What Foreign Assets Must U.S. Taxpayers Disclose Under FATCA?

Under the Foreign Account Tax Compliance Act (FATCA), U.S. taxpayers must report foreign financial assets that exceed certain aggregate thresholds to the Internal Revenue Service (IRS) on an annual basis. In this article, Boston tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains what qualifies as a “foreign financial asset” for purposes of the annual FATCA reporting requirement.

FATCA Applies to “Foreign Financial Assets”

Despite its name, FATCA does not apply exclusively to foreign accounts. The statute’s definition of foreign financial assets is much broader; and, as a result, many U.S. taxpayers will need to file IRS Form 8938 to comply with FATCA even if they are not subject to the FBAR filing requirement. Foreign financial assets that are subject to reporting under FATCA include:

• Financial accounts held at foreign financial institutions
• Foreign stocks and securities not held in a financial account
• Foreign partnership interests
• Foreign mutual funds
• Foreign hedge funds and private equity funds
• Foreign accounts and investment assets held by a foreign or domestic trust for which the U.S. taxpayer is the grantor
• Foreign-issued life insurance policies and annuity contracts with a cash value

Crucially, FATCA does not require reporting of all types of foreign financial assets. For example, while U.S. taxpayers must report foreign financial accounts, they do not need to separately report foreign securities held in foreign financial accounts (foreign securities held in domestic accounts also do not trigger FATCA reporting obligations). Similarly, foreign real estate is not considered a foreign financial asset; however, when owned through a foreign entity, its value is considered in determining the value of the foreign entity for FATCA reporting purposes.

Additionally, a financial account held at a foreign branch of a U.S. bank is not considered to be a foreign account under FATCA. Other assets that do not qualify as foreign financial assets under FATCA include:

• Foreign currency held outside of an account
• Precious metals held outside of an account
• Personal property held outside of an account (i.e. antiques, artwork or collectibles)
• Benefits received under a foreign government program similar to U.S. Social Security

The Aggregate Thresholds Under FATCA

In order to be subject to the FATCA reporting requirement, U.S. taxpayers’ foreign financial assets must exceed certain aggregate thresholds. Under FATCA, U.S. taxpayers’ foreign financial assets are subject to reporting if:

• Individual Taxpayers and Domestic Entities Residing in the U.S. – The aggregate value of the taxpayer’s foreign financial assets exceeds $50,000 on the last day of the tax year or $75,000 at any point during the tax year.
• Married Taxpayers Filing Jointly and Residing in the U.S. – The aggregate value of the taxpayers’ foreign financial assets exceeds $100,000 on the last day of the tax year or $150,000 at any point during the tax year.
• Taxpayers Residing Outside of the U.S. – The aggregate value of the taxpayers’ foreign financial assets exceeds $200,000 on the last day of the tax year or $300,000 at any point during the tax year. These thresholds double for married taxpayers filing jointly.

Speak with a Boston Tax Lawyer at Thorn Law Group

If you have questions or concerns about your FATCA reporting obligations, we encourage you to get in touch. To request a confidential consultation with Boston tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, call 617-692-2989, email ket@thornlawgroup.com or contact us online today.