A Primer on FATCA Penalties, How to Fight a FATCA Violation

A Primer on FATCA Penalties, How to Fight a FATCA Violation

Penalties for Missed FATCA Filings

FATCA is the Foreign Account Tax Compliance Act. And, when it comes to IRS international reporting penalties for US Persons who are out of compliance FATCA is the new kid on the block. From a US tax and reporting standpoint, the FATCA Form 8938 — which is the form filed by US taxpayers reporting specified foreign financial assets — did not come into existence until 2012 when it was required for reporting on the 2011 tax return. Unlike the FBAR, which is a close relative of Form 8938, this form is reported directly to the Internal Revenue Service and is part of the actual tax return that was filed. When it comes to Form 8938/FATCA penalties the IRS has ramped up penalties in the past few years on matters involving FATCA.  Luckily for Taxpayers, since Form 8938 is still relatively new, theUS government may still send a soft letter before actually sending a penalty or audit notice on the Form 8938 issue.  Let’s review the basics of the FATCA penalties.

26 USC 6038D (FATCA)

FATCA penalties in accordance with form 8938 are codified in internal revenue section 6038D, which provides the following:
      • Penalty for failure to disclose
        • (1) In general
          • If any individual fails to furnish the information described in subsection (c) with respect to any taxable year at the time and in the manner described in subsection (a), such person shall pay a penalty of $10,000.
        • (2) Increase in penalty
          • where failure continues after notification If any failure described in paragraph (1) continues for more than 90 days after the day on which the Secretary mails notice of such failure to the individual, such individual shall pay a penalty (in addition to the penalties under paragraph (1)) of $10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of such 90-day period.
          • The penalty imposed under this paragraph with respect to any failure shall not exceed $50,000.

FATCA Form 8938 Instructions Penalty Summary

Referring to the form 8938 instructions provides more insight into how penalties are issued and provides the following:
      • Penalties
        • You may be subject to penalties if you fail to timely file a correct Form 8938 or if you have an understatement of tax relating to an undisclosed specified foreign financial asset.
      • Failure-To-File Penalty
        • If you are required to file Form 8938 but do not file a complete and correct Form 8938 by the due date (including extensions), you may be subject to a penalty of $10,000.
      • Continuing Failure To File
        • If you do not file a correct and complete Form 8938 within 90 days after the IRS mails you a notice of the failure to file, you may be subject to an additional penalty of $10,000 for each 30-day period (or part of a period) during which you continue to fail to file Form 8938 after the 90-day period has expired. The maximum additional penalty for a continuing failure to file Form 8938 is $50,000.
      • Married Taxpayers Filing a Joint Income Tax Return
          • If you are married and you and your spouse file a joint income tax return, the failure-to-file penalties apply as if you and your spouse were a single person. Your and your spouse’s liability for all penalties is joint and several.

Form 8938 Amnesty for FATCA

If the taxpayers are out of compliance for not previously reporting the necessary foreign account and asset information on FATCA Form 8938, the Internal Revenue Service has developed several international tax amnesty programs to safely assist taxpayers with getting into compliance.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS Offshore Compliance and Voluntary Disclosure. Contact our firm today for assistance.