The Foreign Account Tax Compliance Act (FACTA) is an important development in U.S. efforts to combat tax evasion by U.S. persons holding accounts and other financial assets offshore. The legislation created new self-reporting requirements and increased penalties for failure to comply fully with complex reporting rules. The regulation imposes on all foreign financial institutions a vast new legal mandate to determine who among their clients are "U.S. Persons" and report directly to the IRS information on those clients' accounts. Usually, a withholding agent is required to withhold 30% on a withholdable payment made to a Foreign Financial Institution (FFI) or to a Non Financial Foreign Entity (NFFE), unless the FFI or NFFE meets certain requirements.
In general, federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.
Generally U.S citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad).
Specified individuals, which include U.S. citizens, resident aliens, and certain nonresident aliens that have an interest in specified foreign financial assets and meet the reporting threshold must file Form 8938.
Form 8938 is due with your annual income tax return and filed with the applicable IRS service center.
There is a penalty up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply.
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