Will Moving Out Of The Country Affect The Chance Of Audit?

While I doubt that living outside the country raises the odds of an audit, failing to comply with FBAR and FATCA reporting requirements might lead to some very unpleasant surprises. FATCA is too new to know for sure how it will play out, but FBAR compliance actions have been on the increase.

Ira Smilovitz

As always the answer is IT DEPENDS. What is or was your occupation? Will you be a bona fide resident of Costa Rica and/or Ecuador? How will your revenue/income be generated? Will you have both earned and unearned income? How complex is your tax return? Are you involved in a tax avoidance scheme?

If you file a 2848 Power of Attorney naming your tax preparer, an audit can USUALLY be handled by your preparer.

Whatever you do, do not consider revoking you US citizenship. If you do, you will be exiled in third world countries where governments are not necessarily stable the quality of health care is unstable.

Dick

in Costa Rica and Ecuador. Will that affect the odds on being

Ira may be understating the problems. FBAR requires you to report on Foreign Bank and Financial Accounts. FATCA is the Foreign Account Tax Compliance Act. Rumor is the IRS has hired professional nitpickers to verify compliance.

The truth is "Unless you're running a tax scam, you'll be OK."

Dick

-- Richard D, Adams, CPA (Retired) Ellicott City, MD 21042

Oh, shoot! If I had known, I would gladly have relinquished my amateur status, turned pro, and applied for one of the newly-opened jobs at the IRS.

We will be retired.

Yes. If possible, I would like to get Costa Rican citizenship.

Social Security, pensions, investments, and some rental.

Definitely not simple. Schedule A, B, C, D, E, K-1. Nothing that could be questionable.

No.

Costa Rica is stable and has excellent private health care near us. If we get second passports dropping U.S. citizenship is possible but not likely. There are financial controls and reporting put on expats and threats of severe penalties for noncompliance. Those make me uncomfortable. Our house in Costa Rica is owned through a corporation (common in CR) so we are required to state its value yearly on Form 8938. And there is bank account reporting and who knows what else.

My only concern is that given the extra scrutiny given expats the IRS just might make a nuisance of themselves. A bigger concern is IRS makes no apparent effort to inform expats of new regulations.

Thanks, Gary

That make the same effort for expats as they do for citizens residing in the U.S. -- news releases anyone can read on their web site.

If you drop US citizenship note that you may have to pay expatriation tax. This is a tax that pretends you sold all of your assets on the day you expatriated, and you pay capital gains tax on the phantom profit, even though you did not actually sell any assets (although you might have to in order to pay the tax). You don't get the section 121 exclusion (up to

Note that when a former US citizen really sells the assets, he/she is no longer a U.S. citizen and no longer subject to U.S. income taxes on assets held outside the U.S. Therefore, for those assets, U.S. tax basis is irrelevant.

My reading of the law is that US income taxes apply to assets held outside the US if they are US stocks. Ie, if a US stock is traded on a European exchange and you sell it, then the capital gain is US source income to be reported on

And similarly, if it is a foreign stock held on a US stock exchange, and you sell it, then you don't have to report it during the 10 year period.

What I don't know is who gets to tax it first. Suppose you live in Costa Rica and sell stock with profits of $10,000 and their rate is 15% and the US rate is also 15%. Do you pay tax to Costa Rica, and on the US return report the sale and take the FTC (foreign tax credit) for the 15% paid to Costa Rica, or do you not pay to Costa Rica and on that country's tax return take FTC for tax paid to US on this?

In any case I'm not sure the 10 year period is valid as how can the US have jurisdiction over non-citizens.

US if they are US stocks.  Ie, if a US stock is traded on a European exchange and you sell it, then the capital gain is US source income to be reported on

sell it, then you don't have to report it during the 10 year period.

and sell stock with profits of $10,000 and their rate is 15% and the US rate is also 15%.  Do you pay tax to Costa Rica, and on the US return report the sale and take the FTC (foreign tax credit) for the 15% paid to Costa Rica, or do you not pay to Costa Rica and on that country's tax return take FTC for tax paid to US on this?

Good catch, remove. I overlooked that 10 year period.