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We are american citizens, and we recently started a Sociedad de Responsabilidad Limitada, Ltda.; purely for the purpose of a recent home purchase. Do I have to report this on an IRS Form 5471 (along with my annual 1040 tax filing), as a dormant corporation; or any other form(s), of which I own 50% share as manager, and my wife owns 50% share as vice manager. I contacted the U.S. IRS, spoke to four individuals in the foreign tax departments; none of them had a clue! I am receiving conflicting information from various sources, some say because it is a Ltda. I need file nothing, a tax expert with this website indicated a form 5471 must be filed, in an article. I file my own U.S. taxes each year, and am trying to avoid paying a tax expert $150.00 or more, to merely tell me I need to file nothing, or, I merely need to file form(s) etc. Can any members in a similiar situation, provide me with any insight?
soldier, what I can tell you is that we have two S.A.s here and we don’t file anything with IRS regarding them. They have no economic activity, as yours probably won’t. What’s more, I’ve never heard of an American filing anything special. Of course, we could all be in violation . . .
(But I wonder what the risks/penalties might be.)
According to US International Tax Expert – Jason Warner in his article entitled ‘If You Are A U.S. Citizen Who Owns A Costa Rican Corporation – You’d better be filing IRS Form 5471.’
Which can be read at: [ https://www.welovecostarica.com/members/2270.cfm ] he states quite categorically:
“Many such persons may not know that IRS rules require reporting the formation of the Costa Rican corporation and annual filings thereafter on Form 5471, even if the corporation earns no income or is dormant.”
There is nobody that I know of that contributes to this Forum who is more qualified, experienced and knowledgeable on US taxes than Jason Warner on this matter… Unfortunately he charges way more than $150 per hour.
We need to be very alert when it comes to taxes. Most countries are in dire financial straits so most governments will be trying to raise more money from any and every source they can. This means that taxes will probably NOT be going down any time soon, he said sarcastically.
I’m British and thankfully do not have to pay taxes to the British government because British citizen taxes depend on where I live but, US citizens are taxed as US citizens and MUST report and pay taxes on their income no matter where they live. All of this reporting is designed to help in that endeavour.
The Costa Rica tax man is also clearly becoming way more inquisitive which will make life for us folk doing business in Costa Rica way more “interesting.”
As for the penalties of US citizens not reporting the fact that they have a company in Costa Rica? Even if “even if the corporation earns no income or is dormant…”
From the same article:
“Penalties for failure to file Form 5471 include a specific $10,000 penalty for failure to timely file unless the person required to file can show reasonable cause.
If the IRS mails notice of failure to file and the delinquent form is not filed within 90 days, an additional penalty of $10,000 applies for each 30-day period in which the failure to file continues, up to a maximum of $50,000”
Scott
PS. And yes! I do know people that have been fined.
Thanks to everyone for their replys. Why does it surprise me that the United States Internal Revenue Service, could not answer my inquiries! The instructions for IRS Form 5471, are also very confusing. I am a legal assistant currently working for a federal agency, and, I am still scratching my head after reading the instructions.
Scott Posted…
“PS. And yes! I do know people that have been fined.”Like folks that post in public forums with their full name, current location, and a photo telling the world that they don’t file their tax returns legally? I hope the cat can cope with some time in the big house! LOL
Sorry… no insult intended… just couldn’t pass up the chance… it’s a big world out there folks and sometimes a little bit of a discretion should be used. Although we think of this board as a private conversation sometimes we need to be mindful that it’s not! There are a lot of folks out there that have found that the things they’ve posted on MySpace and Facebook have come back to bite them in the butt!
look what happened to the white house party crashers who bragged about it on facebook and attracted the attention of the secret service. sheesh. or the woman who was denied disability benefits for depression after posting pictures of herself at a chippendale’s presumably having a grand time. who knows who all these people are who join these message boards. i know scott tries to vet them but can he really be sure they aren’t IRS agents, spooks, or treasury department goons surfing the net looking for scoundrels who are evading taxes, or a myriad of other infractions they admit to committing on a public forum. shhhhhhhhhhh they’re listening.
Thank You for the message! My wife and I learned about the 5471 form from this site. So we decided to do some research. Our research taught us that everyone who owns a foreign corp MUST file form 5471. Our accountant filed this for us quickly and we beat the cutoff date. If you haven’t met the cut-off date, talk to your accountant about other options.
So PLEASE, if you own a foreign corp, file the necessary paperwork. Our gov’t is not hesistant in finding and penalizing you if you don’t. I definitly don’t agree with this gov’t control, but, as a US citizen I feel I have to abide.Mike
MichiganI agree with the members who indicated caution with information shared on-line. I am currently employed by The Department of Justice, and, I can assure you, there are U.S. federal agencies monitoring web sites frequented by expats internationally. As a new CR homeowner, and Ltda. manager; I am attempting to ensure that I report and conform to all U.S. IRS, and Department of Treasury (If you have $10,000 or more in a foreign bank account,) laws and regulations. Remember, fellow U.S. citizens, the U.S. government was able to break the Swiss banking vail! Costa Rica is more than happy to assist the U.S.; as long as the U.S. provides foreign aid and DEA, CIA assistance.
We recently opened an Ltda. into which we are going to transfer property. I will use the recommended IRS form. As this Ltda. is currently “empty”, how would this be listed?
Greetings fellow members,
After extensive research and hair pulling, I was able to obtain the following information from the IRS website. I am not an attorney, and this does not constitute legal advice. However, I am a legal assistant. Instructions for preparing form 5471. Dormant Foreign Corporations. Rev Proc. 92-70, 1992-2 C.B. 435, provides a summary filing procedure for filing Form 5471 for dormant foreign corporation. This summary filing procedure will satisfy the reporting requirements of sections 6038 and 6046. “The top margin of the summary return must be labeled “Filed Pursuant to Rev. Proc. 92-70 for Dormant Foreign Corporation.” Include filer information such as name and address, Items A through C, and tax year. Include corporate information such as dormant corporations annual accounting period(below the title of the form) and 1d. For more information, see Rev. Proc. 92-70. I hope this helps my fellow U.S. citizens.
I know the form is available online, but are these procedures also? If yes, can you conveniently point us to a website address?
Thanks in advance.
David,
The general instructions are also online. At http://www.IRS.gov. You can also just do a search for ” IRS Form 5471 General Instructions,” I found this quicker, than the IRS website.Better take a good hard look at that form folks…. seems that although you might think of your S.A. has having no “economic activity” and thus not generating a problem for you… they ask a bunch of questions about assets held by the corporation. Looks like a lot of trouble in the making giving up too much information that can bite you down the road!
Funny that you can hold property in CR in your name and NOT have to let Uncle Sam know anything about it… yet doing so in a corporation requires all this filing!!! Go figure!
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