What Are the Key FATCA Details You Need to Know?

The Foreign Account Tax Compliance Act (FATCA) is a U.S. law designed to combat tax evasion by requiring foreign financial institutions and certain individuals to report assets held outside the country. Enacted in 2010, it affects U.S. taxpayers with overseas accounts and investments, as well as banks and other entities that must disclose this information to the IRS.

Which Assets Fall Under FATCA

FATCA applies to a wide range of foreign financial assets if they exceed specific thresholds. The most commonly reported assets are foreign bank accounts, including checking, savings, and time deposits held at non-U.S. financial institutions. Investment accounts, such as brokerage accounts containing stocks, bonds, and mutual funds, must also be reported if held by a foreign entity.

Ownership in foreign corporations, partnerships, and trusts can trigger reporting requirements. U.S. taxpayers who own more than 10% of a foreign corporation’s stock must disclose it. Interests in foreign hedge funds and private equity funds also require reporting, as they are classified as financial accounts. Life insurance policies with cash value, such as whole or universal life policies issued by foreign insurers, must be reported.

Real estate itself is not reportable under FATCA, but indirect ownership through a foreign corporation or partnership is. In such cases, the taxpayer must disclose their interest in the entity that owns the property. Certain foreign pensions and retirement accounts may also require reporting, depending on their structure and IRS guidelines.

Filing Thresholds

FATCA reporting depends on the total value of foreign financial assets and a taxpayer’s filing status. U.S. citizens, resident aliens, and certain non-resident individuals must report holdings if they exceed specific thresholds, which vary based on whether they file individually or jointly and whether they live in the U.S. or abroad.

For U.S. residents, single filers must report foreign assets if they exceed $50,000 at year-end or $75,000 at any point during the year. Married taxpayers filing jointly have a higher threshold of $100,000 at year-end or $150,000 at any time.

For U.S. taxpayers living abroad, the thresholds are higher. Single filers must report if their total foreign assets exceed $200,000 at year-end or $300,000 at any time. For married taxpayers filing jointly, the limits increase to $400,000 and $600,000, respectively. These higher amounts account for expatriates who rely on foreign financial institutions for everyday banking and investments.

Data Institutions Report

Foreign financial institutions (FFIs) are required to identify and report accounts held by U.S. persons. They must register with the IRS and submit annual reports detailing account balances, interest, dividends, and other income earned by U.S. account holders. The IRS uses this data to verify taxpayer filings and detect undisclosed offshore assets.

Many countries have signed intergovernmental agreements (IGAs) with the U.S. to facilitate compliance. Under Model 1 IGAs, FFIs report information to their national tax authority, which then forwards it to the IRS. Under Model 2 IGAs, FFIs report directly to the IRS with oversight from their local government.

FATCA’s reporting requirements extend beyond banks to investment funds, insurance companies, and certain trusts. These institutions must conduct due diligence, identify U.S. persons through self-certifications, and report non-compliant accounts. Failure to comply can result in a 30% withholding tax on certain U.S.-sourced payments.

Penalties for Non-Compliance

Non-compliance with FATCA can result in significant financial penalties. U.S. taxpayers who fail to file Form 8938, which discloses foreign assets, face an initial penalty of $10,000. If non-compliance continues after an IRS notice, additional fines of up to $50,000 may apply. Understatements of income linked to undisclosed foreign assets can also trigger a 40% penalty on the omitted income.

Willful evasion of FATCA reporting carries more severe consequences. Criminal charges, including tax evasion or filing false tax returns, can lead to prison sentences and fines reaching hundreds of thousands of dollars. The IRS has aggressively pursued enforcement, using data from international agreements and whistleblower reports.

Exclusions from Reporting

Certain foreign financial assets are exempt from FATCA reporting, reducing unnecessary filings.

Foreign social security programs, such as Canada’s CPP or the UK’s State Pension, are not reportable, as they are considered government-administered benefits rather than financial accounts. Some employer-sponsored retirement plans, such as Australian superannuation funds or UK workplace pensions, are also excluded when structured under local regulations that align with IRS exemptions.

Individually owned tangible assets, such as foreign real estate, artwork, jewelry, or collectibles, are not subject to FATCA reporting. However, if these assets are held through a foreign entity, the taxpayer must disclose their financial interest in that entity. Foreign currency held in cash rather than in a financial institution is also not considered a reportable asset. These exclusions reflect FATCA’s focus on financial accounts and investment vehicles rather than personal property.