Costa Rica second home purchased

The purchase was made through an LLC by two friends. It is used as a second home. Is there any forms required on the US side - I believe it has been established that the 8938 is not required as foreign real estate is not a foreign financial asset. There is a checking account, but nothing near $10,000 during 2019. Any other US forms, they will remain US citizens/residents.

Is there any further items I am missing or wrong in my understanding? They paid cash - and had to be interviewed by a few US agency authorities and some Costa Rica authorities also. Both sides seemed sensitive about a "cash transaction".

The purchase was made through an LLC

US LLC?

If there isn't a foreign entity in the chain that removes a lot of the potential foreign compliance forms.

The only thing I see is a potential FBAR.

Did the purchase cash move through the foreign account? $10,000 is the threshold at any time during the calendar year, not just the last day.

U.S LLC-an attorney was involved as to the what and why for it.

I will make sure on the cash flow, intermediary was used the sellers were Italian.

The transaction was cash, and client was shocked as to the inquiries he had from both government sides. He thinks cash an drug traffic must be presumed by authorities.

Personal use by an officer of the corporation of a corporate asset... taxable benefit?

Personal use by an officer of the corporation of a corporate asset... taxable benefit?

This isn't a corporation based on OP.

It is a second home???? No business involved. LLC is used for liability purposes. The attorney locally handled it I think I need to ask if it is a U.S. LLC, I assumed it was, did not know there may be a foreign country LLC. I also want the details of what accounts the payment was made to acquire it. I remember it was really complicated, and out of the blue the buyers were contacted by Homeland Security for an interview!!??

Need to confirm whether or not it is a US LLC. Is there any chance it is an "S.R.L." / "Ltda." (Sociedad de Responsabilidad Limitada)?

https://en.wikipedia.org/wiki/List_of_l ... by_country

Read: viewtopic.php?f=8&t=15629&p=138827 as well as the thread linked in post #22 of that thread.

I have a client who recently purchased property there. He indicated non citizens cannot own property directly and had to use a Costa Rican entity to buy it. I'd get the incorporation documents and closing paperwork for the property to confirm.

There was some of that mentioned, but LLC(?), and Italians were the participants in the closing. The attorney handled the closing.

The LLC is an SRL??? Owns the real estate and the checking account. I think I moved up in the reporting requirement correct? He has checking account, second home and a car owned by the LLC SRL... The lawyer from Costa Rica had my client put a second name on the SRL for some good reason.

The land ownership question is only encountered if your home is on the beach.

Have any instructions?

An SRL is not a per se corp under Treasury Reg §301.7701-2(b)(8).

You can make a check-the-box election to have the SRL treated as a partnership for US federal income tax purposes.

MANVsTax - there is no business going to happen. Why would there be any partnership 1065 filing in the US??? Is there something I need to file for partnership activity - there is no earnings or deductions. I do have to report foreign property owned - is that through a 1065 or their 1040s???

Why would there be any partnership 1065 filing in the US??? Is there something I need to file for partnership activity - there is no earnings or deductions. I do have to report foreign property owned - is that through a 1065 or their 1040s???

If it is a foreign corp your clients generally have 5471 exposure.

If it is a foreign partnership your clients generally have 8865 exposure.

Both the 5471 and the 8865 would be filed with the owners' return if a respective obligation exists (i.e. the 1040s in your case).

The instructions for each form are a great place to start... Particularly the "who must file" sections.

If you feel you are out of your depth you may want to punt. The penalties for even non-negligent failure-to-file these forms is steep.

Don't forget the potential FBAR for the foreign account.

And then the Form 8938 exposure your clients have for their ownership interest in the SRL.

The ownership of the car, home and checking account are all in the name of the LLc SRL, 8938 type of filer partnership(?)- they will be spending 4 to 5 months year there. All personal assets. no business assets no business activities!! A brief look at the 8865 is asking for information about business activity. A second home, a car, and checking account all personal assets. The only activity into the checking is personal transfers from USA account if amounts are needed there, the checks are for personal items while there. There are no foreign partners..

So the 8865 is required if there is no business activity - so most of information is blank. There is a balance sheet - are the house, car and checking account listed - does personal expenses mean they are recorded as distributions.

Looked at instructions - again no business income or deductions for the 1040 - I guess all expenditures are distributions??? 8865 is required because it is an investment in a foreign security (a partnership) balance sheet would include personal assets??? cash is over $10,000 - exchange rate??? FBAR reporting separate two partners returns. They were already questioned and made reports out when purchasing the home by homeland security, it was purchased with cash. The only one I have talked to with a like Costa Rico property says not much on the 8865 and they show the balance sheet as blank, after the first year when they showed the purchase of the home>>??

I guess FaBAR, 8865, and 5471 can all be extended - until someone wants to do the return.

Jon, you respectfully don't appear to know what you’re doing. You are now jumping to Form 8865. You don’t even get there if you have a foreign entity that is treated as a corporation for U.S. income tax purposes. If all members of the SRL have limited liability, that entity defaults to corporation. The way out of that treatment (assuming it applies), which is probably advisable, is to file a check-the-box election to be taxed as a partnership (from inception). And then we ask ourselves if there is an 8865 (or 1065) annual filing requirement for a foreign partnership that engages in no domestic or foreign business. That answer might be no. At that point, we have some comfort about things. Then all we’re up against is reporting issues, like FBAR and 8938.

But you are starting from a place of no knowledge as to entity classification (and its importance).

My two main points, for starters, are (1) you need to be real careful jumping into this with your limited knowledge and (2) this entity might be treated as a corporation for U.S. tax purposes. If that is the case, you’re looking at a Form 5471. But if it is also the case that this foreign entity is not a “per se” corporation and you can file a CTB election to treat it as a partnership, then that might be the way to go. See Post #11, which I’m not so sure you understand.

Appreciate the help. Check the box? Where? This started as an LLC US attorney. Goes to Costa Rico and ends up being LLC SRl done by Costa Rico attorney. I thought for US law it is a partnership-2 members. Thanks for any and all the help. Found out today, they may rent in 2021 - they are not going to use it for months and have been approached for rental-so who knows 2021. The Costa Rica attorney is sending some information.

Thanks guys.

Check the box can be retroactive 75 days. If the entity was set up prior to December of last year you would need to seek relief if you determine that a flow through structure is more advantageous. Probably given potential for foreign tax?

I think I have confused everyone, and me. some nice help. The Costa Rica lawyer completely set up the LLC, SRL in Costa Rica - that was found out yesterday. So check the box probably was not an alternative that was used. Still getting the attorney there to forward here what he did. The SRL has to get into the two members/owners tax returns. The lawyer has already filed a return in Costa Rica. I think the above information which states it is assumed a corporate form may be only choice. My question is what form is filed in the US(for the SRL anything just for it?) - is it just the above forms mentioned including 5471(corporate) and FARBAR, etc - all items on forms that are for attachment to both of their individual individual returns.

Thanks

Why not do a late check the box, if you have not filed yet in the US?