FATCA Cheat Sheet: 9 Steps Toward Compliance

The Foreign Account Tax Compliance Act, or FATCA, was passed by Congress all the way back in 2010 in order to bolster the worldwide collection of U.S. taxable assets and to tighten up perceived tax evasion by U.S. citizens living abroad and, more importantly, U.S. businesses with important assets held by foreign banks. The new tax code passed at the end of last year also had the goal of cracking down on so-called profit-shifting activities, meaning that FATCA and statutes like it aren't going away anytime soon.

1) Inventory assets

FATCA rules require the disclosure of any taxable asset. The rules can be kind of intricate, but, broadly, FATCA reporting can be divided into eight different categories:
  • Any foreign assets held by a U.S. citizen in excess of $10,000
  • Any joint ownership or interest in a foreign account, again $10,000 or more
  • Any foreign real estate owned that produces foreign income
  • Any foreign gift with a value of $100,000 or more
  • Any gift from a foreign corporation valued at $15,000 or more
  • Any foreign trust or distributions from one
  • Any ownership stake of a foreign business of at least 10%
  • Any ownership in a Passive Foreign Investment Company

2) Audit banking relationships

FATCA targets two specific groups that must report on said assets:
  1. American citizens living abroad  regardless of dual citizenships or how long they have lived outside the U.S.
  2. Foreign financial institutions (FFIs) — in other words, foreign-owned banks, whether they operate inside or outside the U.S.
FFIs, in particular, are subject to stringent reporting requirements. They have to report all information about accounts and entities in which a U.S. citizen or citizens holds a substantial interest directly to the IRS.

3) Understand the penalties

For U.S. citizens who fail to file the required FATCA disclosures, the penalty for each failure is $10,000, beginning 90 days after the taxpayer is notified of delinquency, with an additional $10,000 each month, up to a maximum of $50,000 per return.

The penalties for FFIs in delinquency are correspondingly greater. They may be liable for up to 30% of the value for each account they failed to report or up to 30% of the total investment flows located in the U.S., individual or corporate status of these assets notwithstanding.

4) Assume responsibilities

FATCA imposes an enormous amount of responsibility on U.S. taxpayers living abroad and is relatively blind with regard to their specific circumstances. Even if you're an "accidental American"(born in the U.S. to foreign citizens who have lived abroad your whole life without any further interaction with the U.S.), you may be caught in the matrix created by FATCA. On the other hand, many or most of your assets will not be subject to U.S. taxes if they were already taxed in another country; however, this relief is again contingent on the correct reporting.

Financial institutions have to get straight which of their assets are owned by U.S. citizens. For this reason, they have to screen and identify assets, perform due diligence and process transactions in a way that's friendly to FATCA reporting. The rest of this post will deal with how to best establish that framework.

5) Adopt classification standards

Organizations should start by classifying all of their entities and assets according to FATCA requirements, with the goal of establishing a permanent database. In short, this means expanding your tax operations capabilities to meet the increasing regulatory demands of FATCA and similar laws.

6) Survey and update FATCA information

Once the basic data repository and methods of management are in place, organizations can turn toward ongoing compliance by implementing surveys that are run periodically. These surveys can be adjusted to the specific requirements of FATCA reporting as it is interpreted by the IRS on an ongoing basis, and what's more, they can be automated for efficiency and to help eliminate human error from the equation.

7) Establish an automated workflow for FATCA compliance

Automated workflow management represents a huge boon to companies dealing with the thorny implementation of FATCA requirements. A software platform that incorporates FATCA management not only keeps track of all relevant data, but also can alert responsible employees and authorities to upcoming filings, ensuring all required operations are performed correctly and on time. It also logs and preserves these processes through the data repository, ensuring that everything is in place when audit time rolls around.

8) Support compliance with appropriate technology

Securing a high standard of FATCA compliance relies on having the tool or tools that can take care of the following tasks:
  • Categorize entities by appropriate FATCA classification
  • Automate review of FATCA exposure
  • Construct a permanent audit trail
  • Track foreign financial assets, offshore accounts and thresholds
  • Record all reviews and updates
  • Provide a complete, accurate and historical record of all FATCA decisions
  • Create a single source of clean data for ongoing, reliable FATCA compliance
  • Ensure regular updates as organizational change occurs

9) Integrate compliance with entity management platform

Blueprint OneWorld's solution to FATCA compliance comes as a module in our entity management platform that's available to all of our customers. It's designed to ease the burden of the FATCA review process by automating the procedure with a simple step-by-step Wizard for each account that adds up to unparalleled consistency, while recording each step of the process in an audit trail to provide a complete record of your FATCA compliance decisions.

Our FATCA module's Survey Manager, for instance, provides compliant pre-created or highly customizable FATCA surveys. No worries about forgotten responses, as automated email communications continue to remind survey recipients until a response is received. The Review Manager provides a documented, automated FATCA verification process. You can customize specific data integrity rules to ensure compliance. The Workflow Manager ensures that all required FATCA compliance tasks are completed correctly and on time. It removes paper, scheduling and human error from the process, and ensures that no required task falls through the cracks.

Blueprint OneWorld hopes to be your organization's entry point into an affordable and effective solution that can adapt to your specific needs while ensuring compliance with the uniform requirements of FATCA and similar regulations. Please call or email us today to discuss these and our other solutions.