Lee
Ultra Nomad
Posts: 3508
Registered: 10-2-2006
Location: High in the Colorado Rockies
Member Is Offline
|
|
IRS and MX Fideicomiso
Quote from today's Onion:
''FBAR Debate Rages On - I have to disagree with the discussion in the last issue of the BWO about FBAR. I spoke to Mr. Cochran at the IRS (after
speaking to four other people), and he told me that if you have a bank account in a foreign country and you have had at any time a balance of more
than $10,000.00 USD (even for a minute), you must file an FBAR - Form TDF 90-22.1 - every year.
Until the end of August, seems like you can do it with no consequences -- as long as you didn't have any unreported income in this account. If you
have unreported income in the account, there could be a penalty. If you don't file before the end of August and they find out, the penalty is worse.
The voluntary disclosure program is something you can opt into or not. He said he couldn't give me an opinion on which way was best (huh?). I guess it
depends on your situation. If you go to this website and look at #17 and #18, it seems pretty clear: http://www.irs.gov/businesses/international/article/0,,id=23...
If you own a home in a foreign country - with a fideicomiso, you must file IRS form 3520 and 3520A (that is the one the Mexican bank is supposed to
file) - every year. And every year back to 2003! Also, a grace period until the end of August 2011. Big brother is watching! - ''
|
|
|
BajaHombre
Newbie
Posts: 22
Registered: 8-27-2009
Member Is Offline
|
|
From the link above: I wonder how this might apply to Fideicomisos? I know, with a Fideicomiso you do not technically own the land. Still ...
36. A taxpayer owns valuable land and artwork located in a foreign jurisdiction. This property produces no income and there were no reporting
requirements regarding this property. Must the taxpayer report the land and artwork and pay a 25 percent penalty? What if the property produced income
that the taxpayer did not report?
The answer to the first question depends on whether the non-income producing assets were acquired with funds improperly non-taxed. The offshore
penalty is intended to apply to offshore assets that are related to tax non-compliance. Thus, if offshore assets were acquired with funds that were
subject to U.S. tax but on which no such tax was paid, the offshore penalty would apply regardless of whether the assets are producing current income.
Assuming that the assets were acquired with after tax funds or from funds that were not subject to U.S. taxation, if the assets have not yet produced
any income, there has been no U.S. taxable event and no reporting obligation to disclose. The taxpayer will be required to report any current income
from the property or gain from its sale or other disposition at such time in the future as the income is realized. Because there has not been tax
noncompliance, the 25 percent offshore penalty would not apply to those assets.
|
|
|
slimshady
Nomad
Posts: 291
Registered: 9-3-2008
Member Is Offline
|
|
No income then no tax or penalty. If the income is in cash then even better.
|
|
|
MitchMan
Super Nomad
Posts: 1856
Registered: 3-9-2009
Member Is Offline
|
|
According to many on this forum and apparently according to the IRS (though I have not read the code or regulation stating so) as told by many on this
forum, land interest held by an American via a fideicomiso is considered a reportable trust via the two forms mentioned above and that non reporting
will subject the American holding such land interest via fideicomiso to a fine. I would like to know the relevant/pertinent IRS code and related
regulations because that is where the real IRS authority lies.
FWIW, according to ramuma53, the fido is a lease in his opinion based on the circumstance that the title from previous owner is transfered directly to
the bank and the bank, pursuant to the terms of the fido, holds the title while you, the buyer, hold no title at all and that you pay the bank an
annual fee that may constitute a rent wherein you, the buyer, get many rights (pursuant to the dictums of the fido) such as exclusive use, right to
occupation or not to occupy, right to improve or not, and the right to sell it or not sell it. Also, at the end of 50 years the title will revert to
the original owner/seller unless you, the buyer, timely file and correctly file for a renewal of the fido and you successfully obtain such renewal for
another 50 years.
So the questions in my mind are 1)is everything that I wrote above, true and correct? 2)Is the fido really a trust wherein the buyer is in fact the
beneficiary and the trustor and the bank is in fact the trustee according to USA law? 3)What are the relevant/pertinent IRS code and Regulation
citations that undeniably mandate that the fido is a trust subject to the abovementioned reporting? 4)Do treaties come into play here and in what
way? 5)Does international law come into play and in what way?
Or, is it all a matter of interpretation? If so, then it's a crap shoot unless there are on point court cases that have already set a precedent or if
there is some kind of letter ruling or IRS pronouncement stating their unequivocal position on the matter consistent with the reporting and fine
mentioned hereinabove.
Side point, just because the IRS does something or even makes a pronouncement that is not itself code or a specific regulation, then all the
pronouncement is, is their "interpretation" of the tax code law and not specifically enough reflected in the regulations, but the IRS will enforce the
pronouncement with the force and might of the federal government just like they would codified tax law. That holds alot of weight simply because its
very expensive to fight it in court and it takes mountains of expertise to prevail usually. So a pronouncement is as good as law as far as the common
man is concerned, with the only difference being that pronouncements can change, settled law is much more immutable.
[Edited on 8-18-2011 by MitchMan]
|
|
|
Katiejay99
Nomad
Posts: 429
Registered: 9-3-2008
Location: Todos Santos
Member Is Offline
Mood: it is what it is
|
|
Here is the IRS website regarding a Foreign Trust: (I would have copied and pasted it, but it is rather long)
IRS Rule for Foerign Trust
|
|
|
MitchMan
Super Nomad
Posts: 1856
Registered: 3-9-2009
Member Is Offline
|
|
Thank you, Katiejay99. Very good stuff.
I am going to study it and then I will post my thoughts on it. One thing that jumps out at me right away is that "who must file" IRS requirement is
anyone who owns a foreign trust. Well, if you have an interest in property under a Fido, you don't actually own the trust. One evidence of that is
that you are not a trustor as you never transfered ownership in anything to the Fido or to the named bank. You paid money directly to the seller, not
to the Fido or to the bank. The seller transfered his title (threrefore the property) directly to the bank. You were never ever the title holder and
you never ever transfered any property. Only the seller did that.
The weakness is that you as a participant in the Fido, you do have some "ownership" as you do have certain rights. Ownership is defined as "a bundle
of rights". The quality or more accurately, the character of the ownership is whatever those rights are. So, you either have alot of ownership or a
little ownership, depends on which rights you have. So the question in my mind may to some extent rely on whether or not the list of rights that you
have as a Fido participant lead into the definition of "ownership" as it relates to IRS definitions of ownership when referring to trust property
I have to read IRS code sections 671 and 679 to see if a "Grantor Trust" applies here as the website says "... assets treated as owned by a person
other than the trust". I don't know what "treated" means as used above and I don't know what "owned" means in that context either. But, part of my
premise is that the Fido is not a trust in the first place, and, whatever a Fido is, you don't own it. In a garden variety trust, typcally, the owner
of a trust is the "grantor" as he/she is the one who transfers (grants) his/her title (property) to the trust or actually to the trustee. In a Fido,
you never transferred anything. You never had title to transfer. One point of view is that the seller is the grantor to the trust, especially since
the title will revert to him after 50 years if you don't renew the Fido.
|
|
|
ncampion
Super Nomad
Posts: 1238
Registered: 4-15-2006
Location: Loreto
Member Is Offline
Mood: Retired and Loving it
|
|
Here's some clear info on the Mexican Fideicomiso. As the creator of the trust, you qualify as the owner. It's easy to file the form, no tax
consequences (unless you generate income) no problems. No need to over-analyze.
http://www.mexconnect.com/articles/321-mexican-trusts
.
|
|
|
gnukid
Ultra Nomad
Posts: 4411
Registered: 7-2-2006
Member Is Offline
|
|
Wow sounds like Lee is a hard core IRS promotion team regardless of facts or fiction??? Hmm I wonder why? Who would take up such an argument.
|
|
|
dtbushpilot
Ultra Nomad
Posts: 3290
Registered: 1-11-2007
Location: Buena Vista BCS
Member Is Offline
Mood: Tranquilo
|
|
This has been hashed and re-hashed ad nauseum, if you have a fide and don't want to file the IRS forms go ahead and don't. If you are worried about
it, pay an accounting professional who specializes in this particular topic about $400 a year per fide to keep you current with the IRS and hope for
the best.
I have 4 fide's and chose to comply with the US IRS required filing. I have a pretty good accounting firm that works for our company who, after
screwing it up more than once, asked me to have a specialist prepare the forms in the future (as well as fixing the mess that I had). It really is an
unnecessary exercise in useless paperwork for no apparent reason that I, as a tax payer have to file so that a government employee (more wasted tax
dollars) can look over and find some issue with that I have to pay somebody to show them why they are mistaken so that they can request that I refile
the paperwork for further review by some other government ( paid by our tax dollars) employee so that they can render a decision on this particular
case....or not....X4.
Anyone want to buy some Mexico property?.....dt
"Life is tough".....It's even tougher if you're stupid.....
|
|
|
Sweetwater
Senior Nomad
Posts: 915
Registered: 11-26-2010
Member Is Offline
Mood: chilly today hot tomale
|
|
| Quote: | Originally posted by dtbushpilot
This has been hashed and re-hashed ad nauseum, if you have a fide and don't want to file the IRS forms go ahead and don't. If you are worried about
it, pay an accounting professional who specializes in this particular topic about $400 a year per fide to keep you current with the IRS and hope for
the best.
I have 4 fide's and chose to comply with the US IRS required filing. I have a pretty good accounting firm that works for our company who, after
screwing it up more than once, asked me to have a specialist prepare the forms in the future (as well as fixing the mess that I had). It really is an
unnecessary exercise in useless paperwork for no apparent reason that I, as a tax payer have to file so that a government employee (more wasted tax
dollars) can look over and find some issue with that I have to pay somebody to show them why they are mistaken so that they can request that I refile
the paperwork for further review by some other government ( paid by our tax dollars) employee so that they can render a decision on this particular
case....or not....X4.
Anyone want to buy some Mexico property?.....dt |
After reading the numerous property/legal/tax threads......Definitely NOT.....
Everbody\'s preachin\' at me that we all wanna git to heaven, trouble is, nobody wants to die to git there.-BB King
Reality is what does not go away when you stop believing in it. -Philip K Dick
Nothing is worse than active ignorance. Johann Wolfgang von Goethe(1749-1832, German writer, artist and politician)
When choosing between two evils, I always like to try the one I\'ve never tried before. - Mae West
Experience is what keeps a man who makes the same mistake twice from admitting it the third time around.
|
|
|
MitchMan
Super Nomad
Posts: 1856
Registered: 3-9-2009
Member Is Offline
|
|
ncampion,
Good website, thanks. Recommendation to "not over-analyze", actually good advice for most. For me, I am keenly interested in this sort of thing.
The website presumes, and contemplates as the basis for all its premises, that the fideicomiso is in fact a trust and that the American so called
owner is the owner of the trust and is the trustor falling under the definitions stipulated for reporting. That's all a huge question in my mind, at
this point.
|
|
|
MitchMan
Super Nomad
Posts: 1856
Registered: 3-9-2009
Member Is Offline
|
|
I've done some time consuming research on this matter and these are my conclusions:
I believe that there is legitimate room to argue that the fideicomiso is either not a trust for purposes of US government reporting and/or the
fideicomiso instrument as structured does not impose reporting on the US citizen party that has the use of the real estate.
Most of the argument revolves around that fact that it is expressly the seller of the property who directly transfers title of the subject property to
the bank named in the Fido (importantly, not to the Fido itself as an entity). A trust as a defined entity stipulates that the grantor/owner of a
trust transfers title to the "trust" itself and that the title holder is the trust itself. The Fido instrument is never a title holder. The Fido is
not an entity, it is a contract.
Further, title is never at any time in the name of the US citizen involved in the Fido either before the seller transfers title of the property to the
bank or after the transfer. A trust by definition involves a transfer from a "trust grantor". In my opinion, the US citizen is never a
transferor/grantor - how could he be? He never ever has title to the property. How can you transfer anything if you never had title to it?
Additionally, the Fido by operation of Mexican Law provides for the "reversion" of the property to the seller/transferor after 50 years if the Fido is
not renewed. So, if the Fido were a real trust, that reversionary interest vested in the Mexican seller/transferor further supports the ownership and
responsibility of the trust as "his" trust, not the US citizen who has the use of the property for the temporary life of the Fido.
Having said all that, there is a giant elephant in the room ... the US government by way of the IRS. In researching this matter, it became abundantly
clear that the IRS "wants" very badly to treat the Fido as a reportable trust. The wording of IRS sections 6048, 671 to 679, and published literature
on the matter strongly reflect this intent. And, there is some verbiage that I encountered that leave room for counter argument to my arguments above
such as the IRS asserting that a beneficiary to this so-called Fido trust shall be "treated" as the owner of the so-called trust and thereby has
reporting responsibility. Or that the so-called US citizen beneficiary shall be "treated" as the "trust grantor" of the so-called trust if the US
citizen beneficiary transfered property to the so-called trust "directly or indirectly", whatever directly or indirectly means. Or the US citizen will
be "treated" as the owner of a foreign trust if they "created" the so-called foreign Fido trust, whatever "created" in this context means.
The point is that the IRS has taken the tack of using its arbitrary powers of "edict" and "fiat" to twist the definitions of a trust to serve an
obvious agenda of mandating reporting of Fidos as a foreign trust. I see the existence of that agenda as a fact here.
So, in conclusion, on balance, it looks to me like the IRS is definitely going to get its way of mandating Fido reporting, whether or not a strict
technically correct legal interpretation of the letter of the written law technically supports it or not. I mean, it's like you are lawfully driving
the speed limit on your side of the road and you notice a Mack truck coming at you full speed. To take the position of "I am in the right" so I am
not going to move aside makes no practical sense since that Mack truck will definitely crush you and vaporize you with absolute certainty.
Unless a US citizen involved with a Fido has a giant corporation with 4 times as many lobbyists as members of congress and can provide political
contributions that will influence legislation like Wall Street and the financial industry has so successfully done over that past 30 years, there is
no chance to prevail.
[Edited on 8-23-2011 by MitchMan]
|
|
|
dtbushpilot
Ultra Nomad
Posts: 3290
Registered: 1-11-2007
Location: Buena Vista BCS
Member Is Offline
Mood: Tranquilo
|
|
Excellent research Mitch, thanks.
As much as I hated to I came to the same conclusion (although I relied on other people to do the research). I felt that I had too much at stake to go
up against the might of the IRS, $1600 a year would seem like chump change after the IRS had their way with me....dt.
"Life is tough".....It's even tougher if you're stupid.....
|
|
|
RnR
Senior Nomad
Posts: 837
Registered: 5-1-2010
Member Is Offline
|
|
Mitchman makes some of the clearest and most concise arguments about the Fido/IRS reporting issue that I have seen to date.
He also comes to the conclusion that it will take millions of dollars (and probably tens of years) to fight the IRS and change their policies.
Anybody want to step forward and take on the IRS?
I, for one, filed the forms and await somebody with much deeper pockets than I to wage this war.
|
|
|
![[*]](images/xmbforum/default_icon.gif){kind=icon}
