Thursday, May 3, 2012

US Bank Interest Earned by Mexican Citizens Will Be Reported to Mexico

The new IRS rules could result in massive losses to banks along the US-Mexico border. The regulation requires US banks to report details of interest paid to Mexican Citizens (who are not US taxpayers) holding personal accounts even though such interest is not subject to US income taxes. According to an IRS statement, this is aimed at helping their countries of residence fight tax evasion.  US banks along the border feel that some Mexican clients will transfer their accounts elsewhere to avoid the Mexican tax agency from learning of about their funds.
Many banks in the US-Mexico border rely  on deposits and investments from nonresident Mexican citizens to provide the funds  to grant loans to local communities. Some border banks have up to 45% of their accounts held by Mexicans who deposit their money in the US for security reasons. 
Under the new regulation, the information from the banks is reported to the Treasury then the IRS can provide that information to the Mexican Hacienda under the US/Mexican tax treaty.
The rules became effective on April 19, 2012. Mexican Citizens who have secreted funds in US banks need to consider whether those funds should be left there and pay Mexican income taxes on the interest earned by those funds on their Mexican tax returns.

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