In 2007, a whistleblower at a major bank in Switzerland disclosed to the Internal Revenue Service millions of dollars in assets belonging to U.S. citizens that were never properly disclosed. This led, in 2009, to one of the biggest settlements in IRS history.
Since then, the IRS has been especially vigilant in seeking out foreign income and assets of U.S. citizens. If you are a U.S. citizen, you must disclose many of your foreign assets and report your foreign earned income even if you don’t live in the United States. There are tax professionals that specialize in helping U.S. citizens abroad meet their IRS obligations.
The IRS is unlikely to send an agent to Costa Rica to perform an audit. However, the IRS routinely conducts audits by mail. Failure to disclose foreign income or assets can cause the IRS to assess significant penalties. If you receive such a letter from the IRS, you should contact a tax professional to help navigate the waters of an IRS audit.
The IRS will not have to rely on whistleblowers for long. The United States is aggressively pursuing exchange of information treaties with countries around the globe, and has instituted sweeping laws to penalize foreign banks that do not disclose information to the IRS. Going forward, the IRS will have information on most U.S. citizens with foreign holdings.