US Expat Tax Returns & Dutch FATCA Agreement

Should American expats in the Netherlands care about FATCA? How does it affect their US expatriate tax returns?

By the end of 2012 the Netherlands plans to sign a Foreign Account Tax Compliance Act Agreement (FATCA) with the United States according to the Dutch Finance Ministry release as of October 12, 2012.

The Netherlands would follow other European countries (France, Italy, Germany, Spain and the United Kingdom) that have already agreed to information sharing deals with the USA back in July 2012. The UK was the first country to sign an intergovernmental agreement on September 14, 2012.

What does it mean for American expatriates in the Netherlands?
If such an intergovernmental agreement goes into effect between the Netherlands and the USA, Dutch financial institutions will be required to provide the IRS with bank information and other financial details about their U.S. customers. The primary goal of FATCA is to combat international tax evasion. The FATCA form has a lot of duplication with the FBARs, however, there are quite a few differences.

How can US expatriates comply with the FATCA?
American expats living abroad have to file the FATCA Form 8938 with their expatriate tax return if the aggregate value of specified foreign financial assets exceeds 200.000 US dollars (last day of the year) or 300.000 US dollars (anytime during the year) for taxpayers with a filing status "single," "married filing separately" and "head of household." This threshold is higher for married filing jointly.

What to remember about the threshold
First, this higher threshold is applicable only to Americans living abroad who must qualify under the "physical presence test" or "the bona fide residence test." US taxpayers living abroad are not required to file the Form 2555 with the Form 8938 to qualify for the above threshold.

Second, American taxpayers who actually reside in the USA must file the FATCA if the aggregate value of specified foreign financial assets exceeds the following amounts:
› Single or married filing separately and reside in the U.S.: 50.000 at the end of the year or 75.000 US dollars at any time during the year.
› Married couples filing jointly and reside in the U.S.: 100.000 at the end of the year or 150.000 US dollars at any time during the year.

Penalties for a failure to file the FATCA
› The first penalty is a 10.000 US dollars failure-to-file penalty. This amount is subject to an additional 10.000 US dollars penalty for each 30 days within 90 days after the IRS mails a notice regarding a failure to file Form 8938.
› The secondary penalty is 50.000 US dollars for each failure to file.
› Some criminal penalties may be imposed too.

American expatriates living in the Netherlands should follow future IRS developments to avoid any FATCA penalties!