IRS Today Announces New Voluntary Offshore Disclosure Program for 2011 for Undisclosed Foreign Assets and Financial Accounts

The IRS TODAY announced a New 2011 Voluntary Offshore Disclosure Program which will be available through August 31, 2011. It gives taxpayers who are hiding assets abroad, or not disclosing those assets on their tax returns as required by tax law , or those who failed to  file the required forms disclosing their assets abroad asecond chance to come out of the closet. The new program will give participants  reduced penalties from those they would have paid if they did not enter the program. The new program's penalties however are in many circumstances higher than those charged participants in the 2009 Offshore Voluntary Disclosure Program which ended 10/15/09.  Over 15,000 taxpayers participated in the original program and over 3,000 taxpayers have  since that time have filed to  disclose foreign bank accounts which had not previously been disclosed to the IRS.


Many informal estimates indicate that there are a large number of US Citizens not disclosing their bank accounts, real estate and corporation ownership in Mexico. This program offers the opportunity to reduce your potential criminal and civil penalties if you have not been reporting these assets as required by the Federal Tax Laws.

Read more about the program here.  Our firm counseled and represented many  clients concerning the previous Disclosure program. Please contact us if you need assistance of an Attorney CPA with this New program.You can discuss your situation and we can help you develop a strategy with the protection provided by the confidentiality of Attorney-Client Privilege. 

MEXICAN FIDEICOMISO PROPERTY OWNERSHIP BY US TAXPAYERS – WHAT ARE THE IRS FILING REQUIREMENTS?

By Don D. Nelson, Attorney at Law, C.P.A.

If you own your Mexican real estate through a Fideicomiso you have a yearly U.S. Tax filing obligation with the IRS.  There are  two informational forms which must be filed each year by  Fideicomisos which have been deemed to be foreign trusts.   These filing requirements are set forth below:

•    Form 3520A is due on March 15th following the end of each calendar year. The due date of this form can be extended for six months if the extension is filed before the due date..  None of the Banks in Mexico who act as trustee will file this form for your as required by US tax law.  Therefore, you must file it yourself since it is you the IRS will penalize if it is not filed. There is a penalty of 5% of the value of the assets in the trust for failing to file this form. This penalty can be waived for resonable cause. The form contains information on the Fideicomiso, its beneficiary(ies), its income and expenses, and the value of its assets, etc.

•    Form 3520 is due on the extended due date of your personal tax return. However it is filed separately from your personal return. Failure to file this form can result in a penalty equal to 35% of the value of the Mexican real estate  transferred to  the Fideicomiso. This penalty is currently waived if you provide the IRS with a reasonable late filing excuse.  This form mostly duplicates the same information contained in the form 3520A the addition of other informational items.

•    The Fideicomiso must secure a US Federal ID number from the IRS.  The ownership of all US owners must be reported.

•    If you the property you own in your Fideicomiso has been your primary personal residence for 2 out of the past 5 years, and you filed jointly with your spouse, the first $500,000US  ( $250,000US if you are singled) can be exempt on your US tax return.  You can claim a foreign tax credit for taxes paid on your sales gain in Mexico against your US tax on any gain on the sale in excess of the exemption amount.

•    If the property in your Fideicomiso is a rental, you must report the income and expenses on of the rental on your US tax return.  You must  depreciate the value of the improvements and structure on the property over a 40 year period.  Keep in mind that you must also file and pay income and IVA taxes on your rental income in Mexico or risk problems with the Hacienda.

In the past year several attorneys have written articles analyzing the IRS foreign trust filing requirements and have expressed their opinion that a Fideicomiso is not a foreign trust and should not have to file Form 3520 and 3520A. That is good theory, but does not reflect the position of the IRS.  Unfortunately the  Fideicomiso document is worded  as a foreign trust, holds title to the property in your behalf, and is administered by the Mexican Bank trustee. The IRS has never issued any pronouncement in  writing  that exempts Fideicomisos from filing the forms. Representatives of the IRS have indicated that it does not  have any plan to exempt Fideicomisos from filng these forms. Therefore, if you chose not to file you are at risk of  being assessed the high penalties for nonfiling as set forth previously.

If you own your Mexican real estate through a Mexican corporation you are required to file Form 5471 each year with your US income tax return. This form reports various information on the shareholders, income and expenses, and assets and liabilities of the corporation and the property it holds.  Failure to file this form on filing it late can result in a $10,000 per year penalty.  If you have a reasonable excuse for late filing that penalty is currently usually waived, though this policy may change in the future.

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Don D. Nelson is a U.S. Attorney and C.P.A.  who has been assisting US Citizens who live, work or own property in Mexico with their US tax  return filing requirements  and tax planning for over 20 years.  He is a recognized US international and expatriate tax expert.  In the past six years he has assisted a large number of Americans file their Fideicomiso US Tax Forms and has been  to date very successful in helping all of them avoid any penalties for filing past years or filing late.

No  need to visit his office. All services and return preparation is provided to clients by phone, email, fax and the internet. Contact him if you need assistance filing the required Fideicomiso US Tax forms.  Most accoutants and tax preparers do not understand these forms or know they exist. Since the forms are not filed with your personal tax return, they can be prepared and filed separately from that return.  Our if you wish, we can prepare all of your US and state income tax forms.

 Visit Don' websites at www.TaxMeLess.com & www.ExpatAttorneyCPA.com  Email: ddnelson@gmail.com   US Phone (949)481-4092.

For the lastest developments and news concerning US and Mexican taxes visit his blog at www.us-mexicantax.blogspot.com

Wall Street Journal Reports Ten Ways to Avoid an IRS Income Tax Audit

The Wall Street Journal has reported 10 ways to avoid a tax audit. The most useful is to report your business income in a corporation or LLC which can avoid the use of a schedule C on your personal tax return. It states that using a schedule C to report your business income can result in your chance of being audited being 10 times higher using a corporation. Read here for other tips and recommendations.

YOU MUST NOTIFY THE IRS OF YOUR ADDRESS CHANGE WHEN YOU MOVE ABROAD TO AVOID PROBLEMS

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.

US Fideicomiso Taxation

If you own property in Mexico in a Fideicomiso you must file Forms 3520 in its initial year of existence and in its final year of existence. You must file form 3520A for each year that it exists. That form was designed to be filed by the Trustee Bank, but none of them will do it, so therefore under IRS rules you as the beneficiary must file the form. These forms are filed separate your from your personal tax return. These forms must be filed even though your income is too low to require you to file a US tax return.

Failure to file these forms can result in monetary penalties. If the property in the fideicomiso generates no income (your house) or generates income and you have reported it on your US tax return if you attach a late filing excuse the penalties will be waived. If it generates income you did not report on your US tax return you may want to consider the IRS VOLUNTARY OFFSHORE DISCLOSURE PROGRAM which will end on 9/23/09 which could reduce your penalties for non filing and will stop any criminal prosecution for violating US tax law.

More information is at: http://www.taxmeless.com/page11.html



If you own property in a Mexican corporation you must file form 5471 with your yearly US tax return whether or not it makes income or you are required to file a US tax return. We will discuss this in a separate blog post.

If you wish assistance with these forms or with the Offshore Disclosure or forms 5471 contact me. I have over 20 years experience in Mexican - US taxation and other international tax matters. I do spend a great deal of time in Mexico and understand its business, real estate and taxes.