AMERICANS MUST FILE SPECIAL US TAX FORMS TO REPORT FIDEICOMISO'S OR RISK HIGH PENALTIES

As you know, properties along the Coast of Mexico owned by Americans must hold title through Fideicomisos which are foreign trusts. This means certain special tax forms must be filed each year with the IRS to report your Fideicomiso holdings. Though a few tax commentators have written learned articles saying Fideicomisos are required to file these forms, the IRS has never so stated in writing and the IRS has further stated it does not intend to exempt Fideicomiso owners from filing these forms forms.

These forms do not result in any additional tax, but are informational only. Starting in tax year 2011, you may also have to file Form 8938

Failure to file these forms in a timely manner, or filing the required forms late can result in the IRS imposing penalties up to 35% of the value of the real property held in the Fideicomiso. The IRS has stated that if a late filing excuse is attached penalties may be waived. In fact they have waived penalties in the past though it is not certain how long this will continue into the future.

• Form 3520A is due on March 15^th, but can be extended if an extension is filed by that date.

• Form 3520 must also be filed for your fideicomiso. This six page form is due on the same day as your personal tax return but is mailed to a separate address.

We have prepared hundreds of Forms 3520 and 3520A for our clients in Mexico over the past ten years. If you want to prepare the forms yourself, we also offer a review service so you can be assured you prepared them correctly. Let me know how we can help.

Click here to download our Fideicomiso/3520/3520A Tax Organizer. After you fill it out, return it to us by fax or email and we can provide you with a fee quote. (File is in msword format for easy completion)

We will be in  Los Cabos and La Paz to assist our clients  there from March 16th thru May, 2012.  Please email or contact us for an appointment.

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

Kauffman Nelson LLP

Dana Point, CA 92629 USA

US Phone: 949-481-4094 US Fax 949-218-6483 Skype: dondnelson

Email: ddnelson@gmail.com

Websites: www.TaxMeLess.com www.expatattorneycpa.com

Blogs:  www.USExpatriate.blogspot.com

LATEST IRS LETTER CONCERNING IF A MEXICAN FIDEICOMISO OWNER MUST FILE FORM 3520

The following letter from an IRS Technical Reviewer  was Published by Tax Analysts(R) concerning the issue of whether or not a Mexican Fideicomiso must file Forms 3520 and 3520A.

UIL: 6048.00-00
Release Date: 6/24/2011
Date: November 17, 2010
Refer Reply To: GENIN-141622-10 – CC:INTL:B01:* * *
Dear * * *:
This is in response to your request for general information regarding the infor-mation reporting obligations with respect to Mexican fideicomisos that own certain Mexican residential real property on behalf of U.S. persons who are not also Mexican citizens.
Under section 6048(a) and (c) of the Code,¹ a U.S. person who makes a transfer to or receives a distribution from a foreign trust generally is required to report certain information on Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. Under section 6048(b) of the Code, a U.S. person who is treated as the owner of a foreign trust under the grantor trust rules (sections 671 through 679 of the Code) is required to complete Part II of Form 3520 and to ensure that the foreign trust files Form 3520-A, Annual Information Return of Foreign Trust with U.S. Owner. Section 6677 of the Code imposes significant penalties (up to 100 percent of the gross reportable amount) for failure to comply with section 6048.
The rules for determining whether an entity is classified as a trust for U.S. federal income tax purposes are found in section 301.7701-4 of the Procedure and Administration Regulations. The rules for determining whether an entity that is classified as a trust is a foreign trust are found in section 7701(a)(31)(B) of the Code and section 301.7701-7 of the Procedure and Administration Regulations. Any U.S. person who transfers property to or has an interest in a Mexican fideicomiso that is classified as a foreign trust must comply with section 6048.

            This letter provides general information only and does not constitute a ruling. See Rev. Proc. 2010-1, section 2.04, 2010-1 I.R.B. 7. If you would like a definitive determination as to whether a particular fideicomiso is classified as a foreign trust for U.S. federal income tax purposes, you must request a private letter ruling pursuant to the procedures set forth in section 7 of Rev. Proc. 2010-1.

We hope this information has been helpful to you. If you have any questions, please contact * * *, Identification Number * * *, at * * * (not a toll-free call).

Sincerely, M Grace Fleeman - Senior Technical Reviewer, Branch 1 (International)

TRANSLATION OF THE ABOVE REFERENCED LETTER FROM THE IRS:

We’re not telling you that your particular fideicomiso is a trust and we’re not telling you your particular fideicomiso is NOT a trust.  All we are saying is that if it IS a trust you have to file Form 3520.  In other words, if you wish to be safe you should file form 3520, 3520a because the IRS refuses to state Fideicomisos are not foreign trusts.  That refusal is a clear  message to taxpayers. 

Fideicomiso US Tax Compliance Update - Don't Miss the 9/23/09 deadline!

Under the IRS Offshore Voluntary Disclosure Program if a Fideicomiso Beneficiary has failed to file Form 3520A and 3520 (when required) they have until 9/23/09 to file those forms for the past six years without penalty if the property held by the Fido has produced no income during those past six years.  Though the IRS has not been clear, it has implied that after that date if someone files their past unfiled forms 3520 and 3520A forms they may impose the $10,000 late filing penalty for each year whether or not the Beneficiary has a reasonable excuse for late filing.  The same rules hold true for Fido Beneficiaries that have reported all of their income from the Fideicomiso, but failed to file the Forms 3520 and 3520A.

If you had unreported rental income from the Fido property and did not file those forms you must talk with an international tax expert to determine if you should enter the Voluntary Offshore Disclosure Program or risk the potentially  bigger penalties of not entering the program.  9/23/09 is the deadline to take action or risk  being assessed the tremendous penalties that the IRS can impose for not filing these forms.