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My reading of Scott’s article [ https://www.welovecostarica.com/members/3285.cfm ] on the The Foreign Account Tax Compliance Act suggests that it is only applicable to U.S. taxpayers who hold assets in foreign financial institutions in an aggregate amount of $50,000 or more. Is that correct?
If yes, then those of us whose Costa Rican bank accounts rarely exceed our monthly income have nothing to be concerned about. Is that correct? (I’m assuming that we expats don’t have a stash of money held elsewhere outside the U.S.)
Inquiring minds and all that . . .
According to: [ http://www.irs.gov/businesses/corporations/article/0,,id=236664,00.html ]
“FATCA requires certain U.S. taxpayers holding foreign financial assets with an aggregate value exceeding $50,000 to report certain information about those assets on a new form (Form 8938) that must be attached to the taxpayer’s annual tax return. Reporting applies for assets held in taxable years beginning after March 18, 2010. (Notice 2011-55 provides guidance for affected taxpayers required to file prior to the availability of Form 8938.) Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.”
Supposedly Form 8938 has not yet been released so I don’t see a clear IRS definition of a “foreign financial asset.”
According to: [http://www.floridatrustsestatesblog.com/international-estate-planning/new-reporting-requirements-for-foreign-financial-assets/ ]
A “specified foreign financial asset” includes any depository, custodial, or other financial account maintained by a foreign financial institution and any stock or security or financial instrument or contract issued by a person other than a U.S. person, or any interest in a foreign entity not held in an institutional account. A beneficiary of a trust holding specified foreign financial assets may be required to disclose his or her interest in such trust on his or her tax return if the value of the interest in the trust, together with the value of his or her other specified foreign financial assets, exceeds $50,000.”
And you saw that all “participating” FFIs (foreign financial institutions) are “obligated” to:
(1) undertake certain identification and due diligence procedures with respect to its accountholders;
(2) report annually to the IRS on its accountholders who are U.S. persons or foreign entities with substantial U.S. ownership; and
(3) withhold and pay over to the IRS 30-percent of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income, made to (a) non-participating FFIs, (b) individual accountholders failing to provide sufficient information to determine whether or not they are a U.S. person, or (c) foreign entity accountholders failing to provide sufficient information about the identity of its substantial U.S. owners.
So if the banks will “report annually to the IRS on its accountholders who are U.S. persons” I’m guessing that any U.S. citizen who has bank accounts in Costa Rica which have NOT yet been reported to the IRS should probably speak to their tax professional and get their reporting up to date.
Scott
From the IRS website:
What kinds of assets does the 25 percent offshore penalty apply to?
The offshore penalty is intended to apply to all of the taxpayer’s offshore holdings that are related in any way to tax non-compliance, regardless of the form of the taxpayer’s ownership or the character of the asset. The penalty applies to all assets directly owned by the taxpayer, including financial accounts holding cash, securities or other custodial assets; tangible assets such as real estate or art; and intangible assets such as patents or stock or other interests in a U.S. or foreign business. If such assets are indirectly held or controlled by the taxpayer through an entity, the penalty may be applied to the taxpayer’s interest in the entity or, if the Service determines that the entity is an alter ego or nominee of the taxpayer, to the taxpayer’s interest in the underlying assets. Tax noncompliance includes failure to report income from the assets, as well as failure to pay U.S. tax that was due with respect to the funds used to acquire the asset. See FAQ 52, category 3, for a limited exception to this rule.
36.
A taxpayer owns valuable land and artwork located in a foreign jurisdiction. This property produces no income and there were no reporting requirements regarding this property. Must the taxpayer report the land and artwork and pay a 25 percent penalty? What if the property produced income that the taxpayer did not report?
The answer to the first question depends on whether the non-income producing assets were acquired with funds improperly non-taxed. The offshore penalty is intended to apply to offshore assets that are related to tax non-compliance. Thus, if offshore assets were acquired with funds that were subject to U.S. tax but on which no such tax was paid, the offshore penalty would apply regardless of whether the assets are producing current income. [b]Assuming that the assets were acquired with after tax funds or from funds that were not subject to U.S. taxation, if the assets have not yet produced any income, there has been no U.S. taxable event and no reporting obligation to disclose.[/b] The taxpayer will be required to report any current income from the property or gain from its sale or other disposition at such time in the future as the income is realized. Because there has not been tax noncompliance, the 25 percent offshore penalty would not apply to those assets.
In answer to the second question, if the assets produced income subject to U.S. tax during 2003-2010 which was not reported, the assets will be included in the penalty computation regardless of the source of the funds used to acquire the assets. If the foreign assets were held in the name of an entity such as a trust or corporation, there would also have been an information return filing obligation that may need to be disclosed. See FAQ 5.
Very cool idea, Maravilla – you double posted the IRS double talk!
So after reading it twice, my interpretation is that if you have a personal home that produces no income, AND you purchased that home with after tax income, then that “asset” is not subject to the offshore reporting provision?
Is that what you understand, understand?
how did i double post it?? huh??
yes, that is what i understand. i hope it means what it says, because i have been relying on that info for years. pero quien sabe??
Aren’t some basic civil liberties being violated from the IRS to self report, from the prespective of the right to privacy, assuming the initial use of funds have been originally taxed once? So it begs the questions, why does the US gov’t need to know what you do with your hard earned money after it’s has been originally taxed?
are you serious? why do they need to know? because they do, because they said so, because if you don’t comply they will turn your life into a Hieronymous Bosch tableau of HELL! that’s why!
[quote=”chorizo”]Aren’t some basic civil liberties being violated from the IRS to self report, from the prespective of the right to privacy, assuming the initial use of funds have been originally taxed once? So it begs the questions, why does the US gov’t need to know what you do with your hard earned money after it’s has been originally taxed?[/quote]
Aren’t you forgetting about estate tax?
You think they only want to tax while you’re alive?
“The estate tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death.”
From: [ http://www.irs.gov/businesses/small/article/0,,id=98968,00.html ]
At present there is no Estate and Gift Tax Treaty with Costa Rica [ http://www.irs.gov/businesses/small/article/0,,id=186064,00.html ]
Scott
[quote=”chorizo”]. . . why does the US gov’t need to know what you do with your hard earned money after it’s has been originally taxed?[/quote]
The obvious answer is that people have been hiding [b]un[/b]taxed money in accounts outside the U.S. for generations. Inasmuch as taxation of those funds has been found to be legal under U.S. law, the IRS has the right and the obligation to the rest of us to collect the taxes that are due.
on the IRS website about how much money you need to pay in taxes and penalties when you declare your various offshore assets STARTS the asset chart at $1M — i don’t really think they care too much about those of us who only keep enough money to live on in our accounts down here. they are obviously looking for the whales, not the minnows.
[quote=”maravilla”]how did i double post it?? huh??
yes, that is what i understand. i hope it means what it says, because i have been relying on that info for years. pero quien sabe??[/quote]
Hi Maravilla – when it first showed up on my computer it was posted twice, back to back. I read the first one, then without realizing that it was duplicated, I started reading the second one. After about the 2nd paragraph I was thinking that “OK, this one confirms the first one”, then I realized they were the same. I looked at the time/date and saw that they were the same, so I thought that maybe it was accidentally posted twice; hence my comment that it was a good idea to double post it because it contained typical IRS doubletalk.
After seeing your response, I looked again and it was only their once.Wow…am I confused. And I STARTED OUT confused as we had to file a special form last year (which may have been something like 8351 or 8381) which reported our foreign corporations which hold our house and car. Thank goodness that I read about THIS form here on the Forum and had my accountant read the IRS reporting requirements or we would have been up the poop creek. Those NOT using this form to report said corporations can get really nasty penalties and interest.
My accountant had never heard of this and has other clients with similar holdings. I am guessing she was burning up the phone line to call all these folks after our work.
But I am hoping that I now have a very murky understanding that I am not required to do this whole new form as we have a very piddly amount of money at any given time (and of course NEVER more than $9,999.00) in our Costa Rican account. AND that our personal home and car do not trigger this reporting. I tried to follow Maravilla’s post but became hopelessly lost after the first couple of sentences. Sigh………….
yes, it’s confusing but the part i bolded is what’s important. i know a lot of people who have never filed any of these forms and those people have very astute accountants who were able to make sense of it all instead of having a knee-jerk reaction and charging a big wad of money to file forms that really weren’t necessary, all the while keeping their clients living in terror that somehow they have not complied. the key (apparently) is HOW you paid for those foreign assets and whether those assets were purchased with pre-tax dollars. it’s all designed to keep you confused, but actually i think the language in the section i posted is pretty straight forward, and that is what i am going on.
This clip explains the staggeringly massive fraud being perpetrated on humanity as we speak and just one tiny reason the U.S. is DESPERATE to collect every penny they can…
US GDP is = US$15T;
Entire PLANET GDP: US$65T;
B of A derivatives total US$75T; Wells-Fargo derivatives $73TAnd they have moved those phony dollars to their commercial side, making them FDIC insured.
The U.S. taxpayers are now on the hook for their crimes, for more money than the entire world produces over several years. This is the result of the repeal of the Glass-Steagall Act in 1999.
From The Thom Hartmann Program, Free Speech TV 10/19. (Free Speech TV is channel 348 on DirecTV)
The tough times have yet to begin…
Be prepared!
Scott
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