Foreign Account Tax Compliance Act

Form 8938 Definition of Foreign Financial Institution

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Financial accounts maintained by a Foreign Financial Institution constitute one of the main categories of Specified Foreign Financial Assets that need to be reported on IRS Form 8938. While it seems trivial, it is important to understand what is meant by “Foreign Financial Institution” within the context of Form 8938 – i.e. what is the Form 8938 Definition of Foreign Financial Institution?

There are two parts of Foreign Financial Institution that need to be separately defined: “foreign” and “financial institution”.

Form 8938 Definition of Foreign Financial Institution: What is “Foreign”?

For the purposes of Form 8938, a financial institution is foreign if the financial institution is organized under the laws a of a jurisdiction other than United States and its territories. Thus, a domestic financial institution is the one that is organized under the laws of any of the 50 states of the United States, the district of Columbia, and US territories of American Samoa, Guam, the Northern Mariana Islands, Puerto Rico or US Virgin Islands – everything else is foreign.

It is important to note that a foreign financial institution is defined by the laws of a jurisdiction under which it was organized, not by where it operates. Thus, a domestic institution that operates overseas is not foreign.

Form 8938 Definition of Foreign Financial Institution: What is a “Financial Institution”?

Now that we were able to define the “foreign part of the Foreign Financial Institution, let’s turn our attention to the second part of this term – “financial institution”. This concept is defined broadly. In order for a Foreign Financial Institution to be considered a financial institution, it has to do one of the following:

1. Accept deposits in the ordinary course of a banking or similar business);

2. Hold financial assets for the account of others as a substantial part of its business; and

3. Engage (or holds itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest (including a futures or forward contract or option) in such securities, partnership interests, or commodities.

This definition easily covers banks, credit unions, brokerages, various financial advisors, and everyone who is involved in any of the activities listed above. This even includes financial trusts.

Moreover, a foreign financial institution includes various investment vehicles such as foreign mutual funds, foreign hedge funds, and foreign private equity funds. It should be noted that these types of investment vehicles may also need to be reported on Form 8621 as PFICs.

Contact Sherayzen Law Office for Help With Form 8938 Filing

Filing a correct Form 8938 is an essential part of your US tax compliance. Moreover, failure to file Form 8938 may lead to various penalties and complicate your Offshore Voluntary Disclosure.

This why you need to help of the experienced tax team of Sherayzen Law Office. We have helped hundreds of US taxpayers to bring and maintain their US tax affairs into full compliance and we can help you.

Contact Us Today to Schedule Your Confidential Consultation!

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FATCA Lawyer Update: India Signed FATCA Agreement

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On July 9, 2015, India finally signed the Intergovernmental Agreement (IGA) to implement FATCA. The fact is that the Indian signed FATCA Agreement has significant implications for millions of Indian-Americans who reside in the United States as well as outside of the United States.

India Signed FATCA: Background Information on FATCA

The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 to specifically target non-compliance by U.S. taxpayers using foreign accounts. Over the past few years, this law established a new global standard for promoting tax transparency and fighting tax evasion. More than 110 jurisdictions today operate under the worldwide reach of FATCA.

Generally, FATCA is a mechanism for US authorities to obtain information regarding foreign accounts held by US persons directly form the financial institutions. In essence, FATCA effectively turns all foreign financial entities that wish to comply with the law into IRS informants. In order to force other countries to accept FATCA, the US Congress armed FATCA with a global enforcement mechanism – the law requires U.S. financial institutions to withhold a portion of certain payments made to non-compliant foreign financial institutions (FFIs).

Governments have the option of permitting their FFIs to enter into agreements directly with the IRS to comply with FATCA under U.S. Treasury Regulations or to implement FATCA by entering into one of two alternative Model IGAs with the United States. India chose the latter route.

India Signed FATCA: Model 1 Agreement

On July 9, 2015, India signed FATCA Model 1 IGA. Unlike Model 2 IGA, Model 1 IGA will require Indian FFIs (banks, mutual funds, et cetera) to report information to India’s Central Board of Direct Taxes which will then turn over this information to the IRS. It is expected that various details and information regarding US-held Indian accounts will be provided to the IRS.

India Signed FATCA: US Will Provide Information to India Regarding Indian-held US accounts

India signed FATCA Agreement not only in order to provide information regarding US-held accounts in India, but also to obtain information regarding the assets held in the United States by Indian residents (so-called “black money”). – i.e. the FATCA Agreement signed by India is also a reciprocal Agreement. This means that the United States will also provide information to India regarding Indian-held accounts and assets in the United States.

India Signed FATCA: Implementation Schedule

India singed FATCA IGA with the agreement that the implementation of the IGA will begin on October 1, 2015. The automatic exchange of information between India and the United States is scheduled to begin on September 30, 2015. The reporting period due on October 1, 2015 will be July – December 2014.

India Signed FATCA: Consequences for Indian-Americans With Undisclosed Indian Accounts

For millions of Indian-Americans who have not yet disclosed their ownership of Indian accounts and other assets, the India FATCA IGA represents a potential disaster. They are facing the draconian civil and criminal FBAR penalties, income tax penalties (with interest), PFIC taxes, and other potentially devastating consequences.

The FATCA IGA started the clock for the Indian-Americans to immediately start exploring their voluntary disclosure options. If the IRS finds out about their non-compliance first, some or potentially all voluntary disclosure options may be closed for these taxpayers.

India Signed FATCA: What Should Indian-Americans With Undisclosed Indian Accounts Do?

If you are an Indian who is a US person with undisclosed foreign accounts, contact the experienced international tax team of Sherayzen Law office for professional help. Our legal team has helped hundreds of clients around the world, including Indians. We can hep you!

So, Contact Us to Schedule Your Confidential Initial Consultation Now!