Last Updated on August 6, 2025 by Arnaud Collignon

Executive Summary

The Foreign Account Tax Compliance Act (FATCA) is a critical piece of U.S. legislation designed to combat tax evasion by U.S. persons holding offshore financial assets. It mandates reporting requirements for both U.S. taxpayers with foreign assets and foreign financial institutions holding accounts for U.S. taxpayers. U.S. taxpayers meeting specific thresholds must report their “specified foreign financial assets” on Form 8938, “Statement of Specified Foreign Financial Assets,” attached to their annual income tax return. This requirement is in addition to the long-standing obligation to report foreign financial accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Non-compliance with FATCA can lead to significant penalties. Special “streamlined procedures” exist for non-resident U.S. taxpayers seeking to come into compliance.

Key Themes and Most Important Ideas/Facts

1. Purpose and Scope of FATCA

FATCA’s primary objective is to “combat tax evasion by U.S. persons holding accounts and other financial assets offshore.” It achieves this through a dual reporting mechanism:

U.S. Taxpayer Reporting: Certain U.S. taxpayers must report foreign financial assets to the IRS.
Foreign Financial Institution (FFI) Reporting: Certain FFIs are required to report directly to the IRS about financial accounts held by U.S. taxpayers or foreign entities substantially owned by U.S. taxpayers. This includes “not only banks, but also other financial institutions, such as investment entities, brokers, and certain insurance companies.” Some non-financial foreign entities also have reporting obligations regarding their U.S. owners.

2. Form 8938: Reporting Specified Foreign Financial Assets

What it is: Form 8938, “Statement of Specified Foreign Financial Assets,” is the mechanism for certain U.S. taxpayers to report their foreign financial assets to the IRS. It must be “attached to the taxpayer’s annual income tax return.”

Who must file: As of January 2013, “only individuals are required to report their foreign financial assets.” A limited set of U.S. domestic entities may also be required to report later. Filing is generally required if a U.S. income tax return must be filed.

What are “Specified Foreign Financial Assets”? These include:

“foreign financial accounts”
“foreign non-account assets held for investment (as opposed to held for use in a trade or business), such as foreign stock and securities, foreign financial instruments, contracts with non-U.S. persons, and interests in foreign entities.”

Exclusions from “Specified Foreign Financial Assets”:

Financial accounts maintained by a U.S. payor (e.g., U.S. branch of a foreign financial institution).
Beneficial interest in a foreign trust or estate if the taxpayer doesn’t know or have reason to know of the interest (knowledge is presumed upon receiving a distribution).
An interest in a social security, social insurance, or similar program of a foreign government.

3. Reporting Thresholds for Form 8938

The requirement to file Form 8938 is contingent on the aggregate value of specified foreign financial assets exceeding certain thresholds, which vary based on filing status and residency. These thresholds are defined by the value “on the last day of the tax year” or “at any time during the year.”

Taxpayers Living in the United States:

Unmarried: More than $50,000 (last day of year) or $75,000 (any time).
Married Filing Jointly: More than $100,000 (last day of year) or $150,000 (any time).
Married Filing Separately: More than $50,000 (last day of year) or $75,000 (any time). For jointly owned assets, include one-half the value for threshold calculation, but “report the entire value on Form 8938 if you are required to file Form 8938.”

Taxpayers Living Abroad: (Defined as a U.S. citizen whose tax home is in a foreign country and who has been present in a foreign country for at least 330 days out of a consecutive 12-month period).

Not Married Filing Jointly: More than $200,000 (last day of year) or $300,000 (any time).
Married Filing Jointly: More than $400,000 (last day of year) or $600,000 (any time). “These thresholds apply even if only one spouse resides abroad.” A single Form 8938 reports all specified foreign financial assets for jointly filing spouses.

4. Asset Valuation

Taxpayers generally report a “reasonable estimate of the highest fair market value of the asset during the tax year.”
For financial accounts, “periodic financial account statements (provided at least annually)” can be used to determine maximum value.
For non-account assets, the “year-end value…if it reasonably approximates the maximum value” is acceptable.
Valuation can rely on “publicly available from reliable financial information sources or from other verifiable sources.” A “reasonable estimate” is sufficient even without such sources.
For foreign currency assets, convert to USD using “the U.S. Department of the Treasury’s Bureau of the Fiscal Service’s foreign currency exchange rates” or another publicly available rate on “the last day of your tax year.”

5. Relationship Between Form 8938 and FBAR (FinCEN Form 114)

It is crucial to understand that “Form 8938 Does Not Relieve Filers of FBAR Filing Requirements.”

Separate Obligations: Both forms may need to be filed independently.
Overlap: “Certain foreign financial accounts are reported on both Form 8938 and the FBAR.”
Differences: “Different rules, key definitions (for example, ‘financial account’), and reporting requirements apply to Form 8938 and FBAR reporting.” Consequently, “certain foreign financial accounts may be reported on one but not both forms.”
Assets Reported Differently: “Specified foreign financial assets held outside of an account with a financial institution are reported on Form 8938, but not reported on the FBAR.”
Filing Details:FBAR: Due April 15 (for previous calendar year), filed electronically through FinCEN’s BSA E-filing System.
Form 8938: Due with annual income tax return, filed with the applicable IRS service center.

6. Exceptions to Reporting on Form 8938

Assets reported on other forms: If specified foreign financial assets are already reported on forms like 3520/3520-A (trusts/gifts), 5471 (foreign corporations), 8621 (PFICs), 8865 (foreign partnerships), or 8891 (Canadian retirement plans), they do not need to be relisted on Form 8938. However, their value is still included in calculating the total asset value for threshold purposes, and Form 8938 must identify which other forms were filed.
No income tax return: If you are not required to file a U.S. income tax return, you do not need to file Form 8938.
Certain trusts: Exceptions for domestic bankruptcy trusts or domestic widely held fixed investment trusts.
Bona fide residents of U.S. territories.
Assets/accounts with Section 475 mark-to-market elections.

7. Penalties for Non-Compliance

“Serious penalties” apply for not reporting foreign financial assets:

Failure to File Penalty: “$10,000 failure to file penalty.”
Continued Failure Penalty: “an additional penalty of up to $50,000 for continued failure to file after IRS notification.”
Understatement of Tax Penalty: “a 40 percent penalty on an understatement of tax attributable to non-disclosed assets.”
Statute of Limitations Extension:If more than $5,000 attributable to a specified foreign financial asset is omitted from gross income, the statute of limitations is extended to “six years after you file your return.”
If Form 8938 is not filed or an asset is improperly reported, the statute of limitations for that tax year is extended to “three years following the time you provide the required information.”
If failure is due to reasonable cause, the extension applies only to the related items.

Reasonable Cause Exception: “If you make a showing that any failure to disclose is due to reasonable cause and not due to willful neglect, no penalty will be imposed for failure to file Form 8938.” This is determined on a “case-by-case basis.”

8. Streamlined Procedures for Non-Resident Taxpayers

The IRS has introduced “new streamlined filing compliance procedures for non-resident U.S. taxpayers” to help those who have recently become aware of their obligations and wish to comply. These procedures are for non-residents, including dual citizens, who “have failed to timely file U.S. federal income tax returns or FBARs.”