Understanding FATCA: Reporting Requirements and Penalties 

Last updated: Aug 12, 2025

What Is FATCA?

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The Foreign Account Tax Compliance Act, or FATCA, was enacted in 2010 as part of the U.S. effort to combat offshore tax evasion. FATCA requires U.S. taxpayers to report foreign financial accounts and assets if they exceed certain thresholds. For detailed threshold amounts, you can refer to the IRS FATCA Thresholds. It also mandates foreign financial institutions (FFIs) to share account information of U.S. citizens with the IRS.

FATCA is enforced worldwide through agreements between the U.S. and foreign governments, making it difficult to hide financial assets offshore.

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Who Is Subject to FATCA Reporting?

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You are subject to FATCA reporting if you are:

• A U.S. citizen, resident alien, or Green Card holder

• A U.S. person with foreign financial accounts or assets above certain thresholds

• A U.S. taxpayer with beneficial ownership or financial interest in foreign entities, such as trusts or corporations

Form 8938 (FATCA): 2025 Reporting Thresholds

U.S. taxpayers must file Form 8938 – Statement of Specified Foreign Financial Assets with their annual Form 1040 if the total value of their foreign financial assets exceeds the thresholds below:

For Individuals Living in the United States

• Single or Married Filing Separately:
  Over $50,000 on December 31, or
  Over $75,000 at any time during the year
  
  

• Married Filing Jointly:
  Over $100,000 on December 31, or
  Over $150,000 at any time during the year
  
  

For Individuals Living Outside the United States

• Single or Married Filing Separately:
  Over $200,000 on December 31, or
  Over $300,000 at any time during the year
  
  

• Married Filing Jointly:
  Over $400,000 on December 31, or
  Over $600,000 at any time during the year

Note: Form 8938 is separate from FBAR (FinCEN Form 114), though both involve reporting foreign financial accounts. The key difference is that Form 8938 is filed with the IRS and focuses on the value of specified foreign financial assets, while FBAR, filed with FinCEN, is specifically for foreign bank accounts exceeding $10,000 in aggregate during the year. For more details on FBAR requirements, you can refer to the FinCEN Form 114 Guide. While FBAR is filed with FinCEN, Form 8938 is submitted to the IRS. 

2. Reporting for Foreign Financial Institutions (FFIs)

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Under FATCA, foreign financial institutions are required to:

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• Identify U.S. account holders

• Report account details, including balances and transactions, to the IRS

• Withhold a 30% tax on U.S.-sourced payments if FATCA requirements are not met

For U.S. taxpayers, this means that their foreign accounts are likely being reported directly to the IRS by their banks, in addition to personal reporting requirements.

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FATCA Penalties for Non-Compliance

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Failing to comply with FATCA can result in significant penalties, even for unintentional errors. However, taxpayers can often avoid or minimize these penalties through voluntary disclosure programs or by seeking professional guidance to ensure accurate and timely compliance.

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1. Failure to File Form 8938

   • Penalty: $10,000 per year for failing to file.

   • If the failure continues after IRS notification, an additional $10,000 penalty per month may apply, up to a maximum of $50,000. 

2. Understatement of Income Related to Foreign Assets

   • If the IRS determines that you failed to disclose income from foreign assets, they may impose an additional penalty of 40% of the understated tax amount.

3. Criminal Penalties

   • Willful non-compliance or hiding offshore accounts may lead to criminal prosecution, fines, and imprisonment.

Example: A taxpayer living in the U.S. with undisclosed foreign accounts worth $250,000 could face significant penalties for failing to file Form 8938. By proactively reporting and resolving these issues, penalties can often be minimized.

Why FATCA Compliance Matters

FATCA is more than just another tax form; it is a critical part of IRS enforcement against offshore tax evasion. With foreign banks cooperating directly with the IRS, taxpayers must ensure their reporting is accurate and complete.

Being proactive about FATCA compliance:

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• Avoids penalties: Penalties for non-compliance are steep and can accumulate quickly.

• Minimizes stress: Proper reporting helps you stay on the right side of IRS regulations.

• Builds trust: Compliant taxpayers avoid unnecessary scrutiny and audits.

How We Can Help

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FATCA reporting can be complex, especially for individuals with multiple foreign assets or accounts. For instance, a taxpayer with foreign bank accounts, retirement funds, and stock holdings spread across different countries may need to file both Form 8938 and FBAR. Understanding which forms to file, how to value the assets accurately, and ensuring timely reporting can quickly become overwhelming without professional assistance. Ensuring compliance requires understanding the nuances of Form 8938, FBAR, and related IRS regulations.

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As a tax professional experienced in US cross-border tax compliance, I can assist you with:

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• Determining your FATCA filing requirements

• Preparing and submitting Form 8938

• Resolving prior non-compliance and minimizing penalties

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If you have foreign accounts or financial assets and need guidance, don't hesitate to reach out. We ensure the process is smooth, compliant, and stress-free.

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Conclusion FATCA reporting is a serious obligation for U.S. taxpayers with foreign financial interests. Understanding the requirements, thresholds, and penalties is crucial to staying compliant. With expert guidance, FATCA compliance doesn't have to be overwhelming.