Sunday, October 24, 2010


When you move to Mexico or other foreign countries you MUST notify the IRS of your new address. The IRS is not responsible to keeping its records up to date with your new address, you are!  You should notify them using Form 8822.  If you fail to notify them of the address change, any notices they send to your previous address are deemed received under the law, and various time limitations, assessments, etc. , may expire even though you are not receiving the IRS notices.

One client who failed to notify the IRS of her new address  was erroneously assessed a large sum of money and only learned about it many years later when the IRS took levied and took all of the money out of her bank account.  It was very expensive and time consuming to finally convince the IRS of their error and get her money refunded.  The problem would have never happened if a Form 8822 had been filed.  The error could have been corrected immediately when the initial erroneous assessment was made.

Due to poor mail delivery in many countries, it is wise in some situations to keep using a US mailing address of a friend or relative, so your IRS notices will be delivered to a competent person who can then forward the mail by fax, email or a private delivery service.

Estate Planning for US Citizens Living in Mexico or Owning Assets in Mexico

If you have assets in Mexico or in Mexico you need to plan your estate carefully. You most likely need to do a will in Mexico  which provides for the disposition of your asset in the event of your death. You also need to determine what type of taxes (inheritance or transfer tax) you heirs may occur upon your death.  In Mexico failure to do a will or trust could result in your assets being distributed under that Mexico law and could result in people inheriting the property other than those you would prefer. If you own real estate in a Fideicomiso, you can have that document drafted to provide who will receive ownership in the event of your death.  Mexico may honor your US will or trust but if it often  easier often have specific instruments drawn up in Meixco that comply with local law by a local attorney to avoid potential problems and expense later if  Mexico later  does not or has difficulties honoring a US will or trust.

Remember, if you have done a power of attorney appointing someone to handle your affairs, it Mexico that document may expire upon your death. So do not rely on that to handle the disposition of your foreign assets.

Of course, you must also prepare to US will or  living trust (which avoids probates and a lot of expense and time) to cover the disposition of your US assets and which also states the disposition of your foreign assets the same as a foreign trust or will you have had prepared.

The US will impose its estate tax on your worldwide assets, though it will allow a credit in most situations for any foreign inheritance tax you had to pay on assets located outside of the US.  Until Congress amends the law, starting in 2011 all estates in excess of $1 million will be subject to US estate tax.  If you are married special provisions can be inserted in your US will or trust to secure estate tax savings.

Monday, October 18, 2010

Expatriates Elgible For Additional 2 Months Extension of Time to File Their Tax Return Beyond 10/15

All taxpayers are generally entitled to an automatic 6-month extension of time to file their returns by filing Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Returnalso available en espaƱol, with the Internal Revenue Service.

In addition to this 6-month extension, taxpayers who are out of the country (as defined in the Form 4868 instructions) can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers).

To request this extension, you must send the Internal Revenue Service a letter explaining the reasons why you need the additional 2 months. Send the letter by the extended due date (October 15 for calendar year taxpayers) to the following address:
Internal Revenue Service Center
Austin, TX 73301-0215
You will not receive any notification from the Internal Revenue Service unless your request is denied for being untimely.
The discretionary 2-month additional extension is not available to taxpayers who have an approved extension of time to file on Form 2350 (for U.S. citizens and resident aliens abroad who expect to qualify for special tax treatment).

Most Current IRS Position on Filing Form 3520 & 3520A for Fideicomisos (foreign trusts)

The IRS has never in writing or in any other manner exempted Mexican Fideicomisos from filing forms 3520 and 3520A which are required of foreign trusts.  The Fideicomiso documents are worded like foreign trusts and they due hold title to real property in Mexico on behalf of the property owner.  The Trustee of a Fideicomiso is a Mexican Bank.

 Today in an off the record phone conversation a knowledgeable IRS representative stated that currently they do not plan to ever publish anything that would exempt Fideicomisos from filing those forms.  There are huge monetary penalties not filing those forms or for filing them late (though currently if you file late they have been in almost all situations waiving those late filing penalties).

Therefore, though there are several articles being circulated written by aggressive attorneys that conclude in theory that Fideicomiso's should not have to file Forms 3520 and 3520A, the IRS  has not concurred with those conclusions.     Any Fideicomiso beneficiary that does not file these required forms each year, is doing so without the concurrence of the IRS and is in grave danger of incurring huge civil penalties.