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john68
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Treasury ruling on fideicomisos and Forms 3520/3520A
Early this spring, Amy Jetel, a partner with the Morgan Adler Buxton Jetel law firm in Austin, Texas, requested a ruling from the Dept. of the
Treasury that a fideicomiso is not a foreign trust that requires a taxpayer to file forms 3520 and 3520A. The Treasury advised Amy last week that it
intends to rule in her favor. Amy expects to receive the written ruling by the end of the month. It may be a month or more after that before
personal information is redacted and the ruling published.
If the ruling is published as a Private Letter Ruling, as is more likely, it only binds the IRS with respect to the taxpayer who obtained the ruling.
If published as a Revenue Ruling, it binds the IRS with respect to all taxpayers. As a practical matter, it is unlikely that the IRS will take an
adverse position to a Private Letter Ruling issued by the Treasury.
If you want your own ruling, you can reach Amy at 512-370-2750. The process is not inexpensive.
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RosaritoKen
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Thanks for this information... will be watching for updates!
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oladulce
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Since your post a few months ago that Amy Jetel was planning to obtain a definitive ruling about fideicomiso reporting and 3520 filings, I've had
(false) hope that the IRS would finally admit that a fidei is not a foreign trust and we'd be free at last.
But if I understand correctly, only those who pay enough $$$ can become a member of a special IRS club that doesn't have to file those ridiculous
pain-in-the butt forms?
If I'm getting the gist of this, Wow is that ever screwed up.
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CortezBlue
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For what it's worth
When I used Turbo Tax this year, in the interview, it asked about foreign investment. When it discusses the above mentioned forms it is very specific
and even says it does not include property that is for personal use.
Also, when I called the IRS, 3 times, I had 2 "it is not required" responses and 1, "it is a short form and it can't hurt to fill it out"
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john68
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If you want to be 100% safe in not filing forms 3520 and 3520A, you would need to obtain your own private letter ruling (PLR).
Most people will probably just rely on the ruling that Amy Jetel has obtained.
It's not impossible, but I would be very surprised if an IRS agent took a position contrary to the PLR.
Hope this helps.
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oladulce
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| Quote: | Originally posted by john68
If you want to be 100% safe in not filing forms 3520 and 3520A, you would need to obtain your own private letter ruling (PLR).
Most people will probably just rely on the ruling that Amy Jetel has obtained.
It's not impossible, but I would be very surprised if an IRS agent took a position contrary to the PLR.
Hope this helps. |
Thanks for keeping us posted on this john68. So if I understand correctly, it may be better news than I thought. I'm sure you can't advise, but
hypothetically speaking, if a person was already on the IRS radar because they've been filing the 3520/3520A/1041's,
would they simply stop filing the forms if they wanted to refer to Ms Jetel's ruling in case of an audit? Or would they be better off contacting the
IRS to inform them that they will no longer be filing the forms because of this ruling, blah, blah?
We only receive our forwarded US mail here in Mexico every few months and I just got a letter from the IRS dated 4 months ago which says they have a
record of receiving my 3520A from 2 years ago but they can't find it and would i please send it to them again!!! By now, this is old news and we're
past their cut-off date to re-submit the form. Considering how many IRS letters our "foreign trust/fidei" filings generate , I don't relish more
communication by US mail with them but I'll happily do whatever it takes to close our "file" if possible.
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john68
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I'm sorry, but I'm retired from the practice of law and I can't give you any personal advice. I would suggest you ask your tax preparer or Ms. Jetel.
John
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john68
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Amy Jetel has sent me a redacted copy of the IRS ruling that a fideicomiso is not a foreign trust.
I can't get it attached it to this note for some reason.
Please send me a U2U if you want a copy.
John
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The Sculpin
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ADVANCE RELEASE Documents,IRS Information Letter 20110052,(Apr. 26, 2012)
2012ARD 084-102
Internal Revenue Service: Information letter: INFO 2011-0052: Information reporting: Mexican residential real property: Mexican fideicomisos
DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE WASHINGTON, D.C. 20224
OFFICE OF THE CHIEF COUNSEL
November 17, 2010
Number: 2011-0052
Release Date: 6/24/2011
GENIN -141622-10
CC:INTL:B01:
UIL: 6048.00-00
Dear *****:
This is in response to your request for general information regarding the information reporting obligations with respect to Mexican fideicomisos that
own certain Mexican residential real property on behalf of U.S. persons who are not also Mexican citizens.
Under section 6048(a) and (c) of the Code, 1 a U.S. person who makes a transfer to or receives a distribution from a foreign trust generally is
required to report certain information on Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.
Under section 6048(b) of the Code, a U.S. person who is treated as the owner of a foreign trust under the grantor trust rules (sections 671 through
679 of the Code) is required to complete Part II of Form 3520 and to ensure that the foreign trust files Form 3520-A, Annual Information Return of
Foreign Trust with U.S. Owner. Section 6677 of the Code imposes significant penalties (up to 100 percent of the gross reportable amount) for failure
to comply with section 6048.
The rules for determining whether an entity is classified as a trust for U.S. federal income tax purposes are found in section 301.7701-4 of the
Procedure and Administration Regulations. The rules for determining whether an entity that is classified as a trust is a foreign trust are found in
section 7701(a)(31)(B) of the Code and section 301.7701-7 of the Procedure and Administration Regulations. Any U.S. person who transfers property to
or has an interest in a Mexican fideicomiso that is classified as a foreign trust must comply with section 6048.
This letter provides general information only and does not constitute a ruling. See Rev. Proc. 2010-1, §2.04, 2010-1 I.R.B. 7. If you would like a
definitive determination as to whether a particular fideicomiso is classified as a foreign trust for U.S. federal income tax purposes, you must
request a private letter ruling pursuant to the procedures set forth in section 7 of Rev. Proc. 2010-1.
We hope this information has been helpful to you. If you have any questions, please contact *****, Identification Number *****, at ***** (not a
toll-free call).
Sincerely,
M Grace Fleeman
Senior Technical Reviewer, Branch 1
(International)
Whoa there, Cowboy - pull back on those reins!
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The Sculpin
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John68 - I have searched all my databases and cannot find any PLR on this matter. Could you give me the PLR #? I can then post it here similar to the
information letter above. I suspect this thing still hasn't been published yet.
Whoa there, Cowboy - pull back on those reins!
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john68
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Sculpin--
Amy just received it today, no number yet and I can't find it on the IRS database either. If you'll send me a U2U with your email, I'll send it to
you.
I emailed it to several other readers a few minutes ago and asked that they post it, too.
thanks.
John
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Lengua
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John , can u send it to me.
Mike ipgindustrial@me.com
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john68
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it's PLR 104521-12
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The Sculpin
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Knock Yourselves Out, Folks!!
THIS MAY NOT BE RELIED UPON FOR YOUR OWN, PERSONAL TAX SITUATION! 
IF YOU SHOW THIS AS SUPPORT TO AN IRS AUDITOR HE WILL LAUGH AT YOU AND GENERALLY MAKE YOUR LIFE EVEN MORE MISERABLE!
SPEND THE BUCKS AND HIRE A GOOD CPA/ATTORNEY!
OK - here it is.........
Department of the Treasury
Washington. DC 20224
Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
Telephone Number:
Refer Reply To:
PLR-1 04521 ~ 12
Date: JUL 30 l01Z
Index Number: 7701.00"00,7701.03-08,
7701.31-00
Legend
X=
A=
B=
State =
Date 1 = January 6, 2001
Date 2 = April 8, 2002
Year = 2002
Location = San Jose del Cabo, Baja Sur California, Mexico
$n::: $350.00
Dear Mr.
This letter responds to a letter dated January 27, 2012, and subsequent correspondence submitted on behalf of X by X's authorized representative,
seeking a ruling that an arrangement is not a trust as defined by § 301.7701-4(a) of the Procedure and Administration regulations.
FACTS
X was incorporated in State on Date1. X is wholly owned by A and B. husband and wife. In Year [ ], A and B caused X to purchase a condominium in
Location. X signed a fideicomiso or Mexican Land Trust ("MLT”) agreement with Bank [ ] on Date 2 and the public deed to the condominium was recorded
in the name of Bank [ ].
The Mexican Federal Constitution prohibits non-Mexican citizens from owning real property located within 100 kilometers of Mexico's inland borders or
within 50 kilometers of its coastline. These areas are known as the "restricted zone" and only Mexican citizens (or Mexican corporations whose bylaws
forbid the ownership of stock by non-Mexican citizens) are allowed to directly own real property within the restricted zone.
Location is within the restricted zone. X, A, and B are not Mexican citizens and are thus prohibited from directly owning the condominium.
Accordingly, in order for X to acquire the condominium, X was required to obtain a permit from the Mexican Ministry of Foreign Affairs and to purchase
the beneficial interests in the MLT under which legal title to the condominium was held by Bank [ ], a Mexican bank.
A and B represent that they negotiated directly with the seller of the condominium regarding the terms of the sale, paid the seller directly, and had
no interactions with Bank [ ]. X has the unrestricted right to sell or mortgage the condominium and does not require the permission of Bank to do
either. X is directly responsible for all tax obligations and is required to pay any taxes due directly to the Mexican taxing authority.
A and B, through X, have the exclusive right to possess the condominium and to make any desired modifications, limited only by the need to obtain the
proper licenses and permits. If the condominium is leased, X directly receives the rental income and must pay taxes on the income. X represents that
the condominium is not ordinarily leased and if it is leased in the future; the income will be reported on the appropriate U.S. federal income tax
return. Bank collects an annual fee of $n and disclaims all responsibility for the condominium, including obtaining clear title, and has no duty to
defend or maintain the condominium. As part of the arrangement, Bank holds only legal title to the condominium. Accordingly, Bank does not hold or
accept cash or any other property under the MLT arrangement other than legal title to the condominium.
X seeks a ruling that its MLT agreement with Bank is not a trust for U.S. federal income tax purposes.
LAW & ANALYSIS
Section 301.7701-1 (a)(1) provides that whether an organization is an entity separate from its owners for federal tax purposes is a matter of federal
tax law and does not depend on whether the organization is recognized as an entity under local law.
Section 301.7701-4(a) provides that the term "trust" refers to an arrangement created by
a will or by an inter-vivos declaration whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries
under the ordinary rules applied in chancery or probate courts. Usually the beneficiaries of such a trust do no more than accept the benefits thereof
and are not the voluntary planners or creators of the trust arrangement. However, the beneficiaries of a trust may be the persons who create it if the
trust was created for the purpose of protecting or conserving trust for beneficiaries who stand in the same relation to the trust as they would if the
trust had been created by others for them. Generally, an arrangement is treated as a trust if it can be shown that the purpose of the arrangement is
to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share In the discharge of this
responsibility.
Rev. Rul. 92-105, 1992-2 C.B. 204, addresses the transfer of a taxpayer's interest in an
Illinois land trust under § 1031. Under the facts of the ruling, a single taxpayer created an Illinois land trust and named a domestic corporation as
trustee. Under the deed of trust, the taxpayer transferred legal and equitable title to real property to the trust, subject to the provisions of an
accompanying land trust agreement. The land trust agreement provided that the taxpayer retained exclusive control of the management operation,
renting, and selling of the real property, together with an exclusive right to the earnings and proceeds from the real property. Under the agreement,
the taxpayer was required to file all tax returns, pay all taxes, and satisfy any other liabilities with respect to the real property. Rev. Rul.
92-105 concludes that, because the trustee's only responsibility was to hold and transfer title at the direction of the taxpayer, a trust, as defined
in § 301.7701-4(a), was not established. Instead, the trustee was a mere agent for the holding and transfer of title to real property and the taxpayer
retained direct ownership of the real property for federal income tax purposes.
The MLT described here is similar to an IlIinois Land Trust. The sale purpose of the
MLT is to satisfy the Mexican Federal Constitution by vesting legal title to the property in the name of the trustee. The trustee's sole
responsibility for the property is to hold and transfer title at the exclusive direction of the taxpayer. The trustee has no duty and no right to
defend, maintain, or manage the property. Taxpayer retains sole authority to manage and control the property, the direct right to collect any rents or
proceeds generated by the property, and tile direct obligation to pay all taxes and liabilities related to the property. We also note that there is no
arrangement between Bank, X, A, B or any other person to utilize the condominium in an activity for profit, such that ownership of the condominium
could be classified as a business entity.
CONCLUSION
Based solely on the information submitted and the representations made, we conclude that the MLT described herein is not a trust within the meaning of
§ 301.7701-4(a) and that X is treated as the owner of the condominium for federal income tax purposes.
Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item
discussed or referenced in this letter.
The ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it
is subject to verification on examination.
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes
Sincerely,
\Faith P. Colson
Senior Counsel, Branch 1
(Passthroughs & Special Industries)
Whoa there, Cowboy - pull back on those reins!
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john68
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See my initial post of 7/10/12 for the significance of a private letter ruling.
A private letter ruling only binds the IRS with respect to the taxpayer to whom the PLR was addressed, but it would be very unusual for an IRS agent
to take a contrary position. IRS agents are under some pressure to use their time effectively and they know that arguing with their National Office
is mostly a waste of time.
Having said that, you could get your own ruling for $10-20k that would bind the IRS and insulate you perfectly from IRS laughter and other scorn.
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slimshady
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This letter is great. Amy Jetel says she could do one fido for about 7k. I thought about it and felt that if ever had an issue with out thieves over
at the IRS, I could refer to the PLR and pay the 7k then.
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john68
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$7k is pretty reasonable for a PLR.
If a number of taxpayers request rulings, it might encourage the IRS to issue a revenue ruling. A revenue ruling would apply to all taxpayers.
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The Sculpin
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PLR's are meant to provide the taxpayer with "substantial authority" to take a position on their tax return. Waiting to get a PLR after you've been
notified that your return is subject to an audit will do you no good. Better to keep the 7K and use it for "audit defense". You can still point to the
published PLR's as a guide but you'll have to argue your specific facts and circumstances with the field agent. At best it's a trying experience!
[Edited on 8-14-2012 by The Sculpin]
Whoa there, Cowboy - pull back on those reins!
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john68
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If you want the equivalent of a PLR during the course of an audit, you can request Technical Advice from the National Office. It's discussed in
Revenue Procedure 2012-2.
http://www.irs.gov/pub/irs-irbs/irb12-01.pdf
Unlike a PLR, I don't think Tech Advice entails a user fee. On the other hand, the revenue agent can resist seeking Tech Advice.
John
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Cypress
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Thanks, That pretty much answers any questions I had about fideicomisos.
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