BajaNomad

Fideicomisos and Forms 3520/3520A--recent developments

john68 - 9-20-2010 at 09:43 AM

Amy Jetel, a lawyer in Austin, Texas (512-370-2750), wrote an article in Trusts & Estates magazine in April 2009 concerning the requirement to file forms 3520/3520A for a fideicomiso. It's her position that they are not required. She would probably send a reprint to anyone who requested one.

Amy recently represented a taxpayer in a Form 3520/3520A penalty dispute. Amy took the matter to the National Office of the IRS and the National Office directed the local revenue agent to back off. This result is not binding on other taxpayers, but it's indicative of the position the National Office might take in other cases.

DianaT - 9-20-2010 at 09:47 AM

Quote:
Originally posted by john68
Amy Jetel, a lawyer in Austin, Texas (512-370-2750), wrote an article in Trusts & Estates magazine in April 2009 concerning the requirement to file forms 3520/3520A for a fideicomiso. It's her position that they are not required. She would probably send a reprint to anyone who requested one.

Amy recently represented a taxpayer in a Form 3520/3520A penalty dispute. Amy took the matter to the National Office of the IRS and the National Office directed the local revenue agent to back off. This result is not binding on other taxpayers, but it's indicative of the position the National Office might take in other cases.


I think the article was posted before---I think, but do you have any links or more information about the recent dispute???

Thanks----it would be very good information for many.

john68 - 9-20-2010 at 09:49 AM

That's all I know about the recent dispute.

I suggest you contact Amy for more details.

bajajazz - 9-20-2010 at 10:19 AM

The claim that holders of Fideicomisos need to file these forms is fictitious BS promulgated by the lawyers and tax consultants who specialize in terrifying expatriate Gringos and use forums like the Gringo Gazette to do so. They often advertise in the Gazette, and that so-called "newspaper" returns the favor by giving them free newspace to further their selfish interests.

Same thing goes for obtaining license plates from South Dakota. I just renewed my plates and had no trouble whatsoever, contrary to reports published in the Gazette that we now have to either physically reside in or at least visit South Dakota, or have no choice but to use the fee-for-service business that advertises in the GG to get re-plated in South Dakota.

A lot of what's known as "log-rolling" goes on in the pages of the English language publications in BCS, with an "expert" in one field writing press releases promoting the business interests of "experts" in another field. Credibility suffers as a result, which in the long run is bad business.

wessongroup - 9-20-2010 at 10:22 AM

Ditto's jazz...

k-rico - 9-20-2010 at 10:36 AM

Quote:
Originally posted by bajajazz
The claim that holders of Fideicomisos need to file these forms is fictitious BS promulgated by the lawyers and tax consultants who specialize in terrifying expatriate Gringos and use forums like the Gringo Gazette to do so.


Then why has Amy Jetel gone to such great lenghs to analyse the situation and why in the case mentioned, did the National Office direct the local agent to "back off"? That is, the local agent didn't think it was BS. There also have been recent posts where an individual is paying big bucks because of this problem.

What's your opinion based upon?

Completing the forms costs nothing except some time and once you've done it, it's real easy the next year.


[Edited on 9-20-2010 by k-rico]

krafty - 9-20-2010 at 10:48 AM

Gringo Gazette has been out of business for several years.

john68 - 9-20-2010 at 11:05 AM

GG is still published in BCS.

Close but no cigar

wessongroup - 9-20-2010 at 11:12 AM

K-rico .... and will insure an interpretation which is not warranted by current law .. as a Fideicomiso is not the same as a trust set up in the United States

It is a work around to allow the purchase(?) of property of which the "Bank" holds title on, not you... also a "Trust" Revocable or Irrevocable is not normally set with a specific time for renewal, nor does in have a condition of review by a Government Agency prior to renewal and/or amendment when applicable, in this case the Ministry of Foreign Affairs... who's current requirements may change in 50 years ...

In one case the trust is for Tax purposes and the protection of assets, in the other cases it is to be able to live in a home in the "restricted zone"... in Mexico by a foreigner .... the "intent" of the Fideicomiso, has nothing to do with taxes ....

Also it should be noted that Mexico's Constitution gives the government control of land and the transfer of ownership rights. I do not believe this is true in the United States at this time..... and a good reason ones tolerance for risk should be quantified up front...

:):)

[Edited on 9-20-2010 by wessongroup]

k-rico - 9-20-2010 at 11:21 AM

Yes wessongroup but the IRS forms we're talking about address foreign trusts so the fact that "a Fideicomiso is not the same as a trust set up in the United States" as you say, perhaps isn't as important as you think. I would assume just to be on the safe side that foreign trusts do not have to be the same as trusts in the US to be subject to IRS rules.

If you get an IRS agent that doesn't agree with your logic you can always hire a lawyer to argue your point.

Or, hope the Mexican banks never tell the IRS about Fideicomisos.

Or, just fill out the forms until the issue is officially decided.

BTW, I contacted the CPA I used to fill out my first set of forms this morning to see if he has heard anything. He said he hasn't and is busy "getting the IRS to back off penalties" for his current clients.

http://dillingercpa.com/ - good guy.

[Edited on 9-20-2010 by k-rico]

wessongroup - 9-20-2010 at 12:54 PM

We differ on a very basic assumptions.. I do not assume anything when dealing with any Government agency.. and I use their own Laws and Regulations to determine what is required... in this case they are not required .. if you want to hang your hat on a CPA, that is your right as an American citizen...

I will say though... no one can SPEAK for the IRS but the IRS.. so getting a "read" from a CPA and/or Lawyer on what the IRS is saying is really going in a circle... as you are not getting an answer directly from the IRS...



Yes the "forms" address a foreign trusts.. however by definition as outline above they do not meet the criteria of Trust.. therefore they are not... a foreign trust

As this Mexican trust is an agreement entered into pursuant to Mexican legislation, the same cannot be said of Trust which we are talking about as understood within the context of Trust which are set up here in the States and which the IRS has laws and regulations which govern these legal entities created by individuals, CPA, Lawyers, and Banks.

These Trust are not the result of legislation, rather legislation came to clarify certain aspects for tax liability.. for the Government upon death of the trustee

slimshady - 9-20-2010 at 01:13 PM

Don't worry, the government is there to help.

longlegsinlapaz - 9-20-2010 at 02:26 PM

bajajazz & wessongroup, those of us who have chosen to comply & complete the 3520 & 3520A have been in touch with the IRS & though they couldn't answer any of the finer point questions asked via e-mail or voice communications, the bottom line is that the IRS, as opposed to "CPA and/or Lawyer" or tax specialists, is who ruled have failed to issue a ruling on whether or not a fideicomiso falls under foreign trust reporting requirements. Why do you think the tax experts got involved in the first place? Because the IRS issued a ruling failed to issue a ruling, despite the fact the IRS implemented "amnesty" date of September 23, 2009 to file the previous 5 years worth of 3520 & 3520A forms on foreign trusts.

How you can think this is something being promulgated by "CPA and/or Lawyers" or tax specialists is beyond me....these groups are actually challenging the IRS's unwillingness/failure to make a ruling on fideicomisos specifically.

"and will insure an interpretation which is not warranted by current law .. as a Fideicomiso is not the same as a trust set up in the United States" When the IRS says they consider it to be equal, then, IMO, for all intent & purposes, it is. Those of us who challenged & researched this didn't just say, "Oh, okay, let me hop right on something like 9 pages of forms for each of the previous 5 years & whip those puppies out!" Everyone I know who did file, researched the hell out of it. Obviously they were all convinced that it was a legal requirement they complied with....or face the horrendous fines & penalties the IRS was threatening fideicomiso foreign trust holders for failure to report. I personally would not be in a financial position to come up with the fines & penalties they were threatening.

I personally do not "roll-over" without a challenge to the majority of people or agencies who request what I consider to be frivolous or nonsensical requirements. (Just ask my former boss who came to my desk with tears in his eyes begging me to reverse the "No!" I gave to someone in the Pentagon!) But after challenging the IRS, I heard their message loud & clear....& I complied....despite the fact I totally disagree with their thought process & the fact that it does not change my taxable income one red cent! I'm not going to knowingly defy the IRS.

I read all the tax specialists information, but I HEARD the IRS trust specialists telling me my fideicomiso is considered a foreign trust. If you guys don't believe this was truly an IRS requirement, then you haven't personally researched it thoroughly enough or personally discussed it with the IRS!

Edit: Thanks to gnukid, I saw the error of my ways in having used the word "ruling" in my original post, when it's actually the opposite.....they failed to make a ruling specifically addressing the fideicomiso as a foreign trust.

[Edited on 9-20-2010 by longlegsinlapaz]

gnukid - 9-20-2010 at 02:38 PM

Long legs,


It's fine for WessonGroup or anyone else to discuss the finer points in their own opinion as that is the function of this web site. I am not a lawyer and I know nothing at all about the specifics.

There is no evidence the IRS ruled on this, if so name a single decision in favor? We only know that a single agent acting as a rogue is threatening someone that we know of. This person who was threatened has not been successfully prosecuted nor paid any fine.

All evidence by knowledgeable parties suggests that this is nothing more than a case of a rogue agent of the IRS until such time as has been proven otherwise, aggressive and outrageous threatening behavior is common and apparently encouraged in the IRS.

All professional people in the field of US taxes who handle clients in California who I spoke to are under the impression this will pass and nothing will come of it as it the IRS action is unreasonable and indefensible under current law, unless someone chooses to volunteer to pay an arbitrary fine, so far no one has and I doubt anyone will. So far the threats are outside the realm of normally expected reason.

k-rico - 9-20-2010 at 04:16 PM

gnukid, I've added to one of your statements in italics. Excuse me for putting words in your mouth.

"All evidence by knowledgeable parties that I'm aware of suggests that this, the only case I'm aware of, is nothing more than a case of a rogue agent of the IRS."

I agree it doen't make any sense but I decided I didn't want to take the chance that I would need to hire a pro to make the case that it doesn't make any sense only to hear the IRS say they think it does. And regardless what the IRS said, I'd still have to pay the pro.

I don't know who you spoke to but I called around the San Diego area, CPAs and tax lawyers. I started the conversations by asking a question - "I think I may have a foreign trust tax issue, do you know what a fideicomiso is?" No one did. BTW, it was sorta fun listening to a few of the lawyers admit they didn't know something because they knew that was the wrong answer.

[Edited on 9-20-2010 by k-rico]

bajabass - 9-20-2010 at 04:20 PM

gnukid, since when has the IRS handled things in a " realm of normally expected reason" ??? I've owned a biz in the U>S for almost 25 years. In all of my dealings with the IRS, they have proven to be almost without fail, unreasonable!! Now, if they say it has to be done this way, I do it that way. Yes, I fought the law, and the law won!!Fortunatly this will not be an issue for me, as I will just put everything in my wife's name. If, as Legz said, it does not raise taxable income, why fight it?

CortezBlue - 9-20-2010 at 04:30 PM

Quote:
Originally posted by k-rico
Yes wessongroup but the IRS forms we're talking about address foreign trusts so the fact that "a Fideicomiso is not the same as a trust set up in the United States" as you say, perhaps isn't as important as you think. I would assume just to be on the safe side that foreign trusts do not have to be the same as trusts in the US to be subject to IRS rules.

If you get an IRS agent that doesn't agree with your logic you can always hire a lawyer to argue your point.

Or, hope the Mexican banks never tell the IRS about Fideicomisos.

Or, just fill out the forms until the issue is officially decided.

BTW, I contacted the CPA I used to fill out my first set of forms this morning to see if he has heard anything. He said he hasn't and is busy "getting the IRS to back off penalties" for his current clients.

http://dillingercpa.com/ - good guy.

[Edited on 9-20-2010 by k-rico]


I called the IRS and the first lady I talked to asked me first and foremost,

Do you generate revenue from this property on a daily, weekly, monthly or annual basis. Which I don't, and she told me this is more directed at a Swiss Bank account where assests are being stored and are deriving interest that the IRS is not getting paid on.

wessongroup - 9-20-2010 at 04:36 PM

Not trying to say that anyone has not read and studied this topic, rather than perhaps we were looking at it a bit differently ... it happens all the time... so don't shoot the messenger... I'm trying to help.. :):)

Let's try it this way... I just went again and looked at the forms which are being reverenced... 3520 & 3520A



I believe a very, very import piece of information is found at the very top and clearly shows that this in fact does not apply to Americans when it comes to tax reporting on a Forgein Trust

The Form applies to "Annual Information Return of Foreign Trust With a U.S. Owner

Who owns the Trust in Mexico, as it would appear that a U.S. person should not be considered the owner of the fideicomiso under IRC Section 679

Based on this point, one would not have to file the form based on the Forms Definition of who it applies too... owner of a Foreign Trust With a U.S. Owner

As the bank becomes the legal owner of the property for the exclusive use of the buyer/beneficiary.

Now maybe that will make a bit more sense.... :saint::saint:


[Edited on 9-20-2010 by wessongroup]

wessongroup - 9-20-2010 at 04:38 PM

k-rico... see above

k-rico - 9-20-2010 at 04:41 PM

Quote:
Originally posted by CortezBlue

I called the IRS and the first lady I talked to asked me first and foremost,

Do you generate revenue from this property on a daily, weekly, monthly or annual basis. Which I don't, and she told me this is more directed at a Swiss Bank account where assests are being stored and are deriving interest that the IRS is not getting paid on.


"more directed at a Swiss Bank account where assests are being stored and are deriving interest that the IRS is not getting paid on"

That's true, no question about it. And if the IRS finally rules in the way that everyone thinks they should, I'll stop filling out the forms and say YAHOO!

But, if you rented your house owned via a fideicomiso, the answer you received indicates that the forms do need to be completed.

WHY FIGHT IT?

bajajazz - 9-20-2010 at 04:44 PM

Why fight it?

Because . . . creating a paper trail where none existed before is just begging to be hit up with demands for more paper . . . and more paper . . . and more paper . . . until your socalled "golden years" are spent doing nothing other than filling out forms and answering questions that are nobody's gddm business except your own. Paper generates paper. Answer enough of their nonsensical bureaucratic claptrap questions and sooner or later you're going to stick your head in a noose.

I checked this out with the trust officer at BaNorte . . . he agrees it's inapplicable nonsense and should be ignored.

k-rico - 9-20-2010 at 04:46 PM

Quote:
Originally posted by wessongroup
k-rico... see above


Hey, you're right!! It doesn't make any sense to file these forms. I agree. BUT, we know of one individual fighting this now, he has said it is costing him big bucks, and we know of another individual who had to hire an attorney who had to get IRS officials in DC to tell a local agent to back off on another case.

You're right, it doesn't make sense. It's easy for you to argue against filing, you don't have a fideicomiso.

I AGREE WITH YOU - OK?

But I'm still going to file the forms - just in case. The penalties are stiff, as are CPA/lawyer fees.

And if the IRS rules that fideicomisos are not foreign trusts I'll be expecting a "neener, neener, neener, I told you so" from you. :tumble:


[Edited on 9-21-2010 by k-rico]

k-rico - 9-20-2010 at 04:48 PM

bajajazz, you asked a Mexican banker about IRS laws and you would act upon his advice???????

longlegsinlapaz - 9-20-2010 at 05:02 PM

Quote:
Originally posted by wessongroup

I believe a very, very import piece of information is found at the very top and clearly shows that this in fact does not apply to Americans when it comes to tax reporting on a Forgein Trust

The Form applies to "Annual Information Return of Foreign Trust With a U.S. Owner

Who owns the Trust in Mexico, as it would appear that a U.S. person should not be considered the owner of the fideicomiso under IRC Section 679

Based on this point, one would not have to file the form based on the Forms Definition of who it applies too... owner of a Foreign Trust With a U.S. Owner

As the bank becomes the legal owner of the property for the exclusive use of the buyer/beneficiary.

Now maybe that will make a bit more sense.... :saint::saint:


[Edited on 9-20-2010 by wessongroup]
I might follow your logic IF the bank was the named owner of the fideicomiso document, however, that's not the case....each & everyone of my fideicomisos have duly reflected "Longlegs In LaPaz" as the document owner....and it's inheritable by my chosen beneficiaries, not the banks....I can sell it, but the bank can't. ;)

Other than a cross-border reporting agreement which may or may not be complied with & which could be rescinded at any time, my name is the only name on the document that the IRS has any power over. Mexican banks cannot be expected to file US tax documents & even if they could, the net result to my taxable income would still be $0.00.

longlegsinlapaz - 9-20-2010 at 05:12 PM

What k-rico said!!! The threat of the fines & penalties is outside the scope of my financial abilities.

I also agree with "bajajazz, you asked a Mexican banker about IRS laws and you would act upon his advice???????" But mostly because I personally know that bank individual! :tumble::lol:

dtbushpilot - 9-20-2010 at 05:21 PM

If you got a new fideicomiso in 2009 when is the filing deadline for the forms? I seem to remember one of them being earlier than the other..

maspacifico - 9-20-2010 at 05:46 PM

After looking at this thing for over a year now...I looked at filing myself and found that even though I am retired I don't have time for that kind of nonsense. I then remembered where all this is coming from, the Gringo Gazoot..... The guy is advertising there. Along with the South Dakota registration guy and the perpetual motion electricity saver guy. They advertise and they get an article. I don't have any income from my fideo's and neither do most of you. I am more than willing to pay my fair share of taxes on nothing, but I don't want to pay someone to file a bunch of needless forms.
That's why I make four copies of utility bills when I renew my FM2!!

longlegsinlapaz - 9-20-2010 at 07:44 PM

Quote:
Originally posted by dtbushpilot
If you got a new fideicomiso in 2009 when is the filing deadline for the forms? I seem to remember one of them being earlier than the other..
Filing cutoff is April 15th for the reportable tax year. This is not one of the oddball date forms, it goes with your 1040.

oxxo - 9-20-2010 at 07:58 PM

I talked to both my attorney and my accountant about these forms a couple of years ago. They both recommended that I file them. They both agree that the law is ambiguous. However, my accountant says it takes him 5 minutes to fill out the form and he doesn't charge me anything to do it. He said, let someone else with deep pockets fight the thing and get a ruling. Until then it costs me nothing to comply.

My accountant says that the IRS may indeed be interested in fideicomiso data because they want to get their share of any capital gains taxes when and if a property is sold. Please don't shoot me or my accountant, but I can see some political rants coming. Before I purchased my property in Mexico, my accountant told me that I would have to pay capital gain taxes in the US (as a US citizen) when the property is sold. I will get a credit toward my tax due based on the amount of Mexican capital gains taxes I pay. If the Mexican capital gains taxes is greater than or equal to my US capital gains tax, then I will owe nothing in the US. I went into this with eyes wide open.

bajajazz - 9-20-2010 at 11:00 PM

The IRS is interested in one thing and one thing only, the reporting of income. The function of a Fideicomiso is not that of an investment vehicle. Choosing to spend one's retirement years in a house in Mexico under the terms of a Fideicomiso is not an income-producing event.

The IRS is intentionally understaffed. The percentage of returns they audit is ludicrously low. Burying the bureau's agents under reams of unsolicited, unwanted and unnecessary paperwork is counterproductive to their mission.

And yes, I have followed the advice of my bank's trust officer since 1987, he's never burned me yet, and I have a lot more confidence in him than I do with the professional purveyors of rancid crap who publish their scare stories in the Gringo Gazette.

oxxo - 9-21-2010 at 05:01 AM

Quote:
Originally posted by bajajazz
The IRS is interested in one thing and one thing only, the reporting of income. The function of a Fideicomiso is not that of an investment vehicle. Choosing to spend one's retirement years in a house in Mexico under the terms of a Fideicomiso is not an income-producing event.


It could be (it hopefully is) if you make a profit when you sell your house. Any foreign income is a taxable event (possibly subject to taxes) in the eyes of the IRS.

Also, I know a number of people who own property in Mexico and rent it either part time or full time. The income is "under the table" and not reported in either Mexico or the US. I imagine that form 3520 is an effort by the IRS to put a stop to this practice.

wessongroup - 9-21-2010 at 06:22 AM

Quote:
Originally posted by k-rico
Quote:
Originally posted by wessongroup
k-rico... see above


Hey, you're right!! It doesn't make any sense to file these forms. I agree. BUT, we know of one individual fighting this now, he has said it is costing him big bucks, and we know of another individual who had to hire an attorney who had to get IRS officials in DC to tell a local agent to back off on another case.

You're right, it doesn't make sense. It's easy for you to argue against filing, you don't have a fideicomiso.

I AGREE WITH YOU - OK?

But I'm still going to file the forms - just in case. The penalties are stiff, as are CPA/lawyer fees.

And if the IRS rules that fideicomisos are not foreign trusts I'll be expecting a "neener, neener, neener, I told you so" from you. :tumble:


[Edited on 9-21-2010 by k-rico]


No way... like I said.. was just trying to help in my own way...

Will, just add this in as I was reading some others posts on the issues this morning with my coffee.. after this post.. I'm going looking for Russ's pictures.. and how he is doing with Bubba's new attachment to launch his boat.. and see where Pomp.. is this morning... with his super travelog.. I get to go a lot of places with that guy.. really super...

"As the bank becomes the legal owner of the property for the exclusive use of the buyer/beneficiary" you are not the owner of the property.

And the "description used for a document"... has no direct impact nor relevance with Trust law.. one could call the instrument.. Bajabutt, Wessongroup, Dancing with Wolves, the Terminator (the Bank I worked for City National was called the bank of the stars, and those names were the real names on Trust Documents create for real estate transactions for the people you associate with those movies (among others) and all property involved in a real estate transactions, (commercial or SFR were put into Trusts) the name of the Trust .. does not change the Law which the document are based on... with the law, in Mexico .. one does not own the property.. rather it is owned by the Bank and by means of a legal document, created by legislation in Mexico not the United States, which satisfies Mexican Law.. which allows you as a Foreign to live in the Federal Zone on property for 50 years, with renewal.... with other bells and whistles to encourage foreigners to invest in Mexican Real Estate for the development of the Mexican economy in Baja.. and is the primary reason the Baja real estate is really in the crapper about now.. no tourists, and no movement in Real Estate... the inventory continues to build, Fido or no...

In this case, the ability of a someone to live on a property in the Federal Zone, allowed through the legislation, with other conditions which must also be taken under consideration that relate to Mexico's Constitution giving the government control of land and the transfer of ownership rights of same.

On capital gains.. there are means around that issue also... just saying ......

And it does not really surprise me that CPA's and Lawyers.. would tell you to just fill them out... as they would incur liability in the event it went south, it's called CYA and the carry E&O Insurance for same...

I am not telling anyone what to do... rather, I did my own looking just about a year ago at this time.. and Legs helped me greatly in my own "due diligence" process on this topic among many others, as she always has her s**t wrapped tight... A very savvy Lady... and one who's opinion I respect in many areas .. and I don't mean to imply is incorrect rather perhaps some of the interpretation which have come down the line over the past 3-5 years may have been a bit colored and may need to be re-examined with a new "view".

Used to do Regulatory Affairs for Company's and had a business also doing same ... When a Law is past.. it takes at least 3-5 years to even get started on true implementation .. then there will be changes in Regulations to get the Law fine tuned.. based on a multitude of factors which will come up... like this..

As I think all know this Law was in fact going after the folks that were moving huge amounts of "loot" from the United States to other Countries by various means.. think the folks down in Baja living in retirement.. is a long way from the intent of the law which was passed... it just has to be broken out from the thinking of some that if falls under the United States attempt to get folks trying to CHEAT!! with moving assets offshore into Foreign Trusts to avoid paying taxes... not anyone I know hear... buy a long shot..

Its just never as direct as it would appear, with any Law and or Regulation from Fed's to States to Counties.. if so we would be living in a different place..

I don't like Government controlling our lives.. worked in it all my working days.. and have found it is always how the question is asked...

In this case, the question to be asked, does the Mexican Bank become the legal own the property, under current Mexican law ..... it does.. it is the law.. you can not own property in the Federal Zone... also Mexico's Constitution gives the government control of land and the transfer of ownership rights.. this is a long ways from a Trust which one owns in the United States..

Now go from there....

A really good thread, and to me it's no different that picking up a family who's car broke down on the way from Ensenada to Rosarito and I told them all to get into my Crow Vic and I took them to their house.. so they got home with the little baby and three small children and were able to get their friends and go back down and get their car.. .

All can read the law and regulations... and get a little insight from some who have worked with Government to derive favorable interpretations on Law and regulations governing various issues.. and perhaps see and/or hear something that helps them in their decision making on this an other issues...

It all helps...

[Edited on 9-21-2010 by wessongroup]

[Edited on 9-21-2010 by wessongroup]