What is the role of the USA's Foreign Account Tax Compliance Act (FATCA)?
The Foreign Account Tax Compliance Act (FATCA) is a United States federal law that is designed to combat tax evasion by United States persons holding financial accounts and other investments outside of the US. FATCA requires foreign financial institutions to report information to the Internal Revenue Service (IRS) about accounts held by US taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest. Under FATCA, foreign financial institutions must report to the IRS various customer information including account balances, income, and withdrawals. This information is then used by the IRS to identify US persons who are not properly reporting their income and profits from foreign accounts. The IRS also requires affected foreign financial institutions to register with the IRS to identify and report their accounts held by US persons. In Tennessee, FATCA applies to any foreign entity or financial institution which has either held or received payment from a US taxpayer. The financial institution must register with the IRS in order to remain compliant under FATCA. In addition, FATCA also imposes certain penalties and sanctions on any foreign financial institution that fails to comply with its reporting and registration requirements. Penalties and sanctions can include civil and criminal penalties, withholding of taxes, and suspension or termination of business. Overall, FATCA plays an important role in combating tax evasion in Tennessee and other parts of the US. By requiring foreign financial institutions to identify and report their US accounts and other investments, FATCA has helped the US government to better enforce international tax law.
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