FATCA Reporting Guide for U.S. Persons and Foreign Financial Institutions

The Foreign Account Tax Compliance Act (FATCA) is a United States federal law enacted in 2010 under the Hiring Incentives to Restore Employment (HIRE) Act. It was introduced to address offshore tax non-compliance by U.S. persons holding foreign financial assets.

FATCA has two principal components. First, certain U.S. taxpayers, including individuals and specified domestic entities, must report foreign financial assets on Form 8938 if the total value exceeds applicable thresholds. Second, foreign financial institutions are required to identify and report accounts held by U.S. persons to the Internal Revenue Service (IRS), typically through intergovernmental agreements.

FATCA may apply to U.S. citizens, lawful permanent residents (Green Card holders), and certain U.S. entities, regardless of where they reside or operate. If you are establishing or registering a company outside the United States — including in jurisdictions such as Hong Kong — and you are a U.S. person, FATCA reporting obligations may need to be considered as part of your compliance planning.

What Is FATCA?

The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act. Its objective is to reduce offshore tax non-compliance by U.S. taxpayers holding foreign financial assets.

FATCA operates in two primary ways. First, it requires certain U.S. taxpayers to disclose specified foreign financial assets if the value exceeds statutory thresholds. Second, it requires foreign financial institutions (FFIs) to identify and report financial accounts held by U.S. persons.

Further, FATCA is a reporting regime. It does not impose a separate “FATCA tax.” However, failure to report may trigger penalties, and income derived from foreign assets remains subject to ordinary U.S. tax rules.

FATCA Compliance Requirements

U.S. taxpayers must file Form 8938 if the value of their specified foreign financial assets exceeds the applicable threshold and they are required to file a federal tax return. 

For example, a U.S. resident filing as single must report if assets exceed $50,000 at year-end or $75,000 at any time during the year. Higher thresholds apply for joint filers and individuals living abroad.

Specified foreign financial assets include foreign financial accounts and certain foreign stocks, securities, and entity interests. However, accounts maintained by a U.S. branch of a foreign bank or a foreign branch of a U.S. bank are generally not treated as foreign financial accounts for Form 8938 purposes.

Who Must File Form 8938?

You may need to file Form 8938 (Statement of Specified Foreign Financial Assets) if you are required to file a U.S. income tax return for the year, and the total value of your specified foreign financial assets exceeds the applicable reporting threshold.

If you are not required to file a U.S. income tax return for the year, you generally do not file Form 8938, even if you hold foreign assets.

What Are Specified Foreign Financial Assets?

Specified foreign financial assets generally include financial accounts maintained by non-U.S. financial institutions, such as foreign bank or brokerage accounts. They also include foreign stocks or securities that are not held in a U.S. financial account, interests in foreign entities held for investment purposes, and foreign financial instruments or contracts with non-U.S. counterparties.

The definition is technical and depends on how the asset is held and structured. In many cases, Form 8938 reporting may overlap with other international information reporting regimes, and separate filing obligations can still apply.

Form 8938 Reporting Thresholds

The filing thresholds depend on your filing status and whether you live in the United States or abroad.

Living In The United States

• Unmarried taxpayers must file if total specified foreign financial assets exceed $50,000 on the last day of the tax year or $75,000 at any time during the year.
• Married taxpayers filing jointly must file if assets exceed $100,000 on the last day of the tax year or $150,000 at any time during the year.
• Married taxpayers filing separately must file if assets exceed $50,000 on the last day of the tax year or $75,000 at any time during the year.

Living Abroad

• Unmarried taxpayers living abroad must file if assets exceed $200,000 on the last day of the tax year or $300,000 at any time during the year.
• Married taxpayers filing jointly and living abroad must file if assets exceed $400,000 on the last day of the tax year or $600,000 at any time during the year.

For threshold purposes, “living abroad” generally requires meeting IRS criteria relating to foreign tax home and physical presence.

How to File Form 8938

Form 8938 is not filed separately. It must be attached to your annual U.S. income tax return.

The filing process generally involves:

1. Confirming that your specified foreign financial assets exceed the applicable reporting threshold.
2. Gathering account statements and documentation showing year-end balances, maximum values during the year, and any income generated.
3. Determining the maximum value of each reportable asset and converting foreign currency amounts into U.S. dollars using the Treasury Department’s year-end exchange rates.
4. Completing Form 8938 with the required asset and income information.
5. Attaching the form to your federal tax return and filing by the applicable deadline.

Form 8938 is due on the same date as your U.S. income tax return, including extensions. For most taxpayers, the standard deadline is April 15. U.S. persons living abroad generally receive an automatic extension to June 15, with further extensions available if properly requested.

FATCA Penalties for Individuals

Failure to file Form 8938 may result in an initial $10,000 penalty. Continued failure after IRS notification can increase penalties up to $50,000.

If undisclosed specified foreign financial assets result in an underpayment of tax, a 40% accuracy-related penalty may apply to the portion attributable to those assets. In cases involving willful misconduct or fraud, criminal penalties may apply under general U.S. tax law.

If more than $5,000 of income attributable to specified foreign financial assets is omitted, the IRS may have up to six years to assess tax. Failure to properly report assets may extend the statute of limitations for affected items until required information is provided.

Penalties may be waived if the taxpayer demonstrates reasonable cause and not willful neglect.

FATCA vs. FBAR

FATCA reporting under Form 8938 is separate from FBAR reporting under FinCEN Form 114. You may be required to file one or both forms.

Form 8938 covers specified foreign financial assets and is filed with your tax return. FBAR applies specifically to foreign financial accounts and is filed separately through FinCEN.

Certain assets, such as foreign bank accounts, may be reportable under both regimes. Form 8938 may include additional foreign securities or entity interests not held in an account, while FBAR applies to financial accounts, including those where the filer has signatory authority.

Each regime has its own reporting thresholds, filing procedures, and penalty structure. Determining whether one or both filings apply requires reviewing the specific asset type, ownership structure, and applicable thresholds for the tax year.

FATCA vs. CRS

FATCA and the Common Reporting Standard (CRS) are separate reporting frameworks. FATCA is a U.S. regime focused on U.S. persons, with reporting to the IRS either directly or through intergovernmental agreements. 

CRS is an OECD-developed multilateral system under which financial institutions report tax residents’ account information to local authorities for international exchange. 

FATCA is based on U.S. citizenship and status, while CRS is based on tax residency.

FATCA Obligations For Foreign Financial Institutions

Under FATCA, a foreign financial institution generally includes non-U.S. entities such as banks, custodial institutions, certain investment entities, and certain insurance companies that issue cash value insurance or annuity contracts.

The classification of an entity under FATCA depends on detailed regulatory definitions.

Registration And GIIN

Many FFIs must register through the IRS FATCA Registration System to obtain a Global Intermediary Identification Number (GIIN).

Registered and compliant institutions appear on the IRS FFI list, which is publicly available and updated regularly.

Registration may also involve compliance certifications and ongoing obligations, depending on the institution’s FATCA classification and local intergovernmental agreement (IGA) framework.

FATCA Reporting By FFIs

Depending on the applicable FATCA model and local law, foreign financial institutions (FFIs) are generally required to identify accounts held by U.S. persons or certain U.S.-owned foreign entities and to perform due diligence and documentation procedures to determine the account holder’s status. They must then report the required account information either directly to the IRS or indirectly through their local tax authority under the relevant intergovernmental agreement (IGA).

Reporting is typically conducted electronically through the IRS International Data Exchange Service (IDES) or through competent authority channels established under an applicable IGA.

FATCA Forms And Systems For Institutions

Common FATCA-related forms and systems include:

• Form 8957 for FATCA registration.
• Form 8966 for FATCA reporting.
• Form 8809-I to request extensions for certain FATCA filings.
• Form 8508-I to request a waiver from electronic filing requirements.

The specific forms required depend on the institution’s classification and reporting model.

NFFEs and Substantial U.S. Ownership

Non-Financial Foreign Entities (NFFEs) are non-U.S. entities that are not financial institutions. FATCA distinguishes between active and passive NFFEs.

A passive NFFE is generally one where at least 50 percent of its gross income is passive income, or at least 50 percent of its assets produce passive income.

Passive NFFEs with substantial U.S. owners may be required to disclose identifying information regarding those owners to withholding agents or financial institutions as part of FATCA due diligence procedures.

Consequences Of Non-Compliance For FFIs

Non-compliant foreign financial institutions (FFIs) may be subject to withholding on certain U.S.-source payments, along with operational and reputational risks. To meet FATCA obligations, institutions are expected to maintain appropriate internal controls, documentation procedures, and ongoing compliance monitoring.

FATCA affects both individuals and institutions. U.S. persons holding foreign financial assets must determine whether Form 8938 reporting applies to them, while foreign financial institutions must assess their classification, registration status, and reporting requirements.

Because FATCA operates alongside other international reporting regimes and interacts with local regulatory frameworks, careful analysis is required. Professional guidance can help reduce reporting errors and mitigate exposure to penalties.

Air Corporate assists businesses with cross-border compliance structuring, entity classification assessments, and coordination with tax advisors and financial institutions. If your organization needs support in understanding FATCA implications within a broader international compliance framework, our team can help you navigate the process with clarity and structure.