Once again the media hammered the public with the new IRS threat, that they are going after US expats that have failed to pay US income taxes!
Back in February of 2011 the IRS announced a program for U.S. taxpayers who have overseas accounts, income, or other foreign assets that have not been previously reported and/or taxed. This is called the “2011 Offshore Voluntary Disclosure Initiative,” or 2011 OSVDI – a voluntary disclosure of expats foreign accounts.
In other words, are they trying to get an account on those who have not claimed US income, a requirement of the IRS? And to strike fear in those US citizens who have pulled up stakes, move to Costa Rica and have started businesses and/or received some type of income to support their new-found life style?
What may have started this new threat was the 2007 Central America Free Trade Agreement, which enable any Costa Rican company (US or not) to trade with the US markets. This opened any Costa Rica business to one of the biggest markets in the world. With said, it has allowed more income from US dollars than every before and this is what may be what the IRS is going after.
Another problem is that many expats believe, once they have moved to Costa Rica, they do not have to pay taxes. One of the most publicize of this is Lin M. Bartee and his wife, Christine J. Wenger-Bartee, who taunted the IRS with a gutsy letter to the Internal Revenue Service, explaining why they did not have to pay taxes. They were involved with IRS Code Busters, a multi-level marketing scheme that taught U.S. citizens why they need not pay income taxes. They were well known among Costa Rican expats, who [and God-knows how many] took their advice.
They were arrested in Costa Rican in May 2009 and were extradited to the United States, where they now are severing two years for failing to pay the taxes on $250,000 and fined $200,000.
Back in Aug of 2006, a federal court granted the Internal Revenue Service permission to search Paypal members’ offshore bank accounts and credit card records to identify possible tax evaders. Paypal is used by many CR expats to transfer US funds to their Costa Rica business and/or personal accounts.
What is very ironic, mega company GE (who has production operations and offices in Costa Rica) paid no US taxes in 2010 despite earning $5.1 billion in US income; “In fact,” says the New York Times, “GE claimed a tax benefit of $3.2 billion”
So is the IRS picking on the little guy? And with the Trade Agreement it has allows more freedom for the IRS to target those US exacts?
One thing to note, the IRS can lien, garnish, and seize property in Costa Rica from those US exacts who have failed and/or invaded paying taxes.
According to CNN money, The IRS identified 335,341 tax returns claiming $1.9 billion in fraudulent refunds as of March 4, 2011, according to the findings of an audit conducted by the Treasury Inspector General for Tax Administration. That’s a whopping 181% increase from the same period last year.
More about this go to: IRS newsroom, US Expats Newsroom, Tax Power
Great article. Is there any logical explanation for taxing expads, even when they don’t generate income on U.S. territory anymore?
What about people who lost money in Costa Rica in various investment or real estate deals. And Medical, I spent $3,600.00 in emergency medical expenses. Is that deductable?