And again, there is a $10,000 “disclosure penalty” for each year that each required form goes un-filed. Since John & Julie are “married filing jointly” taxpayers and residents of the US, and since the value of their holdings in the foreign corporation exceed $200,000, they are also required to file IRS Form 8938 annually. Even though this purchase is not a taxable event, there is a $10,000 penalty for not filing this form and for every year that it goes un-filed. You see, because John & Julie were US citizens who each owned more than 10% in a foreign corporation, they were required to file an IRS Form 5471 for the year of purchase and every year since. For the next decade, John & Julie enjoyed their home in paradise having no idea of the bomb that is ticking just for them. It was just a vacation home, and hopefully someday, a retirement home. John & Julie never thought to report the purchase to the IRS as there was no income there to be taxed. John wired the $250,000 to his attorney to buy the house and the sale went off without a hitch. So, with the help of the attorney, John & Julie formed the corporation and they each acted as officers, directors, and shareholders. Their attorney in Costa Rica advised them that, since they were foreigners, they should form a Costa Rican corporation, a Sociedad Anomia (S.A.) to buy and hold the property.
They found a home that was just perfect for $250,000. John & Julie traveled to Costa Rica in 2002 and just fell in love with the place. Boy, does the IRS have a million dollar surprise waiting for you! You may think that since you have only purchased a vacation or retirement property and there is little or no income associated with it, that you have no reporting requirements. If you’re a US citizen, and you make the decision to buy property abroad, you need to immediately find out what your obligations are in reporting these offshore assets to the IRS.
Citizens When Buying Real Estate in Costa Rica. Don’t make this million dollar mistake! IRS Reporting Obligations For U.S. Home / Departments / Lawyers, Laws & Taxes / IRS Reporting Obligations For U.S.
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