FATCA stands for Foreign Account Tax Compliance Act. The provisions became law in March 2010 and combat non-compliance by U.S. tax payers. It is difficult to write simple regulations because some countries claim the terms of such agreements are in conflict with their own local laws.
As America’s global tax law, FATCA requires foreign banks to report Americans who hold accounts over $50,000. Under FATCA, foreign financial institutions must report balances, account numbers, addresses, names and U.S. identification numbers. They must report the address, name and U.S. TIN of each substantial U.S. owner. FATCA requires U.S. individual taxpayers to reveal offshore assets and foreign financial accounts on Form 8938 and submit it with their income tax return. The forms and the penalties for violations are very serious.
More than 80 nations including tax havens have agreed to the law as the FATCA freezes non-compliant institutions out of U.S. markets. FATCA has provided the IRS with a searchable list of thousands of financial institutions around the world. With FACTCA, the IRS has access to comprehensive and quick information. FATCA has made banking more transparent worldwide.
It is difficult to draft simple regulations because some countries try to block laws attempting to impose on their domestic institutions requirements that are considered illegal under their own laws. Canadians, for instance, tried to block FATCA because in Canada, it is illegal to disclose private bank account information. Laws of foreign countries that apply to their financial institutions often create complications for lawmakers in the United States. They would have to write regulations that are in agreement with the laws of foreign countries.