Treasury Department Unveils Model FATCA Agreement

By Ken Berry

The Treasury Department has just released a new "model agreement" designed to facilitate global information sharing about investments under the Foreign Account Tax Compliance Act (FATCA) of 2010. FATCA aims to deter tax evasion by US taxpayers who hold investments in foreign bank accounts. 
 
Under FATCA, a taxpayer with foreign financial assets totaling more than $50,000 must report information about those assets to the IRS. The taxpayer is required to complete Form 8938, Statement of Specified Foreign Financial Assets, and attach it to his or her return. Failing to report foreign the financial assets on Form 8938 can result in an initial penalty of $10,000 plus penalties of up to $50,000 for continued failure after IRS notice. Furthermore, underpayments of tax attributable to non-disclosed foreign financial assets may be assessed an extra understatement penalty of 40 percent.

Key FATCA Provisions Summary

  • FATCA requires taxpayers with foreign bank account assets totaling more than $50,000 to report information on Form 8938.
  • The reporting requirements under FATCA don't affect FBAR rules. FBARs must be filed by taxpayers who own assets of more than $10,000 in foreign bank accounts at any time during the year.
  • Participating FFIs are also required to report to the IRS information about financial accounts held by US taxpayers.
  • The Treasury Department has released a new model agreement for FACTA reporting that was created after consulting with five foreign countries.
  • The model FATCA agreement provides rules for identifying account holders, reporting the pertinent information, and withholding payments on US source income.
 
 
Note that taxpayers who own assets of more than $10,000 in foreign bank accounts at any time during the year still must file a FBAR (Report of Financial Bank and Financial Accounts). This reporting requirement is separate and apart from the FATCA requirements.
 
FATCA also requires foreign financial institutions (FFIs) to directly report to the IRS information about financial accounts held by US taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest. To comply with these reporting requirements, an FFI must enter into a special agreement with the IRS by June 30, 2013. The new model agreement is intended to help meet that objective.
 
The model agreement was developed by the US Treasury after in-depth consultations with France, Germany, Italy, Spain, and the United Kingdom. Under the model agreement, a participating FFI will have to follow certain identification and due diligence procedures for account holders, report annually to the IRS about account holders who are US taxpayers or foreign entities with substantial US ownership interests, and withhold and pay over 30 percent of any payments of US source income.
 
Proposed regulations relating to the FATCA requirements were issued earlier in the year. It is expected that final regulations will be issued in the fall.
 
Related articles:

You may like these other stories...

IRS chief: New rule on the way for tax-exempt groupsIRS Commissioner John Koskinen told the USA Today on Monday that the agency will likely rewrite a proposed rule regulating the political activities of nonprofit groups to...
With tomorrow being Tax Day, you might see some procrastinators at your office filling out forms, printing out paperwork, or getting last-minute tax advice from their accountant so they can meet the IRS’s filing...
The IRS has launched 295 new identity theft and refund fraud investigations during this tax-filing season, bringing the number of active cases to nearly 1,900, the agency announced last week.The coast-to-coast enforcement...

Upcoming CPE Webinars

Apr 17
In this exciting presentation Excel expert David H. Ringstrom, CPA shares tricks that you can use with pivot tables every day. Remember, either you work Excel, or it works you!
Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.