FACTA is the United States’ effort to collect taxes on foreign-held assets. If you have an aggregate value of more than $50,000, which is the reporting threshold, you’ll need to report information about those assets. While this might seem like a very specific process, some businesses may need FACTA form assistance without knowing it.
If you or your business does accounting work for entities, either businesses or individuals, who have foreign assets, you’ll need to acquaint yourself with FACTA and its related forms. The reporting process is straightforward, but it can be difficult to understand which forms you need to apply were. That’s where AMS can help. If your business works with clients who may be subject to FACTA compliance, FACTA form software can help alleviate the pressure of accurately reporting this information.
What is FACTA?
FACTA is officially known as the Foreign Account Tax Compliance Act. This is an initiative by the IRS to improve reporting compliance for taxpayers who may offshore bank accounts and/or foreign financial assets. Introduced in 2014, FACTA requires foreign financial institutions to disclose any accounts held by American citizens to the IRS (or to their domestic tax authority). Put simply, this is a strategy for the United States to combat tax evasion.
Shortly after FACTA was introduced, the common reporting standard, or CRS, was proposed. Based largely on US legislation, this standard focuses on tax residence rather than citizenship, standing in direct opposition to FACTA. Many countries have since adopted CRS, and there has been pressure for America to follow suit, but this would only benefit foreign financial institutions. Put simply, if the United States switched to the common reporting standard, the country would lose out on millions of tax dollars.
There are currently many forms associated with FACTA, but one of the more important is 1042-s. Also known as the Foreign Person’s U.S. Source Income Subject to Withholding, it reports the income and amounts withheld, specified federal procurement payments paid to foreign person that are subject to withholding (under section 5000C), and distributions of connected income by a publicly traded partnership or nominee. Every withholding agent must file one of these forms to report amounts paid to foreign persons, even if those agents did not withhold tax.
Simply put, form 1042-s is what puts FACTA into practice, and it is little more than a form to report income. Those completing this will need to provide information about primary withholding agents and intermediary (or flow-through) entity names, but this is a straightforward form to report income subject to withholding. When you put it like that, the idea gels a bit better.
While AMS does not itself offer a FACTA system, we do offer a useful 1042-s software. This complete database system generates 1042-S forms, is easy to use, and has a menu-driven format for ease and accessibility. It is compatible with our hub tool, the W2 and 1099 Software, which is an essential addition to your business accounting process.