Navigating the foreign account tax compliance act can feel overwhelming when you live overseas, especially in Hong Kong. Good news, it’s easier than you think when you break it into clear steps. A 2019 Journal of Accounting Research found equity investments from tax havens into the U.S. dropped 21% after FATCA took effect from 2012 to 2015, showing its reach. Knowing your reporting obligations helps you avoid hefty penalties and focus on your life abroad.
Key idea: A clear understanding of FATCA gives you confidence and keeps your expat finances on track.
Understand FATCA essentials
The Foreign Account Tax Compliance Act was signed in 2010 under the HIRE Act to fight offshore tax evasion. It requires foreign financial institutions to report accounts held by U.S. persons to the IRS (or face a 30% withholding on certain U.S.-source payments). You also must disclose your foreign financial assets if they exceed defined limits.
Purpose and scope
FATCA’s goal is to detect and deter undeclared offshore assets by U.S. taxpayers. It creates a two-way reporting system between the IRS and foreign banks.
Who must comply
You fall under FATCA if you are:
- A U.S. citizen, green card holder, or resident alien
- Owner of specified foreign financial entities
- Subject to FATCA even if you live abroad
For more on the general framework, see our guide on foreign account compliance.
Determine reporting requirements
Your FATCA duties break into two parts: what foreign institutions report and what you report.
Financial institution obligations
Foreign financial institutions must identify accounts held by U.S. persons and send their details to the IRS (see FATCA reporting obligations). This includes:
- Account holder name and taxpayer identification number
- Account balance or value
- Gross receipts and withdrawals
Your asset reporting details
If you own foreign financial assets above certain limits, you file Form 8938 with your annual tax return. That covers:
- Bank accounts
- Mutual funds and pensions
- Stock or partnership interests
Learn more about filing rules in our overview of foreign asset reporting requirements.
Compare FBAR and Form 8938
You may also need to file FinCEN Form 114 (FBAR). The table below highlights the differences.
| Feature | FBAR (FinCEN 114) | Form 8938 |
|---|---|---|
| Report scope | Foreign bank and financial accounts | Specified foreign financial assets |
| Threshold | $10,000 aggregate at any time | Varies (see thresholds below) |
| Filing deadline | April 15, automatic extension to October 15 | Same date as your tax return |
| Penalties | Up to $10,000 per violation, plus 50% of unreported balance | $10,000 failure to file, plus 40% understatement penalty |
For details on the bank account rules, check foreign bank account reporting rules and overseas bank account reporting.
Check your reporting thresholds
Your filing requirements depend on where you live and your asset value.
U.S.-based thresholds
If you reside in the U.S. at year end, Form 8938 applies when:
- A single filer exceeds $50,000 on the last day or $75,000 at any time during the year
- Married filing jointly doubles those amounts
Foreign-based thresholds
Living abroad raises your limits to:
- $200,000 on the last day or $300,000 at any time (single filer)
- Doubled for joint filers
Good news, these clear numbers help you quickly see if you must file (see FATCA reporting thresholds).
File with correct forms
Filing accurately keeps you compliant and avoids fines.
Prepare Form 8938
- Gather year-end statements for all specified assets
- Complete Parts I–V of Form 8938
- Attach it to your annual return (Form 1040)
- Keep a copy for your records (at least six years)
Submit your FBAR (FinCEN 114)
- File electronically through the BSA E-Filing System
- Deadline is April 15, with an automatic extension to October 15
- No need to attach it to Form 1040
Understand penalty risks
Penalties for missing or late filings can be steep:
- $10,000 initial failure-to-file penalty
- Up to $50,000 for continued non-compliance
- A 40% penalty on the understatement of tax attributable to undisclosed assets
Avoid common pitfalls
Being proactive secures your compliance.
Non-willful vs willful errors
The IRS treats mistakes differently:
- Non-willful failures start at $10,000 per year, up to six years
- Willful violations may incur a 50% penalty on the asset value (plus criminal charges in extreme cases)
Extended statute of limitations
If you omit over $5,000 of foreign asset income, the IRS can audit you up to six years after filing.
Work with a professional
FATCA rules can feel complex, but you don’t have to go it alone. Our expat tax experts at American Pacific Tax guide you through each step (see expat tax return preparation). You’ll gain peace of mind knowing your filings are accurate.
Recap and next steps
- Understand FATCA essentials and who must comply
- Determine what institutions and you need to report
- Check your filing thresholds for Form 8938 and FBAR
- File the correct forms on time
- Avoid pitfalls by knowing penalties and audit windows
If you have questions or need tailored advice, American Pacific Tax is here to help. Start simplifying your expat tax journey today.
FAQs
Who needs to file Form 8938 under FATCA?
You file Form 8938 if you are a U.S. citizen or resident with specified foreign financial assets above the reporting thresholds (see FATCA reporting thresholds). The assets include bank accounts, investments, and certain insurance policies.
How do FBAR and Form 8938 differ?
FBAR (FinCEN Form 114) covers your foreign bank and financial accounts with an aggregate value over $10,000 at any point in the year. Form 8938 covers a wider range of specified assets and uses higher thresholds (see our comparison of foreign bank account reporting rules).
What penalties could apply if I miss FATCA reporting?
Failure to file can trigger a $10,000 initial penalty, up to $50,000 for continued non-compliance, and a 40% penalty on understated tax due to undisclosed assets. Willful violations may carry a 50% asset penalty and criminal charges.
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