The first piece of FATCA (which started in 2011) is a requirement for individuals who, during the tax year, hold any interest in a “specified foreign financial asset” to complete and attach Form 8938 to his or her income tax return if a reporting threshold is met. The reporting threshold varies depending on whether the individual lives in the U.S. and files a joint return with his or her spouse. The thresholds also are higher for taxpayers residing abroad:

You must report your financial assets if:
their total value on the last day of the tax year is greater than: or if their total value was, at any time during the tax year, greater than:
You are living in the US and you are:
Unmarried $50,000 $75,000
Married filing jointly $100,000 $150,000
Married filing separately $50,000 $75,000
You are living abroad and you are:
Unmarried $200,000 $300,000
Married filing jointly $400,000 $600,000
Married filing separately $200,000 $300,000

Specified foreign financial assets in Form 8938 include financial accounts maintained by foreign financial institutions and other investment assets not held in accounts maintained by financial institutions, such as stock or securities issued by non-U.S. persons, financial instruments or contracts with issuers or counterparties that are non-U.S. persons, and interests in certain foreign entities.

However, no disclosure is required for interests that are held in a custodial account with a U.S. financial institution.

The penalty for failing to report specified foreign financial assets for a tax year is $10,000. However, if this failure continues for more than 90 days after the day on which the IRS mails notice of the failure to the individual, there are additional penalties of $10,000 for each 30-day period (or fraction of the 30-day period) during which the failure continues after the expiration of the 90-day period, with a maximum penalty of $50,000.

To the extent the IRS determines that the individual has an interest in one or more foreign financial assets but doesn’t provide enough information to enable the IRS to determine the aggregate value of those assets, the aggregate value of those assets will be presumed to have exceeded $50,000 (or other applicable reporting threshold amount) for purposes of assessing the penalty.

No penalty will be imposed if the failure to file Form 8938 is due to reasonable cause and not due to willful neglect.

The fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer (or any other person) for disclosing the required information isn’t reasonable cause. In addition, if it is shown that the individual failed to report the income from the foreign financial account on his or her income tax return, a 40% accuracy-related penalty is imposed for underpayment of tax that is attributable to an undisclosed foreign financial asset. If you have questions related to this issue or are uncertain as to whether you are required to file Form 8938, feel free to contact us to discuss your particular situation.