FATCA (Foreign Account Tax Compliance Act)

Detailed Explanation

FATCA, enacted in 2010 and effective from 2014, has two tracks. Track one: foreign financial institutions (FFIs) worldwide must register with the IRS and report on accounts held by US persons (or face 30% US withholding on US-source income). Most foreign banks now report directly or via intergovernmental agreements (IGAs). Track two: US persons file Form 8938 (Statement of Specified Foreign Financial Assets) with their Form 1040 if their foreign asset values exceed thresholds. For 2026, thresholds are: US residents $50,000 end-of-year or $75,000 at any time during year (single/MFS), $100,000 / $150,000 (MFJ); US persons living abroad have higher thresholds at $200,000 / $300,000 (single/MFS), $400,000 / $600,000 (MFJ). Specified foreign assets reportable on Form 8938 include foreign financial accounts (bank, brokerage), foreign stock or securities held directly (not in a US-account), interests in foreign partnerships and entities, and certain foreign retirement / pension accounts. FATCA reporting on Form 8938 is IN ADDITION TO, not in place of, the FBAR (FinCEN 114). The two reports overlap heavily but cover different sets of assets and have different penalties. Form 8938 penalties: $10,000 for failure to file, plus an additional $10,000 per 30 days after IRS notice (capped at $50,000), plus 40% accuracy-related penalty on understatements attributable to undisclosed foreign assets.