An introduction to FATCA-Foreign Account Tax Compliance Act
As the Internal Revenue Service notes, the Foreign Account Tax Compliance Act (FATCA) aims to stop "non-tax compliance by U.S. taxpayers with foreign accounts." FATCA requires U.S. citizens, even those living outside the U.S., to file yearly reports on foreign financial accounts to the IRS. In addition, under FATCA, foreign financial institutions (FFIs) must search U.S. citizens' records when reporting their assets and identities to the U.S. Treasury.
Passed five years ago by Congress, FATCA allows the IRS to find and keep tabs on the many U.S. citizens living outside of the country. Furthermore, FATCA is designed to convince FFIs to work with the IRS to look through the institutions' customer databases for suspected U.S. citizens.
FATCA can prevent suspicious activity via financial assets outside the U.S. by making it more difficult to keep foreign accounts due to the increased risk of compulsory IRS reporting. FFIs are under increased pressure, too; those who do not comply with FATCA can be subject to IRS penalties.
People from the U.S. with foreign accounts are subject to reporting requirements under Form 8938, Statement of Specified Foreign Financial Assets. Despite being a controversial law, global banks have reason to be compliant with FATCA, given the penalties attached to non-compliance. However, with compliance comes cost for financial service firms.
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References
Internal Revenue Service. Foreign Account Tax Compliance Act.
http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA
Wikipedia. Foreign Account Tax Compliance Act.
https://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance_Act
Crassweiler, Kary; Liasos, Andrew C.; Solomon, Todd A. “What You Need to Know About Foreign Account Tax Compliance Act’s (FATCA) Impact on Non-U.S. Retirement Plans.” The National Law Journal, Friday, March 22, 2013. Accessed September 15, 2015.
