EL. 111-147, which President Barack Obama signed into law on March 18, 2010. FATCA requires individuals and, to the extent provided in future regulations, domestic entities, to report certain foreign assets and is a response by Congress to the procedural nondisclosure and information-sharing constraints faced by IRS examiners (Joint Committee on Taxation, Technical Explanation of the "Foreign Account Tax Compliance Act of 2009" (JCX-42-09), p. 28 (October 27,2009).

Since the enactment in 1970 of the Bank Secrecy Act (BSA), RL. 91-508, U.S. citizens and U.S. residents have been required to report the existence of certain foreign bank and financial accounts. Such reportable accounts are disclosed on Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). The BSA is a part of Title 31, meaning that it is not part of the Internal Revenue Code. The FBAR has received a great deal of attention recently and has been the focus of three amnesty programs by the IRS (see News Notes, "Third Offshore Voluntary Disclosure Program Launched," 43 The Tax Adviser 149 (March 2012)).

FATCA, on the other hand, is part of Title 26, the Internal Revenue Code. FATCA requires reporting of a much broader range of offshore assets than a person is required to report on the FBAR. Unfortunately, FBAR and FATCA reporting is duplicative in many instances because filing an FBAR does not fulfill the filing obligation under FATCA, and vice versa. This duplicative reporting, along with the associated client education that needs to take place, represents one of the many challenges of FATCA for U.S. tax practitioners.

The basics

FATCA became effective for tax years beginning after March 18, 2010. For purposes of FATCA, foreign assets are disclosed on new Form 8938, Statement of Specified Foreign Financial Assets. Form 8938 is due with the income tax return, as extended, of the U.S. person required to file. Because the IRS issued the final Form 8938 only in late December 2011, a transitional rule allows taxpayers to file a Form 8938 in 2012 for tax years that began after March 18, 2010, if the taxpayer had filed timely returns for those tax years before the release of the form. Until final regulations are issued that specify the entities that are subject to...

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