FATCA and Form 8966: How High Net-Worth Individuals Are Impacted
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- FATCA, IRS Form 8966
The Foreign Account Tax Compliance Act (FATCA) is a U.S. law created to prevent tax evasion. It requires foreign financial institutions (FFIs) to report accounts held by U.S. taxpayers and certain foreign entities with U.S. ownership.
Form 8966 is a key tool for enforcing FATCA. Foreign institutions use it to share account information with the IRS.
What Is Form 8966?
Form 8966, FATCA Report, is used by:
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Foreign financial institutions (FFIs)
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Certain U.S. financial institutions
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Non-financial foreign entities (NFFEs)
These organizations report financial accounts held by U.S. persons or foreign entities with substantial U.S. ownership.
Who Must File Form 8966?
Examples include:
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Foreign banks, investment funds, and other FFIs participating in FATCA
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Certain U.S. financial institutions with foreign accounts
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Passive foreign investment companies (PFICs) with U.S. owners
Who Is Reported on Form 8966?
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U.S. taxpayers with foreign financial accounts that exceed reporting thresholds
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Foreign entities with at least 10% U.S. ownership
How FATCA Affects High-Net-Worth Individuals
1. Increased Account Scrutiny
Foreign banks must identify and report accounts held by U.S. citizens, green card holders, and U.S. tax residents.
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In addition, accounts worth over $1,000,000 face enhanced due diligence.
2. Reporting Requirements for U.S. Taxpayers
U.S. individuals must file Form 8938 if their foreign assets exceed the set thresholds.
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For example, a taxpayer living abroad may have higher thresholds than one living in the U.S.
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They may also need to file an FBAR (FinCEN Form 114) if their combined foreign accounts exceed $10,000.
3. Penalties for Non-Compliance
Failing to report foreign assets can lead to significant penalties:
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Civil penalties of $10,000 per violation
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Criminal charges for willful violations
Foreign institutions that fail to comply with FATCA can face a 30% withholding tax on U.S.-source income.
Why Compliance Matters
FATCA and Form 8966 create greater transparency for high-net-worth individuals with foreign assets. As a result, reporting accurately and on time is critical to avoid severe penalties.