If you advise international clients, you need to understand FATCA. The Foreign Account Tax Compliance Act affects your clients more than you might think.
Whether you handle immigration cases, estate planning, business deals, or international law, FATCA will come up in your practice.
This guide covers the filing rules, thresholds, exemptions, and penalties you need to know in 2026.
What is FATCA and why does it matter to lawyers
FATCA is a 2010 US law that fights tax evasion by Americans with money overseas. It forces both US taxpayers and foreign banks to report foreign financial assets.
Here’s why lawyers should care:
- Your clients often have unreported foreign accounts
- Immigration and estate clients may not know about their FATCA duties
- Foreign banks are turning away US citizens because of FATCA rules
- If you miss FATCA issues, you could face liability problems
The main reporting form is Form 8938 (Statement of Specified Foreign Financial Assets). US persons file it yearly with their tax return when their assets pass certain dollar amounts.
If your client already missed filings, the FATCA streamlined procedure offers a way to catch up without facing full penalties. This matters because many clients don’t learn about FATCA until it’s too late. Knowing this relief option exists helps you guide them toward compliance before enforcement starts.
Who needs to file Form 8938?
When determining if a client must report assets, the biggest factor is often their tax status—specifically married filing jointly vs separately. The IRS sets much higher reporting triggers for couples who file together.
Thresholds for people living in the US
If your client lives in America, they file Form 8938 when their foreign assets exceed:
Single or married filing separately:
- $50,000 on the last day of the year
- OR $75,000 at any time during the year
Married filing jointly:
- $100,000 on the last day of the year
- OR $150,000 at any time during the year
Thresholds for Americans living abroad
Expats get higher thresholds because they naturally keep foreign accounts for daily life:
Single or married filing separately:
- $200,000 at year-end
- OR $300,000 at any point during the year
Married filing jointly:
- $400,000 at year-end
- OR $600,000 at any point during the year
Even accounts that don’t make money count toward these limits.
What assets must be reported?
FATCA covers way more than just bank accounts.
You must report:
- Foreign bank accounts (checking, savings, CDs)
- Foreign brokerage and investment accounts
- Foreign stocks, bonds, and securities (not held in US accounts)
- Foreign mutual funds, hedge funds, and private equity
- Ownership in foreign partnerships or corporations
- Foreign life insurance with cash value
- Foreign pension plans
- Foreign trusts and estates
You don’t report:
- Foreign real estate you own directly
- Foreign cash you keep at home
- Precious metals or collectibles
- Foreign assets held in US bank accounts
Know these differences when you’re doing due diligence for deals, estate planning, or real estate work.
Who gets a pass? FATCA exemptions
Some people and assets don’t need FATCA reporting:
People who are exempt:
- Anyone who doesn’t have to file a US tax return
- Some US government workers and military personnel stationed abroad
Assets that are exempt:
- Accounts at US banks or US branches of foreign banks
- Assets already reported on other IRS forms (3520, 5471, 8621, 8865)
- Social security and similar government programs
- Some foreign pensions covered by tax treaties
Important: Document why your client qualifies for an exemption. The IRS might ask for proof during an audit.
FATCA vs. FBAR – know the difference
Many lawyers mix up Form 8938 (FATCA) with FBAR. They’re different:
| What | FATCA (Form 8938) | FBAR (FinCEN 114) |
| Threshold | $50K to $600K (depends on situation) | $10,000 total |
| What to report | All specified foreign assets | Foreign bank accounts only |
| Where to file | With your tax return | Separately to FinCEN |
| Late filing penalty | Up to $60,000/year | Up to $100,000 or 50% of balance |
| Criminal risk | Yes, for fraud | Yes, if willful |
Key point: Most clients need to file both forms. Don’t assume one covers the other.
FATCA penalties are serious
The fines for missing FATCA filing are harsh:
If you don’t file Form 8938:
- First penalty: $10,000
- After IRS warning: Another $10,000 every 30 days (caps at $50,000)
If you underreport income from hidden assets:
- 40% penalty on unpaid tax
- 75% penalty if the IRS finds fraud
Criminal charges:
- Tax evasion for intentional violations
- False statement charges
The IRS ramped up enforcement in 2026. They use computer systems to match foreign bank reports with tax returns.
When they spot a mismatch, you get an automatic letter.
How to fix past mistakes
If your client missed FATCA filings, the FATCA streamlined procedure can help. This IRS program lets people catch up on late returns without getting hit with full penalties.
But there’s a catch: It only works if the mistake wasn’t on purpose.
Tell clients to fix FATCA problems before the IRS finds them. Voluntary disclosure shows good faith and cuts penalties way down compared to what happens when the IRS catches you first.
Protecting yourself from liability
FATCA creates risks for lawyers in different practice areas:
M&A and business lawyers: If you miss FATCA issues during due diligence, your client might inherit someone else’s penalty problem.
Immigration lawyers: When clients get green cards, FATCA obligations start immediately. Warn them upfront.
Estate lawyers: Foreign trusts, offshore accounts, and international assets all trigger FATCA rules.
How to protect your practice:
- Write down all FATCA advice in engagement letters
- Build referral relationships with expat tax specialists
- Add FATCA questions to your client intake forms
- Don’t give tax advice outside your expertise
When clients have messy foreign asset situations or past non-compliance, send them to a qualified tax pro. It protects everyone.
Why foreign banks make life harder
FATCA changed banking worldwide.
Foreign banks must:
- Register with the IRS and get a GIIN number
- Find all US account holders
- Report US person accounts to the IRS yearly
- Accept 30% withholding on US payments if they don’t comply
What this means for your clients:
- Many foreign banks refuse American clients now
- European banks (especially in Belgium and Switzerland) restrict US services
- Opening foreign accounts requires tons of paperwork
- Banks freeze or close accounts if you don’t provide FATCA docs
If you advise clients moving abroad, help them find FATCA-friendly banks or US banks with international services. It saves major headaches later.
Practical tips for lawyers
During client intake:
- Ask about foreign accounts for all US person clients
- Figure out their filing status and where they live
- Watch for dual citizens who don’t know about US tax rules
When handling transactions:
- Put FATCA compliance checks in your due diligence list
- Review foreign account disclosures in estate work
- Verify FATCA compliance before closing international deals
For immigration clients:
- Warn new green card holders about FATCA right away
- Tell them to get a tax review before applying for citizenship
- Explain how residency changes affect FATCA
Making referrals:
- Partner with CPAs who know expat and international tax
- Send non-compliant clients to voluntary disclosure specialists
- Document your referrals to protect against malpractice claims
What’s new in 2026
FATCA rules stayed mostly the same for 2025 taxes (filed in 2026). But enforcement changed:
● The IRS keeps improving its computer systems to catch violations
● Crypto and digital assets on foreign exchanges get extra attention
● Foreign banks got relief through 2027 if they’re trying to comply
● Over 110 countries now share tax information automatically
Watch for new IRS guidance on digital assets. The rules are still developing.
