Overdue taxes? - if you're a US Citizen you could lose your Passport!

The US Government has continued it's policy of making it more difficult for its citizens to transfer assets and live abroad with the most recent introduction of the Fixing America's Surface Transportation (FAST) Act (H.R. 22).

One provision in the FAST act will let the federal government revoke, deny or limit a U.S. citizen's passport if the person owes more than $50,000 in "seriously delinquent tax debt," including penalties and interest. 

The IRS will use a threshold of $50,000 of unpaid federal taxes. But this $50,000 figure includes penalties and interest. And as everyone knows, interest and penalties can add up fast and this $50,000 level could be reached quite quickly.

What has the FAST Act got to do with passports when its focus is the funding of transportation infrastructure. The answer is nothing, except that the measure is estimated to raise nearly $400 million over a decade.

Also it follows the US Governments policy of "hiding" legislation limiting its citizens abilities to live overseas within unconnected legislation. FACTA (The Foreign Accounts Tax Compliance Act) was hidden within the unrelated HIRE act (Read more about FACTA here, here and here).

It is better for the US Economy if US Citizens keep their assets within the US Economy rather than investing elsewhere around the world. The US Government has implemented a strategy of disincentivizing and frightening citizens from investing, living and owning property outside of the US.

The implementation of the FAST act, which comes into action in January 2016, is another step of this policy.

The likelihood is that the US Government will continue to implement more disincentives, over the coming months and years.

Our advice to US Citizens remains the same - if you are seriously considering a property purchase in  Costa Rica or elsewhere the time to act is now. The longer you wait the more likely it is to be very difficult if not impossible for you to invest in or own property abroad.

Read more about the FAST Act in Forbes here and on CNN here.

US delays FATCA implementation by a further 6 months

The IRS has delayed the start implementation date of the FATCA implementation by a further 6 months from January 1st 2014 to July 1st 2014.

Treasury Deputy Assistant Secretary for International Tax Affairs Robert B. Stack. is reported as saying the delay is due to overwhelming interest in FATCA - “Given the groundswell of international interest in FATCA, we are providing an additional six months to complete agreements with countries and jurisdictions across the globe, before withholding begins."

It is widely reported that the real reason for the delay is the low compliance rate with just 9 agreements in place worldwide and in excess of 80 still under discussion.

Enacted by Congress in 2010, FATCA targets non-compliance by U.S. taxpayers using foreign accounts. FATCA requires foreign institutions to tell the IRS about accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold substantial ownership. To avoid withholding, a participating institution must enter into an agreement with the IRS to: 

• Identify U.S. accounts; 
• Report certain information to the IRS regarding U.S. accounts; and 
• Withhold a 30% tax on certain payments to non-participating FFIs and account holders unwilling to provide the required information. 

Foreign institutions that don’t sign an agreement with the IRS face withholding on payments, including U.S. source interest and dividends, gross proceeds from the disposition of U.S. securities, and pass-through payments.

You can see the official notice here

Read more on forbes.com here

Taxation of U.S. Citizens Who Live and Work in Costa Rica

By Marion A. Keyes for the Costa Rica News

Since 1962, “qualified”US citizens living and working in Costa Rica have been able to exclude for U.S. tax purposes Costa Rican earned income and certain excessive housing cost amounts. Under the U.S. Internal Revenue Code, a “qualified individual” means a U.S. citizen or resident whose “tax home” is in a foreign country and who either: a) resides in a foreign country or countries for an entire taxable year, or b) is present in a foreign country or country during any period of twelve consecutive months for at least three hundred and thirty (330) full days in such period.

Resolving the question of “Which country is a person’s ‘Tax Home’?” can be difficult as it is a subjective, fact-based analysis. In general, an individuals “tax home” is the place:

1. Where they maintain a regular or principal place of business;
2. Where they are allowed to deduct their traveling expenses;
3. Where they reside for the entire taxable year; and
4. To which they have a “closer connection.”

A deeper level of analysis is then required to evaluate whether an individual has a “closer connection” to a particular country. Some of the factors that are taken into account include:

1. The location of the individual’s permanent home;
2. The location of the individual’s family;
3. The location of personal belongings, such as automobiles, furniture, jewelry, etc.;
4. The location of social, political, cultural or religious organizations with which the individual has a current relationship;
5. The location where the individual conducts his or her routine personal banking activities;
6. The location where the individual conducts business activities;
7. The location of the jurisdiction in which the individual holds a driver’s license;
8. The location of the jurisdiction in which the individual votes; and
9. The country of residence designated by the individual on forms and documents.

If you are a “qualified individual,” then you are able to exclude up to $92,900 of Costa Rican earned income for 2011.

In addition to the exclusion for Costa Rican earned income, a “qualified” U.S. taxpayer can exclude from Gross Income a portion of their housing costs.[7] This is a very detailed and formulaic computation and I will not subject you to further brain damage in this week’s article. If you would like to know more about this scintillating subject, I have provided the citation for you to geek out to your heart’s content.

Marion A. Keyes is a U.S.-based tax attorney who focuses on International Taxation, Asset Protection, and Estate Planning. He speaks English and Mandarin Chinese fluently and has enough Spanish that he has talked his way out of Costa Rican speeding tickets on no less than three occasions (“Me encanta este pais.”). Marion can be contacted via his website at www.taxlawgeek.com where he blogs on a number of tax law issues.

To read the full story visit the Costa Rica news here