FATCA stands for the Foreign Account Tax Compliance Act. It is a United States federal law that requires foreign financial institutions to report information about accounts held by US taxpayers to the US Internal Revenue Service (IRS). The law was enacted in 2010 to combat tax evasion by US citizens and residents who hold assets in foreign accounts and fail to report them to the IRS.
Under FATCA, foreign financial institutions must enter into agreements with the IRS to identify and report information about accounts held by US taxpayers. This includes information such as the account holder’s name, address, tax identification number, and account balance. Failure to comply with FATCA can result in significant penalties and loss of access to US financial markets.
In addition to reporting requirements for foreign financial institutions, FATCA also requires US taxpayers to report certain foreign assets and income on their US tax returns. This includes assets such as foreign bank accounts, stocks, and securities, as well as income earned from foreign sources.
Overall, FATCA is a key tool in the US government’s efforts to combat offshore tax evasion and increase transparency in the global financial system.