On November 14, 2013, the US Treasury Department announced that it had signed an agreement with France relating to the implementation of the 2010 Foreign Account Tax Compliance Act (FATCA) law.
In order to implement FATCA worldwide, the U.S. Treasury Department has been aggressively negotiating intergovernmental agreements throughout the world, the latest one being France. The United States has previously signed nine other intergovernmental agreements with the United Kingdom, Denmark, Germany, Ireland, Mexico, Japan, Norway, Spain and Switzerland.
What is FATCA?
The Foreign Account Tax Compliance Act was enacted in 2010 as part of the HIRE Act of 2010. FATCA requires banks in France to report tax information about U.S. account holders to the French government. The French government will then send the information to the IRS.
FATCA also requires certain U.S. taxpayers holding foreign financial assets with an aggregate value exceeding $50,000 to report certain information about those assets on a new form (Form 8938) that must be attached to the taxpayer’s annual tax return. Reporting applies for assets held in taxable years beginning after March 18, 2010. Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.
What does it mean?
Offshore accounts are now subject to increased scrutiny from the IRS. The goal of FATCA has always been to fight offshore tax evasion, and IRS regulations are becoming tougher and tougher.
“FATCA is a dragnet meant to force transparency and curtail tax evasion around the world,” Christine Ballard, an international tax specialist at the accounting firm Moss Adams, told the Wall Street Journal. “It affects millions of U.S. taxpayers both here and abroad. Some people are willfully evading U.S. taxes, while many others aren’t aware of the complex rules.”
When does it take effect?
The provision would require foreign financial institutions to report information about their U.S. account holders to the Internal Revenue Service (IRS) would take effect in July 2014. As the FATCA rules will be effective very soon,
US taxpayers should consider planning measures in response to them. It is highly recommended for US taxpayers to review carefully and thoroughly their foreign assets (bank accounts, foreign investments, shares in foreign partnerships etc.) and how they are held which may help them understand better what kind of information concerning the taxpayer and the assets may be provided to the IRS by legal entities under FATCA rules. Taxpayers should also check if they are in compliance with the US filing requirements given the fact of the indefinite statute of limitations for certain US reporting forms.