What is the purpose of the Foreign Account Tax Compliance Act (FATCA)?

The Foreign Account Tax Compliance Act (FATCA) is fundamentally aimed at ensuring that U.S. taxpayers are compliant with tax obligations related to foreign financial assets. This act requires foreign financial institutions (FFIs) to identify and report information about accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest. The primary objective of this legislation is to combat tax evasion by U.S. persons using foreign accounts to hide income and assets from the Internal Revenue Service (IRS). Through rigorous reporting and compliance requirements imposed on both U.S. taxpayers and foreign banks, FATCA enhances transparency in the reporting of non-U.S. financial accounts, thereby facilitating the enforcement of U.S. tax laws.