What is the change? The U.S. has implemented the Foreign Account Tax Compliance Act (FATCA), mandating new reporting requirements for Americans living abroad.

What does the change mean? U.S. nationals living abroad must disclose foreign accounts that meet certain thresholds to the Internal Revenue Service (IRS) annually or face steep fines and penalties.

  • Implementation timeframe: July 1, 2014.
  • Visas/permits affected: None.
  • Who is affected: FATCA affects virtually all U.S. taxpayers with foreign financial holdings, including U.S. citizens living abroad or possessing dual citizenship, as well as U.S. permanent residents.
  • Impact on processing times: None.
  • Business impact: The reporting requirements impact financial institutions as well as individuals.
  • Next steps: Affected individuals and companies should consult with tax and financial experts.

Background: FATCA is a U.S. law with broad scope that aims to reduce tax evasion by U.S. taxpayers with foreign accounts or assets. More than 80 countries, including Canada, China and, most recently, Russia, have agreed to implement the law. Under FATCA, foreign financial institutions must disclose the names and account information of U.S. citizens with accounts of more than $50,000 to the IRS. Thresholds are higher for U.S. citizens living abroad, generally $200,000 to $400,00, and vary depending on whether they are filing a joint or single return. Foreign financial institutions that fail to comply will incur a 30-percent withholding tax on U.S.-based income. Individuals who violate FATCA also face monetary penalties. A list of countries that have agreed to comply with FATCA can be found here on the U.S. Treasury’s website.

BAL Analysis: FATCA has an unprecedented global reach on U.S. taxpayers, especially American citizens residing abroad, regardless of time spent in the U.S. American expatriates should seek advice from tax experts on reporting obligations under FATCA.

This alert has been provided by the BAL Global Practice group. For additional information, please contact your BAL attorney.

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