FATCA Exemptions: Which Accounts and Assets Are Excluded?

FATCA exemptions can remove certain foreign accounts and assets from your reporting requirements, saving you from filing paperwork you don’t actually need. Whether one applies depends on what you hold, where it’s held and how the account or institution is classified.

The tricky part—and something we regularly untangle with our clients at Bright!Tax—is that FATCA has separate rules for financial institutions and their U.S. customers. An exemption for your bank doesn’t necessarily extend to you, so let’s look at which accounts and assets qualify.

FATCA basics: What it is and why it matters

Think of FATCA—the Foreign Account Tax Compliance Act—as the IRS’s global radar system. Passed in 2010, its goal is simple: stop U.S. taxpayers from hiding money in foreign accounts.

Here’s how it works:

• Certain U.S. persons, including citizens, green card holders and resident aliens, must report specified foreign financial assets when they meet the applicable filing threshold.
• Foreign financial institutions (FFIs)—such as foreign banks, investment firms and insurance companies—may have to identify and report information about accounts held by U.S. persons.

If you’re thinking, “Wait, how do foreign banks even know to comply?”—that’s where Intergovernmental Agreements (IGAs) come in.

Under a Model 1 agreement, financial institutions generally report the required information to their local tax authority, which then exchanges it with the IRS. Under a Model 2 agreement, financial institutions generally report directly to the IRS.

Bottom line?

If you have foreign bank accounts, investment accounts, retirement plans or other financial assets abroad, FATCA may affect you. But having a foreign account does not automatically mean you need to file Form 8938.

Who has to report under FATCA? (And what FATCA reporting looks like)

FATCA might sound like a faraway government program you can blissfully ignore—but if you’re a U.S. citizen, green card holder or resident alien with financial assets abroad, it’s time to pull up a chair. FATCA filing requirements reach further than many people expect.

Here’s who may be affected:

• U.S. citizens and other specified individuals with foreign financial assets over the applicable thresholds must report them using Form 8938, filed alongside their income tax return.
• Certain domestic corporations, partnerships and trusts may also have Form 8938 obligations when they meet the definition of a specified domestic entity.
• Foreign corporations, partnerships and trusts with substantial U.S. ownership can have separate FATCA reporting or certification requirements.
• Foreign mutual funds, stocks, pension interests and cash-value insurance policies can all be reportable assets—even if you are not actively managing them.

FATCA also includes a separate withholding regime for foreign institutions and entities. Certain payments to noncompliant foreign financial institutions or foreign entities can be subject to 30% withholding. This is not the same as the penalty imposed on an individual for failing to file Form 8938.

What about identification numbers?

Foreign financial institutions may ask customers to provide documentation confirming whether they are U.S. or foreign persons. A U.S. person will generally provide a U.S. Taxpayer Identification Number, such as a Social Security number, while a foreign person may be asked for a foreign TIN and the appropriate Form W-8.

Who is exempt from FATCA reporting?

Good news: Not every foreign asset, account or financial institution falls within FATCA’s reach. The less-good news is that “FATCA exemption” can mean several different things.

Some exemptions apply to financial institutions themselves. FATCA regulations and IGAs can treat certain government entities, nonprofit organizations, small local financial institutions and retirement entities as exempt or deemed compliant.

That does not automatically make every account they hold exempt from a U.S. taxpayer’s Form 8938.

For individual taxpayers, the more useful question is whether an asset is a specified foreign financial asset and whether a particular reporting exception applies. Examples include:

• An interest in a foreign social security, social insurance or similar government program generally is not a specified foreign financial asset.
• A foreign pension or deferred-compensation interest generally is a specified foreign financial asset, despite the plan’s own FATCA classification.
• An account maintained by a U.S. branch or U.S. affiliate of a foreign financial institution generally is not reported on Form 8938.
• An account held through a foreign branch or foreign affiliate of a U.S.-based financial institution generally is not treated as a specified foreign financial asset.
• Assets reported on certain other international information returns still count toward the Form 8938 threshold, but you may not have to repeat all their details on Form 8938.

Foreign trusts, estates and bank accounts do not receive a blanket exemption. Their treatment depends on whether you have an interest in them, the type of asset involved and whether a specific reporting exception applies.

FATCA reporting thresholds: When you actually need to file

Not everyone with a foreign bank account has to dive into FATCA paperwork. Form 8938 applies only when the total value of your specified foreign financial assets exceeds the threshold for your filing status and residence.

Here’s the cheat sheet:

Filing status and residence	Value on the final day of the tax year	Value at any point during the year
Unmarried or married filing separately and living abroad	More than $200,000	More than $300,000
Married filing jointly and living abroad	More than $400,000	More than $600,000
Unmarried or married filing separately and living in the U.S.	More than $50,000	More than $75,000
Married filing jointly and living in the U.S.	More than $100,000	More than $150,000

To use the higher thresholds for taxpayers living abroad, your tax home must be in a foreign country and you must meet either the bona fide residence test or physical presence test.

What counts toward these thresholds?

Foreign bank accounts, foreign shares, foreign mutual funds, foreign trusts and certain foreign financial instruments can all count toward the total value of your specified foreign financial assets. It’s the combined value that matters—not just the largest account.

FATCA vs. FBAR

They often get confused—understandably—but they’re different forms with different rules.

FBAR applies when the aggregate maximum value of your reportable foreign financial accounts exceeds $10,000 at any point during the calendar year. FATCA reporting on Form 8938 covers a broader category of foreign financial assets and uses much higher thresholds.

Sometimes, you’ll need to file both. We know. It’s a party.

Requirement	FATCA: Form 8938	FBAR: FinCEN Form 114
What it covers	Specified foreign financial assets	Foreign financial accounts
Main threshold for qualifying unmarried taxpayers abroad	More than $200,000 at year-end or $300,000 at any point	More than $10,000 across all accounts at any point
Where it is filed	With your federal income tax return	Separately through FinCEN
Signature authority without ownership	Generally not reportable	Can be reportable
Directly held foreign shares	Can be reportable	Generally not reportable unless held in a foreign account

Common FATCA exemptions: How they apply to your accounts

Not every foreign asset you own has to be reported under FATCA. We’ll take the wins where we can get them.

Here’s how some common assets are treated:

• Foreign real estate you own directly isn’t considered a specified foreign financial asset. However, if it’s held through a foreign corporation or foreign partnership, your interest in that entity may be reportable.
• Foreign mutual funds are usually reportable when you meet the Form 8938 threshold.
• An interest in a foreign trust or estate can be reportable, although the valuation and reporting rules depend on the nature of your interest.
• An interest in a foreign social security or similar government program generally is not reported on Form 8938.
• Foreign pension and deferred-compensation interests generally are specified foreign financial assets and may need to be reported.
• Foreign life insurance and annuity contracts with cash value can be reportable.
• Accounts maintained by a U.S. branch or U.S. affiliate of a foreign financial institution generally are excluded from Form 8938 reporting.

The key takeaway?

Knowing whether your assets count as specified foreign financial assets can save you unnecessary paperwork—or highlight where you need to file Form 8938 to stay compliant.

When in doubt, it’s always smart to double-check the fine print—or better yet, let a FATCA-savvy professional handle it. Hint: we know a few.

What happens if you don’t comply with FATCA?

We hate to be the bearer of bad news, but FATCA isn’t just a suggestion. Noncompliance can get expensive—fast.

Here’s what’s at stake:

• The initial penalty for failing to file Form 8938 can be $10,000.
• If you continue not to file for more than 90 days after the IRS mails you a notice, additional penalties of $10,000 for each 30-day period can apply, up to $50,000.
• A 40% accuracy-related penalty can apply to an underpayment involving an undisclosed foreign financial asset.
• Fraud and criminal penalties can apply in more serious cases.
• Failing to provide Form 8938 can keep the statute of limitations open for all or part of the relevant tax return.

FATCA’s 30% withholding rules are separate. They generally apply to certain payments made to noncompliant foreign financial institutions or foreign entities—not automatically to an individual who forgets to include an account on Form 8938.

Living in a country without an IGA does not increase the statutory Form 8938 penalties. It can, however, change how local financial institutions meet their FATCA obligations and report information to the IRS.

How to stay compliant (and stress free)

FATCA compliance doesn’t have to be a hair-pulling experience. With the right plan—and the right people in your corner—you can stay on top of everything without losing sleep or savings.

Here’s what smart FATCA compliance looks like:

• File Form 8938 with your annual tax return if your specified foreign financial assets exceed the applicable reporting threshold.
• Check the FBAR separately if the aggregate value of your foreign financial accounts exceeded $10,000 at any point during the calendar year.
• Keep thorough records of your foreign assets, account balances, ownership interests and identifying information.
• If you discover a missing asset or form, check the appropriate correction procedure before filing it.
• Partner with a CPA who understands international tax. Hint: not every accountant does.

If your previous noncompliance was non-willful, the Streamlined Filing Compliance Procedures may provide a route to catch up. However, you must meet the eligibility requirements and certify that the failure resulted from non-willful conduct. Streamlined filing is not automatically available—or necessarily the right option—for every missed Form 8938.

The goal isn’t just to file forms. It’s to stay protected, stay informed and make international life as easy as it’s meant to be.

Keep your FATCA status in check

FATCA exemptions aren’t always as generous—or as straightforward—as they sound. The rules applying to a foreign bank, pension fund or government program may be completely different from the rules determining what belongs on your Form 8938.

Bright!Tax helps Americans abroad identify which foreign assets count, determine whether they have crossed the filing threshold and handle overlapping FATCA and FBAR obligations without turning tax season into a research project.

Get help with your FATCA reporting.

Frequently Asked Questions (FAQ)