Ontario Global Research

The mechanisms of secrecy

FATCA, The Foreign Account Tax Compliance Act,


What is FATCA?

The Foreign Account Tax Compliance Act, better known as FATCA, was passed in 2010 as part of the HIRE act. Starting in 2014 foreign financial institutions (FFI) will be required by the US government, under FATCA, to report information regarding accounts of US citizens, US persons, Green Card holders and individuals holding certain US investments to the IRS. This law requires foreign financial institutions such as your local bank, stock brokers, hedge funds, insurance companies, trusts, etc. - to report directly to the IRS all their clients who are "US persons.” FFIs that do not become compliant will be subject to a 30% withholding on these investments, which will directly impact FFI clients.

FATCA also requires US citizens who have foreign financial assets in excess of $50,000 (higher for bona fide residents overseas – $200,000 for single filers and $400,000 for joint filers – see the IRS website for more details) to report those assets on a new Form 8938 to be filed with the 1040 tax return. Instructions for form 8938 were published in December 2011 and can be found on the IRS website.

Many Americans residing overseas are reporting banking lock-out. Many foreign financial institutions have simply chosen to eliminate their US citizens and US person client basis in order to minimize their exposure to FATCA reporting requirements, withholding fees and potential penalties.

The US Treasury has entered into Intergovernmental Agreements (IGAs) with a limited number of countries which will facilitate the transfer of information. The IGA agreements do include a non-discriminatory clause that is aimed at helping to alleviate issues of lock-out of banking services US citizens and US persons.

To learn more about FATCA and how it might impact you, you can consult the IRS website or speak to your tax advisor for more information.



John Koskinen, Commissioner of Internal Revenue

Heather C. Maloy, Commissioner, Large Business and International Division

Karen Schiller, Commissioner, Small Business/Self-Employed Division

Debra Holland, Commissioner, Wage and Investment Division

William J. Wilkins, Chief Counsel


Congress has long been concerned that U.S. taxpayers are not fully disclosing the extent of financial assets held abroad.1 In 2010, Congress passed the Foreign Account Tax Compliance Act (FATCA) to address this issue.2 FATCA imposes extensive reporting obligations on U.S. taxpayers, foreign entities, and withholding agents.3 Sanctions for FATCA noncompliance are so severe that failure to undertake the requisite reporting and disclosure can conceivably result in penalties in excess of the unreported foreign assets.4

The reporting obligations and potential penalties FATCA implements are, according to some expatriates and practitioners, responsible for the surge in the number of Americans renouncing their citizenship or permanent resident status.5 Moreover, some foreign financial institutions (FFIs), such as DeutcsheBank, HSBC, and ING have reportedly been closing out foreign accounts of U.S. citizens in response to FATCA’s “onerous U.S. Regulations.”6 Some stakeholders and commentators have questioned, from both a financial and tax policy perspective, whether the benefits of FATCA, including the additional tax

1 Some international tax policy experts believe that tax revenue losses are in the billions of dollars annually. Government Accountability Office (GAO), GAO-12-403, Reporting Foreign Accounts to IRS: Extent of Duplication Not Currently Known, but Requirements can be Clarified, App. 2 (Feb. 2012). A relatively recent response to this concern was passage of the Bank Secrecy Act, which requires U.S. citizens and residents to report foreign accounts on the FinCEN Report 114, Report of Foreign Bank and Financial Accounts (“FBAR”). See 31 U.S.C. § 5314(a).

2 Hiring Incentives to Restore Employment Act, Pub. L. No. 111-147, 124 Stat 71 (2010) (adding Internal Revenue Code (IRC) §§ 1471-1474; 6038D).

3 For example, U.S. citizens, resident aliens, and certain non-resident aliens must file a Form 8938, Statement of Specified Foreign Financial Assets, with their annual federal income tax returns, reporting foreign assets exceeding certain thresholds. IRC § 6038(D)(a); Treas. Reg. § 1.6038D-2T(a). Reporting by certain domestic entities of interests in specified foreign financial assets will be required after the IRS issues final regulations under IRC § 6038D. IRC § 6038D(f); Prop. Reg. § 1.6038D-6; Notice 2013-10, 2013-8 I.R.B. 503. An individual may also have to file the FBAR and separate penalties may apply for failure to file each form.

4 IRC § 6038D(d); IRC § 6662(j). Any associated FBAR penalties would be in addition to these penalties imposed by the FATCA regime.

5 See Tom Geoghegan, Why Are Americans Giving up Their Citizenship?, BBC News Mag., Sept. 26, 2013, available at http://www.bbc.co.uk/news/ magazine-24135021. More renunciations have occurred in 2013 than in any other year on record. See Laura Sanders, More U.S. Taxpayers Renounce Citizenship, Wall St. J., Nov. 14, 2013, at C3; 78 Fed. Reg. 68151, 2013-27072.

6 Rowan Morrison, When Banks Pay the Price, Editions Financial (Aug. 30, 2012), available at http://www.editionsfinancial.co.uk/2012/08/30/ when-banks-pay-the-price/. See also Sofia Yan, Banks Lock out Americans Over New Tax Law, CNNMoney (Sept. 15, 2013), available at http:// money.cnn.com/2013/09/15/news/banks-americans-lockout/; Simon Bradley, U.S. Expats Feel the Burden of FATCA (May 28, 2013), available at http://www.swissinfo.ch/eng/politics/US_expats_feel_the_burden_of_FATCA.html?cid=35932576; Tom Geoghegan, Why Are Americans Giving up Their Citizenship?, BBC News Mag. (Sept. 26, 2013), available at http://www.bbc.co.uk/news/magazine-24135021; Katie Holliday, HSBC Cuts Ties with US Clients Ahead of FATCA, Investment Week (


Number of comments: 1

4/1/2015 7:46:07 AM - Hosting Indonesia Terbaik, cantikhati@landmail.co, terbaikhosting.com

Thanks for the article. It gives me knowledge. Thank you for sharing.
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