Costa Rica becomes the newest nation to sign an intergovernmental agreement with the U.S. Treasury Department. That means in a few months, financial institutions in Costa Rica will begin reviewing their account records and identifying those with ties to the United States. Under the terms of the agreement, Costa Rican banks will report their findings to the Director General de Tributación. The Costa Rican tax authority will then exchange the information with the IRS. A copy of the full agreement can be obtained here.
FATCA, short for the Foreign Account Tax Compliance Act, was enacted in 2010. The law seeks to obtain information on accounts held by U.S. taxpayers in other countries. It requires U.S. financial institutions to withhold a portion of payments made to foreign financial institutions (FFIs) that do not agree to identify and report information on U.S. account holders. The Obama administration hopes the law will become the model for combatting offshore tax evasion and promoting tax transparency. While some countries have embraced the new law, other countries, ex pats, foreign banks and privacy advocates have assailed the law as inefficient, expensive and too intrusive.
To date 14 countries have joined FATCA by signing agreements with the United States with many more in negotiation. This past week saw both the Cayman Islands and Costa Rica join.
There are an estimated 50,000 Costa Ricans living in the United States and many more American ex pats living in Costa Rica. Anyone required to file taxes in the United States and maintaining foreign accounts with an aggregate of $10,000 USD or more is required to report those accounts annually to the IRS. Reporting is done on the individual income tax return and separately on an FBAR form.
In signing the new pact, both countries issued press statements praising the agreement. “This shows Costa Rica’s willingness to be transparent [and] collaborate in the fight against tax evasion, money laundering, and legal loopholes,” said Edgar Ayales, Costa Rica’s finance minister. A U.S. embassy official said, “Today’s signing marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion – an objective that mutually benefits both our countries.”
What does FATCA mean for taxpayers with accounts in Costa Rica? Plenty! Although taxpayers have been required to report foreign financial holdings for many decades, the law has really been enforced in recent years. Penalties for not reporting an account can include prison and huge 50% penalties. Criminal penalties are relatively rare but the big civil penalties are common.
The law covers dual nationals, Costa Rican green card holders, Americans with business interests in Costa Rica and ex pats who reside there. If you are required to file U.S. taxes and have accounts in Costa Rica and are not in compliance, time is running out.
There are amnesty programs and other options but most require you come forward before the IRS finds you. Once the IRS obtains your name from the Costa Rican government, it’s too late.
The law also covers more than just bank accounts. Brokerage accounts, CD’s, annuities and some life insurance products and hedge funds are also reportable.
If this sounds like you or someone you know, call us. We gladly provide confidential, no-fee initial consultations to help answer your questions and explain your responsibilities. Thereafter, most services can be provided on a reasonable flat fee. We also help foreign financial institutions comply with the new law.
For a free consultation, contact one of our experienced FBAR lawyers today: Attorney Bethany Canfield at or by phone at (414) 223-0464. Brian Mahany at or (414) 704-6731. All inquiries are protected by the attorney – client privilege and will be answered within 1 business day. (We also have hundreds of text searchable posts on our Due Diligence blog.)
Mahany & Ertl – America’s FATCA attorneys. Services provided worldwide.
Post by Brian Mahany, Esq.