Q:

What is the Foreign Account Tax Compliance Act in a nutshell?

A:

Quick Answer

The Foreign Account Tax Compliance Act is a federal mandate requiring individuals within the United States to report any accounts held outside of the United States for tax purposes. Passed in 2010, this act is designed to provide additional tax revenue on foreign holdings.

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Full Answer

FATCA was enacted to force taxpayers to comply with reporting requirements for foreign accounts and income-generating property. Foreign financial institutions must provide information for all US investors to ensure accounts are not being omitted from tax reporting. Under the Internal Revenue Code, all revenue is taxable no matter the source or destination.

FATCA seeks to achieve three main goals: to require foreign financial institutions to submit documentation of US account holdings, to require US taxpayers to report any foreign holdings on IRS Form 8938, Statement of Specified Foreign Financial Assets that must be filed with a return if holdings are more than $50,000, as of February 2015, and to close a loophole through which taxpayers were using swap contracts to avoid reporting revenue.

Upon initial drafting, FATCA was estimated to bring in an additional $800,000,000 in tax revenue every year. Despite its benefits, however, critics have taken issue with the costs of implementation, the effects on foreign relations and capital flight and the role of Americans living abroad. The United States is still attempting to secure agreements with foreign nations, many of which were signed over the course of 2014. As of February 2015, due diligence is ongoing in many nations.

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