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Kimpatsu_Hekigan
Junior Nomad
Posts: 57
Registered: 5-11-2005
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Here's an entire blog devoted to this topic:
Tax Implications of Having a Fideicomiso
FWIW,
-- K.H.
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Marla Daily
Nomad
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Location: Loreto, BCS
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Real Case Scenario
American friends with an eco-tourist business for a decade (beach land + house included), in the name of a Mexican corporation, sold out to a large
developer. They had never filed form 3520. Their US accountant never advised them of it.
End result: The IRS fined them $10,000 each for 10 years. Fine was $200,000. That was on top of both US and Mexican capital gains.
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The Gull
Super Nomad
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Location: Rancho Descanso, BCN
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If people were not trying to avoid US taxes as much as they are, things like this would not worry them.
There have been ways to report the taxable events of renting Mexican property and selling Mexican property within a Fideocomiso without the form
3520A. It is called a 1040 or even a schedule C of that same form. All the IRS wants is the tax. If you sold property, you could always report it
under the normal capital gains forms along with your 1040.
Failure to file 3520A may be something which the IRS can scream about, but only until they discover that ALL taxable events have been previously
reported. A penalty can only apply to under-reported or un-reported taxable events.
�I won\'t insult your intelligence by suggesting that you really believe what you just said.� William F. Buckley, Jr.
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arrowhead
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| Quote: | Originally posted by slimshady
Don't for one second even think the IRS knows anything about a FIDO. GIving them info that they don't have is rediculous. Providing them with info
that they turn around and use on you, is financial suicide.
Simply don't have more than 10 k in an account . |
The US and Mexico have a tax treaty which requires each country report the financial activity of its citizens in the other country. In theory, at
least, if you sold a house in Mexico, it would be reported to the IRS. I couldn't tell you if they actually do it.
No soy por ni contra apatía.
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SDRonni
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Does this mean that, when we sell, we will pay capital gains in Mexico AND the US? Will the percentage be the same as usual capital gains, i.e. 30%
in Mexico and whatever they are in the US? YIKES!
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oxxo
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| Quote: | Originally posted by SDRonni
Does this mean that, when we sell, we will pay capital gains in Mexico AND the US? Will the percentage be the same as usual capital gains, i.e. 30%
in Mexico and whatever they are in the US? YIKES! |
My accountant has said that you pay Mexican capital gains tax first on a Mexican property. That amount is then credited toward your US capital gains
requirement. If the Mexican capital gains tax is greater than your US capital gains tax,.....then you owe nothing to the US IRS. If the Mexicaqn
capital gains tax is less than your US capital gains tax obligation, you pay the difference to the US IRS.
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SDRonni
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Thanks, oxxo, that makes more sense....
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The Gull
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Location: Rancho Descanso, BCN
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Right now, selling Mexican property purchased in the last five years would not result in a gain, so no tax problem.
�I won\'t insult your intelligence by suggesting that you really believe what you just said.� William F. Buckley, Jr.
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SDRonni
Nomad
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Location: Serra Mesa/Rosarito
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Gull,
True, but I'm thinking about 10 years into the future and who knows what values/tax laws/etc. will be by then????
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The Gull
Super Nomad
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Location: Rancho Descanso, BCN
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Getting advice today on Nomads board for a tax event 10 years from now???????????????????
�I won\'t insult your intelligence by suggesting that you really believe what you just said.� William F. Buckley, Jr.
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wessongroup
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Seems to be much to do about nothing... the IRS is always looking for someone in noncompliance with their regulations.
Give them a call and ask if they enforce their Code to the letter of the law... Gee, wonder what their answer will be.
It's a stretch to think that the IRS is linked by main frame to the Mexican Government's Tax Administration Service, in order to find individuals from
the United States who are tourists living in Baja California on leased land, in a Trust created by the Mexican Government, to allow the American
tourists to enjoy their country.
Please follow the link to the IRS for additional insight to the issue
http://www.irs.gov/newsroom/article/0,,id=104361,00.html
Perhaps under extreme circumstances the IRS might come after you, however, a Trust does not make money, unless set up to do that. And in this case I
do not believe this a Trust which has been set up to make a profit, rather to facilitate the ability of foreigners to live on property in the Baja in
a "restricted zone". Not to make money...
Hope this is what you are talking about...
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bajabeachbabe
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| Quote: | Originally posted by Marla Daily
American friends with an eco-tourist business for a decade (beach land + house included), in the name of a Mexican corporation, sold out to a large
developer. They had never filed form 3520. Their US accountant never advised them of it.
End result: The IRS fined them $10,000 each for 10 years. Fine was $200,000. That was on top of both US and Mexican capital gains.
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Just to clarify, the form that applies to foreign corporations is form 5471, and yes, it needs to be filed every year. The form related to foreign
trusts is 3520. So the bottom line is that whether you have a corporation or a fidi you will need to file forms with the IRS.
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slimshady
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The only thing I realized is that nobody really has an answer. The only thing I know is that the IRS really does not know or care to know what a FIDO
does and are vague on what they are looking for. Voluntary information to a gov't agency whose sole purpose is to separate you from your money is an
issue that each one of us has to deal with financially. Yes I pay taxes and alot of it annually. I find it my duty to avoid taxes at all costs and
that means not disclosing every detail of my personal financial business to the gov't.
Remember the Gov't is not looking out for your best interest, They just want your money.
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wessongroup
Platinum Nomad
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Location: Mission Viejo
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Mood: Suicide Hot line ... please hold
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IRS focus
| Quote: | Originally posted by Hook
| Quote: | Originally posted by slimshady
Don't for one second even think the IRS knows anything about a FIDO. GIving them info that they don't have is rediculous. Providing them with info
that they turn around and use on you, is financial suicide.
Simply don't have more than 10 k in an account . |
But our fideicomisos are worth more than 10k. How do you propose getting around that? |
Agree that the IRS may do something with folks bouncing along down in the Baja.. with all the money they are hiding (gains on investment property?
that is in a Trust) from the American Government. However would appear their focus is else where...
The Swiss just agreed to pay almost a Trillion Dollars US to not be prosecuted by the United States for their "hiding" of funds transfered by the nice
folks here in the States ,that just flat ripped us off.. The names of some of these U.S. folks that did this will be disclosed for prosecution, under
an "agreement" just worked out in Switzerland with the courts there.. now that is some $$$ that the IRS will actively go after.. with a bunch of
Mexican tourists with Visa's, staying in the country to relax and enjoy for various periods of time away from the United States is not a "front burner
item" I would think. I certainly don't know the breakdown of trustor's citizenship in the Baja and I'm not sure that Mexico could and/or would
disclose the information, if they have it in a data base, unless directed to by the IRS through our State Departmentand I'm not sure under the current
Treaties this would be possible......aaaahhhh, don't think so..
http://www.bloomberg.com/apps/news?pid=20601087&sid=a491...
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CortezBlue
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Spoke to my accountant yesterday and he advised that I fill out and send the 3520A.
He also told me to attache a document that describes the Fidi as a legal form of ownership in Mexico and to explain that we do not rent out the
property and that it is for personal use only.
My 2 pesos
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bajabeachbabe
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Location: Loreto,
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I was just doing a bit of research on the IRS website (yes I DO need to get a life) and I found this nice littler reminder:
http://www.irs.gov/pub/irs-utl/foreign_trust.pdf
Not only do you need to file the form 3520-A, but you're supposed to get a tax ID number for your trust in order to file the form.
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arrowhead
Banned
Posts: 912
Registered: 5-5-2009
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| Quote: | Originally posted by bajabeachbabe
I was just doing a bit of research on the IRS website (yes I DO need to get a life) and I found this nice littler reminder:
http://www.irs.gov/pub/irs-utl/foreign_trust.pdf
Not only do you need to file the form 3520-A, but you're supposed to get a tax ID number for your trust in order to file the form.
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I mentioned it earlier in this thread, but I'll have to repeat it. A fideicomiso is not a TRUST. Although it is called a TRUST in everyday language,
Mexico has no enabling laws that recognize a trust as a legal entity. TRUSTS generally exist in countries which follow English Common Law. A
fideicomiso is really a Mexican contract between the bank and the property owner. A fideicomiso has no fiscal year-end and is not a seperate taxable
entity under Mexican law. The IRS regulations currently describe a fideicomiso as a TRUST for US tax purposes, which requires a 3520-A filing. IRS
regulations do not a TRUST make.
The last thing you would want to do is ask the Mexican bank on your fideicomisio to apply for a EIN and file an annual tax return.
No soy por ni contra apatía.
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k-rico
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"The IRS regulations currently describe a fideicomiso as a TRUST for US tax purposes, which requires a 3520-A filing. IRS regulations do not a TRUST
make."
Isn't that a contradiction? Where does the IRS describe a fidei as a trust?
"for US tax purposes" That's what we're talking about.
"The last thing you would want to do is ask the Mexican bank on your fideicomisio to apply for a EIN and file an annual tax return."
Why don't I want to do that?
Please explain.
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arrowhead
Banned
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| Quote: | Originally posted by k-rico
"The IRS regulations currently describe a fideicomiso as a TRUST for US tax purposes, which requires a 3520-A filing. IRS regulations do not a TRUST
make."
Isn't that a contradiction? Where does the IRS describe a fidei as a trust? |
IRC § 6048
| Quote: | "for US tax purposes" That's what we're talking about.
"The last thing you would want to do is ask the Mexican bank on your fideicomisio to apply for a EIN and file an annual tax return."
Why don't I want to do that?
Please explain. |
Form 3520 is attached to the individual's tax return, and can be prepared by you or your tax preparer.
Form 3520A reports to the IRS the taxable income of the trust and allocation of that income among the trust's U.S. owners. If the trustee fails to
file Form 3520A, the responsibility rests with the U.S. owner, e.g you -- and not the bank -- you can file Form 3520A. Now, why would you want to pay
a Mexican bank $1,000 or more of fees to fill out a simple form - in English -- which they cannot comprehend?
No soy por ni contra apatía.
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MitchMan
Super Nomad
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Has anyone ever heard of a US citizen that owned real estate (personal use residence not actually held for production of income) in the baja via a
Fideicomiso who did not file IRS Form 3520, but, was discovered by the IRS as an owner of said baja real estate (not having ever sold the subject
property), and thereafter fined for not having filed said form 3520?
The same question for US owners of Mexican corporations who have not filed form 5471? The same question for US persons who are signatories on Mexican
bank accounts but who have not ever filed the appropriate IRS forms?
The reason for the question is to learn whether or not there is any real connection between what actually transpires in the real world versus scare
tactics by tax accountants.
Even if there are the above-mentioned IRS filing requirements, but, if there is no actual tangible communication and/or disclosure by the Mexican
governnment or its agencies to the IRS of US taxpayers involved with fideicomisos, signers on Mexican bank accounts, or holders of Mexican
corporations, then how are there any consequences to those who do not file those forms? I am talking about whether or not it is a realistic
expectation to be discovered by the IRS. No discovery, no consequences.
I can see a POSSIBILITY of discovery if there are electronic funds transfers or US checks issued from US taxpayer bank accounts (in the USA) to
Mexican recepients/financial institutions and vice versa. But, OTHER THAN VISIBLE TRANSACTION INVOLVING USA SOURCES, simply owning real estate via a
fido or being a signer on a Mexican bank account or owning a Mexican corporation wherein no monies ever flowed into or out of US financial sources or
institutions to/from Mexican banks/institutions, all would probably forever go unnoticed unless the US taxpayer unwittingly and/or inadvertently
disclosed it himself (or someone else expressly disclosed it).
For example, in California, if you are domiciled in California and you buy something from another state and receive it in California, you owe sales
tax on it to California (i.e., internet purchases). However, thousands of those transactions transpire every minute of every day and no sales taxes
are remitted by either the out of state seller nor the California buyer. Such tax evasion goes by uneventfully all the time. The problem is
DISCOVERY!
Now, there will be those fear mongers that talk about the world will end if you are ever discovered, but the reality is what is the probability of
discovery? Every time you drive on a two lane highway with only a painted line separating the opposing traffice, you avoid a head on collision with
every oncoming car, but you still drive on the street because the probability is so low that there will be a collision. We all know that planes crash
and people die, but we fly all the time. It's because of the low probability of an accident actually occurring.
I refer to my original question stated above which boils down to this..."What's the probability of discovery if you never transact money across the
border and you never file any IRS disclosure forms?"
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