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What FATCA is and how the fully-enacted law works

Many people in Atlanta have probably heard the acronym "FATCA" thrown around recently. They probably have a feeling that this is an important entity, but may not know what it is exactly. So let's dive a little deeper into FATCA in the hopes that it will help out some taxpayers in the coming year.

FATCA stands for the Foreign Account Tax Compliance Act, and as the name implies, it has international reach. FATCA is a way for the Internal Revenue Service and, by proxy, the federal government to obtain tax income from people who keep money overseas. FATCA was officially passed in 2010, but it has been introduced to taxpayers in a "phase in" process ever since. That phasing is now complete, and the rule has taken full effect.

What FATCA does is it compels banking institutions in foreign countries to reveal account information on American citizens if their holdings exceed $50,000. The U.S. government then can use the information to tax the holdings. The law compels these banking institutions to comply by imposing sanctions on these institutions if they don't reveal the information. As a result, most (if not all) major countries are complying with the law.

Because of FATCA's reach, many Americans will notice that the money they have overseas will be under attack by the IRS. This could complicate your tax filing and it could create issues for you down the line. One point of clarification: FATCA does not replace the FBAR (Report of Foreign Bank and Financial Accounts). You still have to file the FBAR under FATCA rules if you have holdings overseas.

Source: Forbes, "10 Facts About FATCA, America's Manifest Destiny Law Changing Banking Worldwide," Robert W. Wood, Aug. 19, 2014

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