Marla Daily
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CORPORATION TAXES DUE UPON SALE: IRS FORM/PENALTY
Friends recently sold their beachfront property they held in a corporation. One had become a Mexican citizen. They had the corporation for 10 years,
but failed to file IRS form 5471 declaring their interest in a foreign corporation within 75 days of its formation. They are now being assessed a
$10,000 per year per person penalty by the IRS for this oversight. That's a $200,000 penalty! In addition, of the $1.8 of their selling price, their
tax burden is over 70% between Mexico (37%) and the U.S. Despite all of their Mexican and US lawyers and accountants, this form simply was never
mentioned.
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flyfishinPam
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ouch! any way to put the sale money into a trust and draw off only the maximum yearly non taxable amount for us citizens living overseas, which i
think is around $85,000USD/year??
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slimshady
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Why did they tell the i.r.s. they had a coporation in Mexico? Were they trying to bring back their proceeds from the sale of the property? All money
in Mexico should stay in Mexico to avoid the tax man here.
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The Gull
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| Quote: | Originally posted by Marla Daily
Friends recently sold their beachfront property they held in a corporation. One had become a Mexican citizen. They had the corporation for 10 years,
but failed to file IRS form 5471 declaring their interest in a foreign corporation within 75 days of its formation. They are now being assessed a
$10,000 per year per person penalty by the IRS for this oversight. That's a $200,000 penalty! In addition, of the $1.8 of their selling price, their
tax burden is over 70% between Mexico (37%) and the U.S. Despite all of their Mexican and US lawyers and accountants, this form simply was never
mentioned. |
Good to know when other US Nomads find themselves in a corporation owning property in Mexico for 10 years. Must apply to quite a few Nomads.
�I won\'t insult your intelligence by suggesting that you really believe what you just said.� William F. Buckley, Jr.
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thebajarunner
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Find some good legal counsel
Those assessments generally are there to get your attention.
Obviously that succeeded, beyond any imaginable level, clearly.
Hook up with a reputable tax attorney (not one of those 800 number dudes on the radio) and these penalties can probably be abated.
You will still owe the tax and interest, but 'cest la vie...
(there is a retired IRS collector in our church that has assisted me in helping some of my acquaintances walk on some astronomical assessments)
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durrelllrobert
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Isn't it a privelage to get to pay taxes in 2 countries for the same thing?
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bajabeachbabe
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Thanks for posting this, Marla. As the owner of a soon to be activated Mexican corporation this is a good reminder. After reviewing the IRS website,
the penalties are indeed $10,000 per year, and depending on how you read it, it could be implied that it is $10,000 per individual. The other factor
too, is that your US income tax returns for those periods are then considered incomplete and there is no statute of limitations. They also should
have been filing US tax returns for their foreign corporation.
This looks like a very large can of worms for your friends. I found a website that has this information in laymans terms. They are selling a book,
which, for those who have a foreign corporation, might turn out to be the best $43 you could spend. I think I will order a copy. Even being a CPA
myself, doesn't mean I know all the tax laws. Here is the link
http://www.rpifs.com/cfc3-f5471.htm
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Bruce R Leech
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this is very common knowledge. I wonder why they chose not to file the form.
Bruce R Leech
Ensenada
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Cypress
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So if you can fight off annual claims on your Mexican property by the ejidos, etc., you're to pay $10K taxes to the USA?
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Dave
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No, it's not...
| Quote: | Originally posted by Bruce R Leech
this is very common knowledge. I wonder why they chose not to file the form. |
But soon will be. Mexico is now releasing foreign corporation data to the IRS.
You can run but you can't hide. 
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bajabeachbabe
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| Quote: | Originally posted by Marla Daily
They had the corporation for 10 years, but failed to file IRS form 5471 declaring their interest in a foreign corporation within 75 days of its
formation. |
Clarification - the 5471 needs to be filed annually and is an information return that is filed with your tax return. Form 926 would need to be filed
at the time the property is tranferred into the foreign corporation.
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The Sculpin
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Balderdash!!!!!
I have been through this one before! I had a client who failed to file 5471 on about 50 subsidiaries. The proposed penalties were in excess of $2.5
million. Yes, it got their attention. Yes, we got them out of it. Without going into too much complex minutea, we claimed the ommission was not
intentional, gave our reasons, and quickly filed them all.
The facts here are pretty thin here. Yes, the 926 has to be filed within 75 days, the 5471 with your return. If there were a bunch of professionals
advising these people, I'm sure you could get the penalty waived upon filing the form, or have the penalty paid by the preparer of the return.
As for the tax rate, that also sounds dubious. The US allows a credit for taxes paid to other countries on similar income up to the US tax rate.
Sometimes you have to be somewhat creative in defining what is a creditable tax vs. a deduction. Sometimes the treaty will define it, sometimes not.
I agree - have your friends get a reputable cross border tax attorney. Plan on spending anywhere from $350 to $500 per hour. These guys aren't cheap,
but this isn't a time to be cheap!
Whoa there, Cowboy - pull back on those reins!
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Bruce R Leech
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It is the same form that must be filed every year by anyone with a Mexican trust deed or fedacomiceo. sp
Bruce R Leech
Ensenada
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vandenberg
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| Quote: | Originally posted by Bruce R Leech
It is the same form that must be filed every year by anyone with a Mexican trust deed or fedacomiceo. sp |
Because of this post we talked to an IRS agent today, asking if any forms are required to be filed with your income tax return for Mexican property
with a fideicomiso. The answer was: Only if it's revenue producing property. At time of sale the IRS wants to be notified and will advice you of the
procedure.
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Bruce R Leech
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you might want to check again with someone else. or log on to the gov site.
do a search of this site their is plenty to read right here on the nomad board
most folks I know file this form every year it costs you nothing until the time you sell and then only if you sell for a profit.
[Edited on 10-16-2008 by Bruce R Leech]
Bruce R Leech
Ensenada
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