bajaguy
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Location: Carson City, NV/Ensenada - Baja Country Club
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Mood: must be 5 O'clock somewhere in Baja
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Foreign Account Tax Compliance Act
From ensenada.net
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Exchange of information including user names, bank accounts and investments and property data, which will be taking place between Mexico and the
United States, through the Law of Foreign Account Tax Compliance (FATCA, for short English), which was approved in late 2012, and since January 2013,
financial institutions in both countries have begun to gather this information.
According to Ibarra Carlos Aguiar, President of the Institute of Chartered Accountants of Ensenada, in 2013, financial institutions must apply to all
users, filling in a format that yield a statement about their bank accounts and their properties, specifically the Mexican citizens with accounts in
the U.S., or vice versa.
"In the U.S. case, the penalties can range from ten to $ 60,000, for those who do not carry out the statements, especially those with investments of
up to $ 75,000," he said.
After exhorting both Mexican and American citizens, to carry out their statements during 2013 to avoid a penalty, Ibarra Aguiar said that in 2016, the
U.S. and Mexico will hold a meeting to be addressed in the progress of this Act, and will after this review, when you define whether the treaty
continues or ends.
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neilm81301
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Law of Foreign Account Tax Compliance (FATCA, for short English)
Is that the same as 'FATCAT'?
Neil
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sargentodiaz
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Does that mean that, if I have an account in a Mexican bank, it will be reported to the US?
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slimshady
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FATCA is in regards to bank accounts with values over 10k in it, Trusts holding stocks and bank accounts. FIDO"S have nothing to do with it.
For FIDO's refer to the following>
Fideicomiso (Mexican Land Trust) Found to Be Mere Agent of U.S. Taxpayer, Rather than a Trust, in Private Ruling
November 16, 2012 by Ed Zollars, CPA
Finding a fideicomiso (Mexican Land Trust) similar to the Illinois Land Trust described in Revenue Ruling 92‑105, in PLR 201245003 the IRS ruled
that for federal income tax purposes such an entity is not to be treated as a trust as that term is defined in Reg. §301.7701-4(a) and that the
beneficiary of the trust is treated as the direct owner of the trust.
Due to specific requirements under Mexican law and provisions in the U.S. Internal Revenue Code, advisers with clients that owned property along the
coast in Mexico have been concerned for years that the their clients may need to file a Form 3520 when the property is acquired and a Form 3520-A each
year thereafter, or face significant penalties.
Under the Mexican Constitution, individuals who are not citizens of Mexico are prohibited from directly owning real property located within 100
kilometers of Mexico’s inland borders or 50 kilometers of its coastline. Thus, a non-citizen of Mexico looking to acquire an interest in such
property instead officially purchases beneficial interests in a Mexican Land Trust (the fideicomiso) which holds title to the property in question.
Under IRC §6038 foreign trusts in which U.S. citizens hold interests generally must file certain information with the IRS, including Form 3520 on
formation of the trust and Form 3520-A annually to report information about the trust. Significant penalties apply if such forms are not filed timely
when required. Under IRC §6677 penalties for failure to file the Form 3520 upon transfer of assets to the trust are set at the higher of $10,000 or
35% of the value of the property transferred. If a Form 3520-A is not filed when required, the penalty is the greater of $10,000 or 5% of the value
of the trust assets treated as owned by the foreign person at the end of the year.
IRC §7701 is the Code’s broad definition section, and its definitions apply for all purposes under the IRC unless a provision specifically provides
for a separate definition. Reg. §301.7701-4(a) provides specific definition of what constitutes a trust for purposes of federal taxes.
In Revenue Ruling 92-105 the IRS concluded that an Illinois Land Trust was not a trust for federal income tax purposes, as the trustee’s only duties
were to hold and transfer title at the direction of the beneficiary. Thus, the Illinois Land Trust was a mere agent for the holding of property, and
the property was treated as being owned directly by the beneficiary of the trust.
The letter ruling concludes that the fideicomiso serves the same purposes and is, therefore, not a trust for federal tax purposes. The ruling notes
that the trustee merely holds the title to the property and transfers that title at the direction of the beneficiary. The trustee has no duty or
right to defend, maintain or manage the property, with all rights retained by the taxpayer/beneficiary. Thus, the fideicomiso is not a trust.
While the ruling does not directly mention the reporting requirements under IRC §6038, such reporting applies only to foreign trusts and if the entity
is not a trust no reporting would be required.
Some caveats should be noted—the ruling does indicate at the very end of its analysis of the law and facts that there was no arrangement among the
trustee, the owners or any other person to use the property in an activity for a profit such that ownership could be classified as a business entity.
However, it seems more likely that such an arrangement would not create a foreign trust, but might create an entity with other reporting arrangements
(such as a corporation, partnership, etc.).
As well, the ruling is a private letter ruling and, technically, can only be relied upon by the taxpayer that requested it. Other advisers will need
to study the support behind the IRS’s finding and determine if the wish to adopt that logic. Nevertheless, it seems the IRS National Office has
decided it would prefer not to face an avalanche of information forms related to such (often vacation) properties.
[Edited on 4-27-2013 by slimshady]
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MitchMan
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slimshady,
Thanks for the info.
If you, as an American, have a home in Baja thru a fideicomiso, do you, as an American taxpayer, have to file the 3520 and the 3520-A or not?
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dtbushpilot
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| Quote: | Originally posted by MitchMan
slimshady,
Thanks for the info.
If you, as an American, have a home in Baja thru a fideicomiso, do you, as an American taxpayer, have to file the 3520 and the 3520-A or not?
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This has been debated ad nauseum, the answer is yes. Some will disagree and chose not to file, the real question should be "do you feel lucky"?
[Edited on 4-27-2013 by dtbushpilot]
"Life is tough".....It's even tougher if you're stupid.....
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slimshady
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You should only file if you receive income from such a property as in rental income. If the transaction is cash then don't worry about if. If it is
paid by check or money order through a US institution then perhaps a question may arise.
Regardless, the IRS has no idea what the hell a FIdeicomiso is and you can call four different agents and they will tell you something different. What
it comes down to is the Private Letter Rulings that have been issued and not whether one feels lucky when filing their taxes.
Even though the PLR are for individuals, the argument can be made using the facts of the ruling to argue your case should they ever question you.
[Edited on 4-28-2013 by slimshady]
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dtbushpilot
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If I had a serious tax question I would consult a professional not someone on an Internet forum. The private letter ruling is just that, it only
pertains to the individual case relating to the ruling. The accounting firm that obtained the letter will be the first to tell you that and offer to
try to get you one too, for a fee.
If you are ever to the point of "arguing your case" to an IRS auditor you are already in serious trouble and you will be spending a lot of money
before it is over with.
If your plan is to rely on the belief that the IRS doesn't know what the hell a Fidecomiso is then you will indeed need to be lucky. After you tell
the auditor about the private letter rulings and he asks to see yours just give him slimshady's number and have him call him or her, that should take
care of it. They will probably give you a big apology and a 10% off coupon on next years taxes for your trouble.
"Life is tough".....It's even tougher if you're stupid.....
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slimshady
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DtBush, if I were your advice I would be broke and living on pesos in Baja. No thanks. The article posted contradicts your show your cards and spill
your guts to the Federal Gov't attitude.
If you read my post correctly FATCA deals with money in bank accounts, corporations,brokerage accounts. Trusts such as FIDO are not trusts like we
hold in the U.S.
Do your own research, I don't know of anyone who has had to pay any fines on their FIDOs. The only people that try and scare the chit of people are
those that offer expatriot tax services and people like DT.
I have filed FATCA for an asset that I own overseas to avoid the penalty . However it is not a FIDO.
Regardless of what the DT BUSH says you will have to argue your case when you deal with the IRS on anything.
Be informed and make your own judgement, she presented nothing.
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dtbushpilot
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Well, there you have it.....
"Life is tough".....It's even tougher if you're stupid.....
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MitchMan
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slimshady and dtbushpilot, you're both on the right track.
I did research the issue. A fideicomiso is NOT a trust, but, the IRS has adopted a position by way of code and regulations that the IRS shall thereby
"treat" such an arrangement as the fido as a trust and they shall treat the beneficiary of the fido as the trustor to that trust thereby establishing
the duty of informational reporting by the USA citizen fido beneficiary. It's is expressly in the IRS code.
Therefore, the IRS has sidestepped the requirement that the fido actually be a trust by definition. Thus, the issue of whether or not the fido is in
fact a trust is sort of irrelevant, at least at this point. I am hoping that some time soon that the IRS will retract the abovementioned position and
come to recognize that since the fido arrangement is not in fact a trust that it aught not be "treated" as such.
The reason I asked slimshady the question I posed was because I read nothing in her posts that said there was no official requirement to report, all
things considered, and, as far as I could determine, the info provided by slimshady did not change anything, IMHO.
Letter rulings are helpful but not in and of themselves determinate for the rest of us.
In the real world of tax compliance, especially in financial transactions, the taxpayer has to make decisions for themselves as often many, many
business transactions are not covered and resolved perfectly on point with already written code and regulations. The factors that come into play are
the level of willingness of the taxpayer to take a risk on their own interpretation of the law when their exact transaction is not expressly covered
by on point code/regs and what the "environment" of their situation is with regard to relevant IRS pronouncements, letter rulings, current practice,
existing code and regs and pronouncements, and findings in relevant court cases.
BTW, one of the worst, weakest, and most fallible sources and "authorities" to use when trying to decide a course of action is to "consult" with the
IRS by phone...no matter who you talk to! Trust me, you gain very little reliable info and absolutely no standing at all by what you get by phone
from the IRS.
[Edited on 5-3-2013 by MitchMan]
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