The U.S. Treasury and the Internal Revenue Service have become increasingly concerned about gray-area efforts to hide financial assets overseas. As a result, these governing bodies created the Foreign Account Tax Compliance Act (FATCA) to hold taxpayers accountable. For individuals attempting to circumvent the system with offshore holdings, failing to disclose assets according to FATCA guidelines can be a costly mistake.

What do FATCA guidelines entail?

Taxpayers who live domestically must report their foreign assets on Form 8938 for the following conditions:

  • Unmarried or married and filing separately with foreign assets worth more than $50,000 at the close of the tax year or worth more than $75,000 at any point in the year
  • Married with foreign assets worth more than $100,000 at the close of the tax year or worth more than $150,000 at any point in the year

FATCA guidelines require taxpayers to disclose a wide range of assets, including contracts with and interests held in foreign entities, stock and securities in foreign companies and financial instruments.

There are exceptions to the reporting guidelines, such as benefits from a foreign estate of which you had no prior knowledge. However, reporting exceptions for Form 8938 are often reported elsewhere.

What are the penalties for failure to disclose?

To deter taxpayers from hiding assets offshore, the FATCA imposes harsh penalties for failure to file a Form 8938.

If an audit determines that a taxpayer willfully neglected to file an 8938, they face a failure to file fine of $10,000. If the taxpayer fails to file after notice from the IRS, they can face a maximum fine of $50,000. The IRS may also levy a 40% fine on the unpaid taxes for the undisclosed assets.

Avoid an audit – Get experienced tax help

The best defense against a tax audit is to file your taxes correctly the first time. To ensure that you are compliant with FATCA regulations, discuss your matter with an experienced tax professional.