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Hi everyone,
I have a lot I purchased earlier this year in Ojochal. This whole IRS reporting thing is becoming a NIGHTMARE. They are fear mongering left and right with these $10,000-50,000 fines.
Question…I’m holding the property in a Costa Rican corporation. It was purchased with funds from my solo 401K…so the solo 401K actually owns the corporation and assets within.
Do I need to submit any of these forms… 8938, 5471, FBAR, or any other form I’ve missed.
Anyone with some knowledge/experience here would be a great help. I’ve been googling everything I can find the last few hours, but have found little information pertaining to 401k’s.
Looks like the best thing to do is get it out of the corporation and into my name. It doesn’t appear real estate would be reportable if you hold it in your name.
These forms look like absolute nightmares.
There’s almost nothing to these two common reporting requirements.
The first is if you have ownership or control over a foreign corporation such as the one that holds your lot in Ojochal you must report it. You [u]personally[/u] might be exempt because your 401k owns the corporation, but you own the 401k. Better to report it and be safe.
And, by the way, there’s almost nothing to it.
The second common reporting requirement is if you own or control a foreign bank account which, at any moment during the tax year, has a balance of $10,000US or the equivalent you must report that. It doesn’t matter whose money it actually is or for how long the money was in the account. You must still report it.
And, by the way, there’s almost nothing to it.
Thanks David,
I haven’t dug into the 5471 form…but it looks ridiculous….
http://sherayzenlaw.com/corporations-in-costa-rica-and-u-s-tax-reporting-consequences/
and more at ..
http://sherayzenlaw.com/form-5471-general-overview-of-the-required-information/
In fact, Turbo Tax doesn’t even produce this form.
I’m a guy who runs a small business and always do my own taxes. Some years my returns produce over 100-200 pages of documents, but this 5471 looks overly complex.
I think ultimately I’m going to take it out of the corporation and into my own name. Yes, there are transfer taxes when you sell, but I’m paying $200-300 a year now on passive corporation registration fees.
Using a corporation to hold title was sold to me as a way to have privacy and no transfer fees when selling. But lets face it…in 2012 in the US, there is NO privacy. You can forget about that. Costa Rican government has dropped the transfer fee from 3 to 1.5%…so I’d rather deal with that fee sometime down the road than the threat of filing a late/inaccurate/incomplete 5471 form and hit with a 10,000, up to $50,000 fine.
The IRS is even hitting people with 10K automatic fines just for filing the 5471 late…
http://www.groco.com/readingroom/intl_form5471penalty.aspx
“The instructions to Form 5471 state that it could take over 32 hours to complete this form”.
“The form requires that you supply the IRS with the corporation’s income statement, balance sheet, and data on its loans, operations and other shareholders. It also requires information on dividends and managerial payments made to shareholders, officers and directors”.
John, for a corporation with no financial activity, the form is really pretty simple to complete. All you need to do is identify it, identify yourself and maybe the other officers with authority to act on the corporation’s behalf, and write something like “Information Only. Inactive corporation” across the top of the form.
In fact, we did that a year or so ago and haven’t filed it since (or won’t next year) because the fact of the corporation is meaningless to IRS.
The bank account form is similarly simple.
Remember, you’re only reporting activity related to your foreign corporations and accounts and not on everything in your financial picture.
[quote=”john c”]Thanks David,
I haven’t dug into the 5471 form…but it looks ridiculous….
http://sherayzenlaw.com/corporations-in-costa-rica-and-u-s-tax-reporting-consequences/
and more at ..
http://sherayzenlaw.com/form-5471-general-overview-of-the-required-information/
In fact, Turbo Tax doesn’t even produce this form.
I’m a guy who runs a small business and always do my own taxes. Some years my returns produce over 100-200 pages of documents, but this 5471 looks overly complex.
I think ultimately I’m going to take it out of the corporation and into my own name. Yes, there are transfer taxes when you sell, but I’m paying $200-300 a year now on passive corporation registration fees.
Using a corporation to hold title was sold to me as a way to have privacy and no transfer fees when selling. But lets face it…in 2012 in the US, there is NO privacy. You can forget about that. Costa Rican government has dropped the transfer fee from 3 to 1.5%…so I’d rather deal with that fee sometime down the road than the threat of filing a late/inaccurate/incomplete 5471 form and hit with a 10,000, up to $50,000 fine.
The IRS is even hitting people with 10K automatic fines just for filing the 5471 late…
http://www.groco.com/readingroom/intl_form5471penalty.aspx
“The instructions to Form 5471 state that it could take over 32 hours to complete this form”.
“The form requires that you supply the IRS with the corporation’s income statement, balance sheet, and data on its loans, operations and other shareholders. It also requires information on dividends and managerial payments made to shareholders, officers and directors”.
http://www.expatattorneycpa.com/id79.html
[/quote]I looked at the forms, and they don’t look too bad. What happens, though, if one shareholder of the inactive corp has less than 10% ownership? I think I read somewhere, that if one holds less than 10% of that corp, then that person does not have to file the form. Is that correct?
[quote=”loraine”]
I looked at the forms, and they don’t look too bad. What happens, though, if one shareholder of the inactive corp has less than 10% ownership? I think I read somewhere, that if one holds less than 10% of that corp, then that person does not have to file the form. Is that correct?[/quote]I certainly have no idea, loraine. Have you read the actual IRS instructions? That’d be my source.
David, do you have to report to the IRS any profits you make on buisness in CR? say a rental property you own?
Under the IRS Code, all U.S. citizens are subject to U.S. taxation regardless where they live or where the income is earned. So the answer to your question about rent income, investment income, dividend and interest income and all other forms of income is that all that income is, indeed, fully taxable as if it had been earned in the U.S.
Earned income, derived from your actual work, is also subject to U.S. taxation, so if you come to Costa Rica and sell real etate, run a business, teach English or whatever, the income from that work must also be reported and tax must be paid. Unlike other forms of income, however, there is an annual exemption of about $93,000US from taxation for legitimate earned income.
There may also be exemptions to take into account taxes paid to foreign governments. Does anybody know for sure?
[quote=”DavidCMurray”]Under the IRS Code, all U.S. citizens are subject to U.S. taxation regardless where they live or where the income is earned. So the answer to your question about rent income, investment income, dividend and interest income and all other forms of income is that all that income is, indeed, fully taxable as if it had been earned in the U.S.
Earned income, derived from your actual work, is also subject to U.S. taxation, so if you come to Costa Rica and sell real etate, run a business, teach English or whatever, the income from that work must also be reported and tax must be paid. Unlike other forms of income, however, there is an annual exemption of about $93,000US from taxation for legitimate earned income.
There may also be exemptions to take into account taxes paid to foreign governments. Does anybody know for sure?[/quote]
that 93K limit though is fairly good, considering investment and would be under that…..
[quote=”camby”]that 93K limit though is fairly good, considering investment and would be under that…..[/quote]
But you understand, do you not, that the $93k exemption is for EARNED INCOME DERIVED FROM YOUR OWN WORK — YOUR OWN LABOR, not from rental or other non-earned income. It has nothing to do with any investment.
davidd-
looks like Scott or one of his monitors deleted your message because of the size going through his server or for some other reason. please send me a PM and I’ll send you my email, I would like to see your link.[quote=”costaricabill”]looks like Scott or one of his “monitors” [emphasis added] . . .
[/quote]The proper term, Bill, is “enforcer” although that, “henchman” and “thug” are used interchangeably.
[quote=”DavidCMurray”][quote=”camby”]that 93K limit though is fairly good, considering investment and would be under that…..[/quote]
But you understand, do you not, that the $93k exemption is for EARNED INCOME DERIVED FROM YOUR OWN WORK — YOUR OWN LABOR, not from rental or other non-earned income. It has nothing to do with any investment.
[/quote]oops, gotcha, mis-understood.
Good ol’ IRS.
We have a small finca here in CR and are planning on planting hundreds of harvestable trees over the next year, primarily rosewood (cocobolo), cedro, laurel, and perhaps a few mahogany (teak doesn’t grow well where we live). These trees take from 15-50 years to grow to harvestable size. Any trees harvested will be replaced with additional trees. Naturally, there will be expenses connected to the farm and we will list those expenses as deductions on our tax returns. The deductions will offset any monies we need to take from our IRAs. Let the IRS thugs figure that one out.
[quote=”VictoriaLST”]Good ol’ IRS.
We have a small finca here in CR and are planning on planting hundreds of harvestable trees over the next year, primarily rosewood (cocobolo), cedro, laurel, and perhaps a few mahogany (teak doesn’t grow well where we live). These trees take from 15-50 years to grow to harvestable size. Any trees harvested will be replaced with additional trees. Naturally, there will be expenses connected to the farm and we will list those expenses as deductions on our tax returns. The deductions will offset any monies we need to take from our IRAs. Let the IRS thugs figure that one out.[/quote]
Like that idea, for me, would want a acre or few, plus with fruit and veggies either already in place or could plant…nice, fresh and off the vine..
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