How to avoid confusion with the FATCA IGA between France and the US and the 8938 filings requirements

19/12/2018
Conseils
Anne-Lise Truntzer

The Foreign Account Tax Compliance Act or FATCA is a financial disclosure and transparency law intended to regulate tax evasion by US citizens and residents who hold investments in foreign countries.

There are several nuances regarding FATCA that, if not properly managed, can be costly to taxpayers.

1/ FATCA: Foreign Financial Institutions

According to FATCA’s Intergovernmental Agreement (IGA) between France and the US, certain financial products do not meet the criteria of a financial account, and therefore do not need to be reported. A list of these excluded financial accounts can be found on pages 51 and 52 of the treaty (can be consulted here):

Accounts Excluded from Financial Accounts
The following financial accounts and products established in France and maintained by a French Financial Institution are excluded from the definition of Financial Accounts and therefore are not treated as US Reportable Accounts:

A. Certain Retirement Accounts or Products
    • Products called « Article 82 », « Article 83 », « Madelin, “Madelin agricole”, “Perp, Pere and Prefon”
    • Products called « Article 39 »

B. Certain Other Tax-Favored Accounts or Products
Regulated savings accounts
    • Livret A and Livret Bleu
    • Livret de Développement Durable
    • Livret d’Epargne Populaire
    • Livret Jeune
    • Plan d’Epargne Logement and Compte d’Epargne Logement
    • Plan d’épargne populaire / PEP

Employee savings accounts
    • Accords de participation
    • Plan d’épargne d’entreprise / PEE and Plan d’épargne interentreprises / PEI
    • Plan d’épargne pour la retraite collectif / PERCO and Plan d’épargne pour la retraite collectif interentreprises / PERCOI
    • Compte courant bloqué

Be aware, however this particular FATCA agreement concerns the reporting obligation between the foreign bank institution and the IRS. This agreement and therefore the bank accounts exclusion does not apply to the taxpayer.

2/ FATCA: US taxpayer

When enacted, FATCA also established Section 6038D of the Internal Revenue Code (IRC) which is applicable to the US taxpayer. Under this section, certain U.S. taxpayers, holding financial assets outside the United States, must report these assets on form 8938.

Note that the definition of a financial asset in IRC Section 6038D is broader than the definition in the IGA. According to the 8938 instructions, a financial asset includes:
    • Financial (deposit and custodial) accounts held at foreign financial institutions
    • Foreign stock or securities
    • Foreign pensions
    • Foreign partnership interests
    • Foreign mutual funds
    • Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor
    • Foreign-issued life insurance or annuity contract with a cash-value
    • Foreign hedge funds and foreign private equity funds

This definition implies that accounts excluded in the IGA treaty (e.g. livret A, PEL, Plan d’epargne entreprise) should be reported on form 8938.

Form 8938 must be filed if you file an income tax return and:
• You are unmarried and the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year
• You are married filing a joint income tax return and the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.

3/ FATCA versus FBAR

The reporting requirement for Form 8938 is separate from the reporting requirement for FinCEN Form 114.

FBAR regulations state that a taxpayer with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2018 generally must file.

A comparison between form 8938 and Fbar requirements can be found at the IRS website.

4/Compliance filing procedure

For taxpayers who neglected to report specific financial accounts (Livret A, PEE, PERCO, etc) on form 8938 or Fbar, the IRS has created the streamlined filing compliance procedures. The purpose is to allow tax payers get current with any taxpayer filing obligations.

Under this program, a tax payer must 1) complete form 14654, 2) file FBARs for the past 6 years and 3) file amended tax returns for the past 3 years.

A penalty of 5% is applied to any unreported accounts on the year where the highest aggregate amount is reported.

Anne-Lise Truntzer
Branch Manager Boston
857-991-7248