The Foreign Account Tax Compliance Act (FATCA) is a U.S. law designed to prevent tax evasion by requiring foreign financial institutions (FFIs) to report financial accounts held by U.S. taxpayers and certain foreign entities with U.S. ownership. Form 8966, filed by these institutions, plays a critical role in enforcing FATCA compliance.
What Is Form 8966?
Form 8966, FATCA Report, is used by foreign financial institutions (FFIs), certain U.S. financial institutions, and certain non-financial foreign entities (NFFEs) to report financial accounts held by U.S. persons or entities with substantial U.S. ownership.
🔹 Who Files It?
- Foreign banks, investment funds, and financial institutions participating in FATCA.
- Certain U.S. financial institutions holding foreign accounts.
- Passive foreign investment companies (PFICs) with U.S. owners.
🔹 Who Is Reported?
- U.S. taxpayers with foreign financial accounts exceeding reporting thresholds.
- Foreign entities with at least 10% U.S. ownership.
How FATCA Impacts High Net-Worth Individuals
1. Increased Account Scrutiny
- Foreign banks are required to identify and report accounts held by U.S. citizens, green card holders, and tax residents.
- High-value accounts ($1,000,000+) receive enhanced due diligence.
2. Reporting Requirements for U.S. Taxpayers
- U.S. individuals must report foreign assets using Form 8938 (Statement of Specified Foreign Financial Assets) if they exceed certain thresholds.
- FBAR (FinCEN Form 114) may also be required if aggregate foreign accounts exceed $10,000.
3. Penalties for Non-Compliance
- Failure to report foreign assets can result in severe civil penalties ($10,000 per violation) and criminal charges in cases of willful non-compliance.
- Foreign institutions failing to comply with FATCA may face a 30% withholding tax on U.S. source income.
FATCA and Form 8966 increase transparency for high-net-worth individuals with foreign assets, making compliance essential to avoid penalties.