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Foreign Account Tax Compliance Act

"FATCA" redirects here. Not to be confused with FACTA.

Foreign Account Tax Compliance Act
Great Seal of the United States
Acronyms (colloquial)FATCA
Enacted bythe 111th United States Congress
EffectiveMarch 18, 2010 (26 USC § 6038D); December 31, 2017 (26 USC §§ 1471-1474)
Citations
Public law111-147
Statutes at Large124 Stat. 71, 97-117
Codification
Titles amended26
U.S.C. sections created26 U.S.C. §§ 1471–1474, § 6038D
U.S.C. sections amended26 U.S.C. § 163, § 643, § 679, § 871, § 1291, § 1298, § 4701, § 6011, § 6501, § 6662, § 6677
Legislative history
  • Introduced in the House and Senate as Foreign Account Tax Compliance Act of 2009 (S. 1934, H.R. 3933) by Max Baucus (D–MT); Charles Rangel (D–NY) on October 27, 2009
  • Committee consideration by Senate Finance, House Ways and Means
  • Passed the Senate on February 24, 2010 (70-28)
  • Passed the House as the Hiring Incentives to Restore Employment Act, Title V, Subtitle A on March 4, 2010 (217–201) with amendment
  • Senate agreed to House amendment on March 17, 2010 (68–29)
  • Signed into law by President Barack Obama on March 18, 2010

The Foreign Account Tax Compliance Act (FATCA) is a 2010 U.S. federal law requiring all non-U.S. foreign financial institutions (FFIs) to search their records for customers with indicia of a connection to the U.S., including indications in records of birth or prior residency in the U.S., or the like, and to report such assets and identities of such persons to the United States Department of the Treasury.[1] FATCA also requires such persons to report their non-U.S. financial assets annually to the Internal Revenue Service (IRS) on form 8938, which is in addition to the older and further redundant requirement to report them annually to the Financial Crimes Enforcement Network (FinCEN) on form 114 (also known as 'FBAR').[2] Like U.S. income tax law, FATCA applies to U.S. residents and also to U.S. citizens and green card holders residing in other countries.

FATCA applies to all subjects identified as U.S. person. All U.S. citizens are U.S. person by default, but a non-U.S.-citizen can be eligible as U.S. person for tax purposes, for example, Green Card holders and corporations under certain criteria. Inhabitants of unincorporated U.S. territories (American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico or the U.S. Virgin Islands) are conciliated with a Resident Based Taxation. However, financial institutions are notified that U.S. taxpayer identification number (TIN) information is mandatory for all reportable accounts with FATCA reporting obligations, even residents of those territories do not pay taxes to the mainland U.S.A. Likewise, FATCA does not apply to Banks in Puerto Rico since they are classified as "Territory Financial Institutions". Nonetheless, customers in Puerto Rico must complete forms W-8BEN and W-8BEN-E as part of the account opening process and reportings are almost the same as other U.S. banks. However, Puerto Rico's Act 273 is that FATCA, Common Reporting Standards (CRS) and Intergovernmental Agreements (IGA) signed between the United States and a foreign country do not apply to International Financial Entities in Puerto Rico.

FATCA was the revenue-raising portion of the 2010 domestic jobs stimulus bill, the Hiring Incentives to Restore Employment (HIRE) Act,[3][4] and was enacted as Subtitle A (sections 501 through 541) of Title V of that law. According to the IRS, "FFIs that enter into an agreement with the IRS to report on their account holders may be required to withhold 30% on certain payments to foreign payees if such payees do not comply with FATCA."[5] The U.S. has yet to comply with FATCA itself, because as of 2017, it has not yet provided the promised reciprocity to its partner countries and it has failed to sign up to the Common Reporting Standard (CRS).[6][7][8][9][10] FATCA has also been criticised for its effects on Americans living overseas, and implicated in record-breaking numbers of U.S. citizenship renunciations throughout the 2010s and 2020s.[11][12][13][14] Bills to repeal FATCA have been introduced in the U.S. Senate and House of Representatives.[15][16][17]

  1. ^ "Sec ii B 1 Agreement between the government of the United States of American and the government of the United Kingdom of Great Britain and Northern Ireland to improve international tax compliance and to implement FATCA" (PDF). United States Department of the Treasury.
  2. ^ "Reporting Foreign Accounts To IRS" (PDF). Government Accountability Office. February 1, 2012.
  3. ^ "The Foreign Account Tax Compliance Act (FATCA)" (PDF). DLA Piper.
  4. ^ "Statement of Sen. Levin" (PDF). 111 Cong. Rec. S1635-36. March 17, 2010. Right now, thousands of U.S. tax dodgers conceal billions of dollars in assets within secrecy-shrouded foreign banks, dodging taxes and penalizing those of us who pay the taxes we owe. The Permanent Subcommittee on Investigations... estimated that these tax-dodging schemes cost the Federal Treasury $100 billion a year.
  5. ^ "FATCA Information for Foreign Financial Institutions and Entities". Internal Revenue Service.
  6. ^ Cotorceanu, Peter (April 9, 2016). "Why America loves being the world's No. 1 tax haven". Politico.
  7. ^ Ward, Robert E. (December 2, 2016). "Planning for the Use of the United States as a Financial Haven: Part One". Bloomberg BNA. Archived from the original on May 17, 2017.
  8. ^ Bennett, Alison (September 26, 2016). "Finish line unclear for some FATCA pacts as banks worry". Bloomberg BNA. Archived from the original on June 29, 2017.
  9. ^ Swanson, Ana (April 6, 2016). "The U.S. is one of the world's biggest tax havens". Chicago Tribune.
  10. ^ "Common Reporting Standard (CRS)". Organisation for Economic Co-operation and Development.
  11. ^ Woolley, Suzanne (February 9, 2017). "Americans renouncing citizenship at record high". Bloomberg News. Archived from the original on August 22, 2017.
  12. ^ Wintour, Patrick (February 9, 2017). "Boris Johnson among record number to renounce American citizenship in 2016". The Guardian.
  13. ^ Taylor, Adam (February 10, 2017). "A potentially historic number of people are giving up their U.S. citizenship". The Washington Post.
  14. ^ "Americans Gave Up Citizenship in Record Numbers in 2020". PRNewsWire. February 4, 2021.
  15. ^ Meadows, Mark (April 7, 2017). "Rep. Meadows introduces FATCA repeal bill". Meadows.house.gov. Archived from the original on May 3, 2017.
  16. ^ Paul, Rand. "A bill to repeal the violation of sovereign nations' laws and privacy matters" (PDF). Paul.senate.gov. Archived from the original (PDF) on August 22, 2017.
  17. ^ Thompson, Elizabeth (April 27, 2017). "Deal that sends Canadian bank records to IRS is 'illegal,' lawyer tells U.S. committee". CBC News.

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