Learn the new federal regulations
The Foreign Account Tax Compliance Act (FATCA) is designed to prevent U.S. residents and organizations from avoiding taxes by hiding assets in foreign accounts.
Under FATCA, banks and other financial institutions are required to assist the IRS in collecting taxes from U.S. taxpayers abroad by reporting the details of their overseas financial accounts, including naming and identifying the account holder.
FATCA focuses on two types of foreign payees: Non-Foreign Financial Entitles (NFFEs) and Foreign Financial Institutions (FFIs). The IRS is enforcing FATCA by using Forms W‑8 and W‑9.
Organizations are required to report the details of their overseas accounts, and the IRS will then reconcile the information received in an effort to identify unreported, taxable income.
Although FATCA went into effect in July 2014, research from PayStream Advisors and Avalara, found there is still a lot of confusion about how it works. In a survey of finance, tax and accounts payable professionals in U.S. companies:
- 75 percent of respondents said FATCA has little to no effect on their organizations
- 66 percent of respondents said their foreign payees provide business services that are regulated under FATCA.
This disconnect reflects a significant lack of knowledge about FATCA and its implications on U.S. organizations. Even worse, that disconnect can be costly, because as the IRS begins to enforce FATCA, organizations that are found to be noncompliant could face significant penalties.
Ready to see more? View FATCA resources in our Resource Center.