Are You Fully Compliant & Up To Date?
Let’s face it, the IRS and Hacienda (Costa Rica’s IRS equivalent) both have a long reach and neither makes reporting of tax obligations a simple task. Unfortunately, the responsibility of accurately reporting your tax obligations and paying those taxes in both countries lies on you and the penalties for not reporting or ignoring your tax compliance obligations can be severe to say the least. But where do you start?
Should You Be Worried?
If you are a US citizen or resident and maintain an undisclosed foreign bank account, beware. The secrecy of Swiss and other tax havens turns out not to be so secret after all. Names have already been reported with more on the way. Many banks are in the mix now, as are many foreign countries besides Switzerland. Putting your head in the sand will come back to bite you in the long run. There were various special “Voluntary Disclosure Program” to bring violators current, but those programs closed. If you missed that deadline, beware. Sooner or later you will need to address your situation one way or another.
Filing Your Taxes Isn’t Enough
All US persons with foreign bank accounts and corporations must file form TD F 90-22.1 Report of Foreign Bank and Financial Accounts (which is commonly called an FBAR) and 5471’s, if the aggregate value of all your foreign financial accounts exceeds $10,000 at any time during the year. For FBAR’s the form is due every year before June 30 for the preceding year. A common mistake is thinking that one does not need to file if 2 or more smaller foreign bank accounts have less than $10,000 each but together they total more. You still need to report and file the FBAR form if they add up to more than $10K, even if they are in different countries. Example… if you have $3,000 in an account in England, $4,000 in an account in Costa Rica and $4,000 in an account in Panama, you need to file the FBAR form.
Severe Penalties For Breaking The Rules.
In case you are not aware of what the penalties are for ignoring your obligations here are a few of the ramifications you will be faced with for non-compliance. Make no mistake, the stakes have never been higher and the consequences and potential liabilities can be staggering. If you don’t comply with one or both sets of obligations the penalties are severe. Tax returns are signed under penalty of perjury, so failing to report your worldwide income or just failing to check the box that you have a foreign account or corporation can have severe penalties. Six years is the statute of limitations on such criminal acts. However, the statute of limitations never expires on civil tax fraud which means the IRS can pursue you 15 or 20 years later for back taxes, interest and penalties. If you fail to report income, your civil liability to the IRS can include a 20% accuracy related penalty and a 75% civil fraud penalty.
Jail Is A Possibility
While failing to file is a misdemeanor, filing a false return is a felony. You could face up to one year of prison and a fine of up to $100,000 for failing to file your return. Filing a false return can carry a sentence of up to 3 years in prison and a fine of up to $250,000. Tax evasion can mean a prison term of up to 5 years and a fine of up to $250,000.
FBAR & 5471 Penalties Are Even Bigger
Failure to file an FBAR & 5471 penalties are even more severe and can carry a civil penalty of $10,000 for each non-willful violation. However, if your violation is found to be willful, the penalty is a minimum of $100,000 or 50% of the amount of the violation, whichever is greater. And every year is a separate violation. FBAR penalties are even worse than filing and tax evasion penalties with monetary penalties up to $500,000 and a prison term of up to 10 years.
What Should You Do?
Step one is to get organized by collecting all the data you need. Step two is to speak with a tax advisor and present the organized data. We strongly recommend hiring a tax professional to help you do this as they can explain your various options. Inconsistency in the past will hurt you.
What About Taxes In Costa Rica?
Reporting in Costa Rica can be just as important as reporting in the US. The taxing authorities in Costa Rica have little leniency for neglecting your obligations and with so many recent changes in reporting requirements it is becoming almost as confusing as the US Tax reporting requirements. If you earn any income from working in Costa Rica that income needs to be claimed, this includes any money you collect from renting out property even if it is paid to a US bank account or handled through an agency. Such income falls under the taxing authorities of Costa Rica and failing to report and pay tax on this income can come back to bite you hard. Failure to be compliant can prevent you from being able to perform simple transactions in Costa Rica.
And About Those Costa Rican Corporations You Have…
Until recently corporations were formed at the drop of a hat in Costa Rica and were used for a multitude of purposes. The result was corporations were used for everything. All types of assets were deposited into corporations because they were free to maintain after setting them up. But a recent change in Costa Rican law now levies a corporate tax for all corporations dividing them into active and inactive corporation profiles. Active corporations are the ones that have been declared at the Taxation Office (Hacienda). Active corporations have a higher tax than non active corporations but both must pay yearly those taxes. Long gone are the days of no taxes on corporations used to hold assets. You are now held as a responsible party in all corporations in which you are named an officer.
Do You Know What Your Reporting Obligations Are In Costa Rica?
A large number of US citizens living in Costa Rica find out they are not compliant in some area when they do complete & thorough research. Even more amazing is that the majority of our clients discover their name on corporations they did not even know they were attached to when they look in depth into their own records. Many people find corporations that they did not know were created with their name attached or they forgot they created or they thought was dissolved by an attorney they paid to do the work but did not follow through, etc.. Unfortunately, not knowing is not an excuse for not filing as there are ways to get the information you need to know in order to be compliant. Not filing only causes interest on the past due amounts to accrue making the debt bigger. Eventually they will get to you in one way or another.
Who We Are & What We Do
We are a one-stop resource for your US and Costa Rica obligations. Everyone has a different situation requiring specific actions. We provide intensive support in the way of collecting and organizing data to provide to your tax advisors ensuring your compliance in both countries with more complete, thorough and accurate recommendations while simplifying work and reducing your overall fees. Included are…
a. Legal Reports to provide to your U.S. tax advisors for filing all necessary forms
b. Accounting files of Costa Rican entities for U.S. tax advisors
c. Gather all Costa Rica accounting documentation as it pertains to your U.S. tax compliance
d. Legal and accounting interface of Costa Rican entities
Order Your Personal Status Check Up Now for Only $95
Getting compliant is a lot easier than you might think. The first step is simply finding out what your name appears on in the public registry in Costa Rica. This report will give you a clear picture of everything that you have a responsibility to pay tax on or report on to the IRS as well as entities you may have your name on where you want to have it removed. Once you receive your status check up you may want to research more thoroughly an entity appearing on your status check up. We offer detailed analysis of any entity appearing on your status check up. The cost for the status check up is only $95. A small price to pay to obtain piece of mind.