Have you been wondering why it is now so difficult for a U.S. citizen to open a bank account in Costa Rica? The reason is that the Internal Revenue Service has begun its implementation of the Foreign Account Tax Compliance Act, or FATCA for short. FATCA was passed in 2010 in an attempt to prevent overseas tax evasion activities.
Unfortunately, many experts believe it is causing more harm than good.
FATCA creates additional reporting requirements for U.S. taxpayers. All U.S. citizens were already required to report to the IRS information on their bank accounts held outside of the United States. FATCA creates yet another form to report these same assets again, as well as certain other assets.
Failure to report these assets to the IRS can result in stiff penalties. If you are a U.S. citizen and you have financial assets outside of the United States, you should contact a professional to help you comply with the reporting requirements. U.S. Tax and Accounting Services, S.A., is located in Escazú and they specialize in tax matters for U.S. citizens living abroad.
The most controversial provision of FATCA requires banks and other financial institutions to report information on U.S. account holders directly to the IRS. If the bank fails to send the information, the institution would be subject to massive withholdings on payments from U.S. assets.
The requirement has caused such an expense for overseas banks, that some are simply denying access to customers from the U.S., deciding it’s better to lose the U.S. business than to incur the reporting cost.
U.S. Rep. Carolyn Maloney, a Democrat from New York, has introduced legislation to study the effects of FATCA on U.S. citizens living abroad, but it has received little traction in the House. Still, there are many powerful financial lobbying groups that want FATCA trimmed or eliminated.
Time will tell where things go from here, but in the meantime U.S. citizens have to make sure they comply with reporting requirements.
Editor’s Note; Today we begin a column that will appear from time to time on tax matters for U.S. citizens and others.