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latitude26n
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Hefty penalty for not reporting your fideicomiso to the IRS
Here is a little something we just learned (but almost wished we hadn't) from the webiste of our new tax guy:
Under US tax law the fideicomiso meets the definition of a "foreign trust." That means you are required to file Form 3520 when you initially establish
the fideicomiso or foreign trust and the trustee is to file Form 3520A for each year thereafter.
The Form 3520 must be filed with your tax return, while the Form 3520A is due on March 15 of each year, though you can apply for an extension of
time using Form 2758. These forms must be filed for any foreign trust controlled by a US citizen or those of which a US citizen are the
beneficiaries.
Some international tax professionals have argued that the fideicomiso is not really a trust but is an agent for holding title to real property in
Mexico. Recent discussions with an IRS International Division Counsel has reaffirmed that the IRS considers Section 6048(a) to apply to fideicomisos
as used in Mexico and Form 3520 and 3520A should be filed. They have indicated they have no current plans to issue any future rulings on this
subject.
If you fail to file Form 3520, there is a penalty charged equal to 35% of the value of the property transferred to the trust, or of
any unreported distribution. This penalty can be waived by the IRS for reasonable cause (which has not been clearly defined). The IRS has issued no
guidance with respect to what is considered reasonable cause for failure to file Form 3520 and 3520A for a Mexican fideicomiso. Therefore any
taxpayer that has failed to file this form and continues to not file this form is at great risk of potential past, present and future penalties.
The Form 3520A reports each year's income and expenses for the trust. It includes a year end balance sheet for the trust and information on
distributions made to beneficiaries.
The US owners or beneficiaries of the trust are subject to a penalty of 5% of the trust's gross asset value for failing to file this form.
Penalties can be waived for "reasonable cause" but as stated above, what that reasonable cause is has not been defined by the IRS.
We'd never heard of the need to report our fideicomiso to the IRS and we were too late to report our new trust with this years taxes. Because of the
hefty 35% fine, ($19,000 in our case !) the tax guy had a suggestion which will require some "doctoring", and we'll report it with next years taxes.
The main point he made is" don't let it slide" because of the amount of the penalty.
Here's his website:
http://www.taxmeless.com/page11.html
The tax forms 3520 and 3520A along with the instructions for filling them out are downloadble from the IRS website.
Everyone's favorite type of reading...
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latitude26n
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Sorry to repeat the info-
I must have missed that meeting 
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Bruce R Leech
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you also must report any other income you receive while you are in Mexico. such as money received from renting your home or from any business you may
have.
Bruce R Leech
Ensenada
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Bruce R Leech
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you must also report a Mexican corporation. this is where you can relay git in trouble if you forget this.
Bruce R Leech
Ensenada
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turtleandtoad
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So, if I've got this right, you (the trustor) have to file the origional 3520 and the bank (trustee) has to file all subsequent 3520A forms with the
US IRS.
And if the bank (trustee) fails to file on time, you get fined?
Mike & Robin; Full-Time RV\'ers
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latitude26n
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No, you the trustee are responsible for reporting both to the IRS along with your federal income taxes.
The Mexican Bank is not involved in this process at all.
Our recent fideicomiso was finalized in Sept 04 but we didn't find out about this until March of 05.
Even tho they say you have until April 15 to file the initial trust notice 3520 with your taxes, because we hadn't filed the annual 3520A before the
deadline on March 15, we would have been liable for the penalty???
It doesn't make sense to me, but I'm not going to argue with the tax guy.
[Edited on 4-30-2005 by latitude26n]
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Bruce R Leech
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the thing is in the past many people did not do this and had no problems . but now the IRS has requested that all Banks in Mexico share this info with
theme and the banks agreed to share this info. so now there is a very good reason for people to comply with the US law.
Bruce R Leech
Ensenada
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latitude26n
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You're right Bruce, my comment wasn't very clear.
US and Mexico are now sharing this type of financial info.
But your Mexico Bank won't do the 3520A for you. Both of the forms are your sole responsibility as a part of your US federal income tax obligation..
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Bruce R Leech
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| Quote: | Originally posted by latitude26n
You're right Bruce, my comment wasn't very clear.
US and Mexico are now sharing this type of financial info.
But your Mexico Bank won't do the 3520A for you. Both of the forms are your sole responsibility as a part of your US federal income tax obligation..
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your right and I understand . I was just adding the other.
Bruce R Leech
Ensenada
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turtleandtoad
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Merriam-Webster Online Dictionary
Main Entry: 1trust?ee
Pronunciation: "tr&s-'tE
Function: noun
1 a : one to whom something is entrusted b : a country charged with the supervision of a trust territory
2 a : a natural or legal person to whom property is legally committed to be administered for the benefit of a beneficiary (as a person or a charitable
organization) b : one (as a corporate director) occupying a position of trust and performing functions comparable to those of a trustee
Therefore the institution (such as a bank) holding the paper is the "Trustee" not you. You are the "Trustor" or "Beneficiary".
However, I've already found the answer to my own question
"A foreign trust with a U.S. owner must file Form 3520-A in order for the U.S. owner to satisfy its annual information reporting requirements under
section 6048(b). Each U.S. person treated as an owner of any portion of a foreign trust under sections 671 through 679 is responsible for ensuring
that the foreign trust files Form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries."
http://www.irs.gov/instructions/i3520a/ch01.html
Therefore, the Bank has to file the 3520A. You have to make sure that the Bank does it. Further on in the instructions it tell you who has to sign the
3520A, and it isn't you! If you were to fill out the form and sign it, that could be construed as counterfitting an official document!
Mike & Robin; Full-Time RV\'ers
37\' Georgetown w/3 slides & 275 Watts of Solar Power
06 Taco TRD
www.turtleandtoad.com
I am here
To paraphrase Frank Lloyd Wright; I\'m all in favor of keeping dangerous weapons out of the hands of fools. Let\'s start with keyboards. --
Mike Dean |
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latitude26n
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I am sorry. You are correct. I did not correctly use the terms trust-ee and trust-or.
We can't get this new bank to send facturas (receipts) for the fidei. fees or confirm receipt of any of the wire transfers that we've sent them. They
also say that they aren't set up to send any notication or a bill for the annual fidei. payment like we'd grown accustomed to with our other bank. So
chances are we'll be s.o.l. when it come to getting a receipt for that every year.
And we're supposed to leave it up to the Bank to file the 3520A ?
I certainly hope we overlooked some fine print somewhere. I'll ask Tax man on Monday.
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Dave
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Reporting is one thing however you should be asking yourself why the IRS wants this information. Once you reach the obvious conclusion you then should
structure the purchase and subsequent sale of your property to minimise your exposure.
For instance, foreign corporations, and corporations held by foreign corporations can enter into trust agreements in Mexico.
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latitude26n
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| Quote: | Originally posted by latitude26n
And we're supposed to leave it up to the Bank to file the 3520A? |
Here's the Tax Man's response:
Yes the Mexican Bank is supposed to file the 3520A on behalf of you the beneficiary,
but said he hasn't been able to get a Mexican Bank to comply yet.
So to make sure that the form gets submitted, he/his clients complete the 3520A and submit it themselves.
[Edited on 5-1-2005 by latitude26n]
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JZ
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Dave: I don't think that would be so easy. I'm sure setting up a MX corp has expenses which is one issue, but more importantly there must be 51%
ownership by a Mexican national to establish a MX corp.
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woody with a view
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JESUS CHRISTO....and all i wanted to do was disappear south below the radar of the *^@@!~&*(() IRS! so you mean to tell me if i have ANY income,
besides SocSecurity, they're gonna know it?
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bajalou
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Mx corporations can be wholy owned by non-Mexicans. But they can not own the place in which you live. Still must have a fedicomiso for the home.
The corp is for you to conduct a business with the proper permits etc.
No Bad Days
\"Never argue with an idiot. People watching may not be able to tell the difference\"
\"The trouble with doing nothing is - how do I know when I\'m done?\"
Nomad Baja Interactive map
And in the San Felipe area - check out Valle Chico area |
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JZ
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>>Mx corporations can be wholy owned by non-Mexicans.
Is that true. I've heard different.
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tim40
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Sooo....You have filed all of the correct papers to keep our IRS people delighted...now what? What is the implication for doing so? This thread
covered if you do not,,,,but what if you do?
When searching for the end of your rainbow you only have until dusk....
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Sharksbaja
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confusion says:
Scare tactics. If you really think that the Notario and/or banco is going to share, let alone have access to your proprerty docs and so forth with
uncle sam you might as well give up. The whole thing is a legal mess and the IRS would be hard pressed to prove your property is a 'real' trust. Even
the best lawyers will tell you that the requirements contradict themselves. Their actual motivation is to extract money info from US property owners
in Mex. They just want you to account for your money.....for them. I would bet money that a full 90% of US property owners in the "Restricted Zone"
don't do squat about filing and the IRS would, according to sources, lose their case in a court of law if it were ever contested. Mexican wording and
the IRS interpretation of the fideicomiso are probably at the root of this conundrum. Not personally holding a deed does not tranlate into a trust by
definition. It is more of a holding agency of deeds for foriegn owners of coastal lands.
Because holding a deed in the bank institution is viewed as a trust and is therefore seen as an income source, the IRS wants YOU, unlike your
mainland non-fideicomiso property owners, to report all transactions and so forth. Not very fair or equitable do you think?. Why should you have to
report your house as some kind of money based trust? I think it's a crock, and so are their wishy-washy explanations. I frankly don't think anyone,
especially the lawyers(trust me, they know how to make money from this) really knows how the reporting path should go, this is ludicrous and until an
IRS official or politician with Baja property gets sucked into this themselves it probably won't end.
DON\'T SQUINT! Give yer eyes a break!
Try holding down [control] key and toggle the [+ and -] keys
Viva Mulege!
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latitude26n
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We haven't reported the other 3 fideis. we've had in 17 years and obviously no one has noticed (IRS). But by the time we're done with this, the last
Mexico property purchase we ever hope to make, our investment and the profit that we make when we sell someday will be a whole lot more than we've
dealt with before.
When we do sell the property someday the relatively (for us ) large sum that shows up in our bank account after the Mexican taxes are paid, will
appear as income that we'd have to explain, right?. (we don't currently have any creative tax sheltering strategies for this).
We have property investments in another foreign country and thought this we might trigger more red flags for an audit than your average American.
If we ever have to explain that the source of the income was the sale of property in Mexico, what are the odds that the guy is going to know the
difference between a lot in Cuernavaca, and one in Los Barriles-
Probably zip.
But if he does know about the trust reporting requirement for Baja property, and looks for all the years of 3520A filings? The penalties for not
reporting are exhorbinant along with the legal fees to fight the IRS.
We (the latitudes) don't have Dads nearby or big brothers that we can ask for for advise about all of this Mexican propety ownership stuff. So we just
try and gather information from as many sources as possible and toss 'em all in the air and choose the one tha hits us in the head.
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