A new law requiring financial institutions to register with and provide data to the Internal Revenue Service is getting a lot of attention in the business community because of the additional burden it is going to put on foreign corporations. But it’s also going to complicate income tax filings for lots of Americans who have accounts outside the U.S.
The Foreign Account Tax Compliance Act (FATCA) has on its surface a laudable goal—preventing people from using foreign trusts and other accounts to evade income taxes. The Act not only imposes new reporting requirements on taxpayers, but also requires foreign institutions to provide information that could help the IRS in tracking down tax cheats.
“Congress came in with a sledgehammer,” H. David Rosenbloom, a lawyer at Caplin and Drysdale in Washington and a former international tax policy adviser for the Treasury Department, told The New York Times. “The Fatca story is really kind of insane.”
You could have to file the new Form 8938 (here’s a link to the 10 pages of instructions for the form , which the IRS says can be completed in one hour & five minutes) if you have as little as $50,000 in total in the right—or wrong—types of foreign accounts and assets.
While, as Robert W. Wood explains in Forbes, the limit can be as high as $600,000 for married couples living abroad, just figuring out whether or not you’re subject to this new law is bound to be time-consuming. And failing to file the form can cost you $10,000 or more in penalties.
Taxpayers who have foreign accounts—by the way, that includes accounts in Canada or Mexico—already know they have to send something called Form TDF 90-22.1 to a Detroit office of the Treasury Department if they have as little as $10,001 aggregate in those accounts at any time during the year. The new additional reporting doesn’t get people out of having to continue filing this form. Talk about piling on.