Foreign Financial Institution for FATCA: IRS Overview

Foreign Financial Institution for FATCA: IRS Overview & Definition

Definition of Foreign Financial Institution

What is a Foreign Financial Institution for FATCA: When it comes to the IRS infamous FATCA Form 8938 (Foreign Account Tax Compliance Act), there are certain requirements for US Persons who have foreign accounts and assets.. Not all foreign accounts or assets are considered reportable — but most common foreign assets, such as bank accounts, investment accounts, foreign pension, and foreign life insurance are reportable on Form 8938. The failure to report FATCA Assets held at Foreign Financial Institutions may result in fines and penalties — but they may be abated or avoided with offshore tax amnesty.  Let’s review the basics of what is a Foreign Financial Institution for FATCA:

Form 8938 Definition of Foreign Financial Institution

The Form 8938 is used by US Persons to report Specified Foreign Financial Assets to the IRS — which includes (but is not limited to) accounts held at Foreign Financial Institutions.

Form 8938 Instructions Definition of Foreign Financial Institution

Foreign Financial Institution

• • • In most cases, a foreign financial institution is any financial institution that is not a U.S. entity and satisfies one or more of the following.

      • • It accepts deposits in the ordinary course of a banking or similar business.

        • It holds financial assets for the account of others as a substantial part of its business.

        • It is engaged (or holds itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest (including a futures or forward contract or option) in such securities, partnership interests, or commodities.

31 CFR 561.308: Foreign Financial Institution

31 CFR refers to Money and Finance and CFR refer to the Code of Federal Regulations.

As provided by the section:

• • • • The term foreign financial institution means any foreign entity that is engaged in the business of accepting deposits, making, granting, transferring, holding, or brokering loans or credits, or purchasing or selling foreign exchange, securities, commodity futures or options, or procuring purchasers and sellers thereof, as principal or agent.

      • It includes but is not limited to depository institutions, banks, savings banks, money service businesses, trust companies, securities brokers and dealers, commodity futures and options brokers and dealers, forward contract and foreign exchange merchants, securities and commodities exchanges, clearing corporations, investment companies, employee benefit plans, dealers in precious metals, stones, or jewels, and holding companies, affiliates, or subsidiaries of any of the foregoing.

      • The term does not include the international financial institutions identified in 22 U.S.C. 262r(c)(2), the International Fund for Agricultural Development, the North American Development Bank, or any other international financial institution so notified by the Office of Foreign Assets Control.

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