What is FATCA and why is it important?

The Foreign Account Tax Compliance Act (FATCA) is a federal law that seeks to combat tax evasion by U.S. persons holding accounts and other financial assets offshore. 

Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS. Penalties are imposed on individuals who do not report their foreign account holdings and financial assets that exceed $50,000 in value in any given year.

FATCA will also require certain foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.