Wednesday, September 22, 2010
Mexican Fideicomisos and Filing Forms 3520 and 3520A each year.
In Mexico Fideicomisos hold title to certain real property owned by non-Mexicans citizens. A Mexican bank is designated as the Trustee and the wording of the Fideicomiso document is clearly that of a trust. The IRS has never made a written pronouncement or ruling that excludes Fideicomisos from the requirement that they file annually Forms 3520 and 3520A. Penalties for not filing these forms or filing them late are huge and can be up to 15% of the value of the property in the trust.
A Texas attorney recently has been widely circulating a written opinion she wrote and a copy of her email alleging that Mexican Fideicomisos may not be foreign trusts and may not be required to File Forms 3520 and 3520A. Her email cites a situation where the IRS informally agreed that her client did not have to file Forms 3520/3520A or pay any penalty for not filing.
We have checked with an IRS representative who directly deals with these issues. They stated it is very unlikely that in the near future the IRS will ever issue any written ruling or opinion that Fideicomisos do not have to file these foreign trust reporting forms or are not foreign trusts.
Informal decisions made by the IRS by law cannot be cited as authority by other taxpayers by law. The law also states written private letter rulings in almost every circumstance cannot be cited as authority by other taxpayers. Therefore reliance on a privae attorney's written opinion or an informal decision by the IRS can be very risky and will offer no protection in the event you fail to comply with currently accepted IRS filing requirements. Filing the 3520/3520A form also would be significantly cheaper than going to Court to fight the IRS on this issue when you cannot even cite the informal decision as authority.
Until the IRS (if ever) declares in writing that Fideicomiso's are exempt from the foreign trust filing requirements or are not foreign trusts, all owners of property in Mexico which hold their title through Fideicomiso's should continue to file Forms 3520 and 3520A each year to avoid being assessed large monetary penalties by the IRS.