Tax Planning Time !
Yucalandia reader “John” offered a very helpful comment in our FBAR’s and Fideicomisos: To File or Not to File, That is the Question article.
2013 UPDATE on Fideicomisos
New Developments in International Taxation: Possible Fideicomiso Exemptions
In June, 2013 the IRS made a FINAL RULING that Mexican Land Trust (MLT) Fideicomisos now NO LONGER need to file at foreign trusts (3520/3520A) AS LONG AS your Fideicomiso specifies that your real estate trust (fideicomiso) holds just one property and only allows just ONE activity: “holding title to the property” to maintain the exempt Mexican Land Trust status. Mexican Land Trust Not Considered a Foreign Trust (Rev. Rule 2013 – 14) (PDF)
“[An] MLT [Mexican Land Trust, or fideicomiso] is not a trust within the meaning of § 301.7701-4(a). [However] If, under the MLT agreement, B [“B” in the holding refers to your bank] holds legal title to any assets other than Greenacre or is permitted or required [by the terms of the fideicomiso] to engage in any activity beyond holding legal title to Greenacre, the holding of this revenue ruling does not apply… ”
So, the Fideicomiso must hold only one asset (one property), but it does allow renting.
IRS Bulletin No. 2013-26, June 24, 2013, has the IRS’s detailed set of analyses and detailed descriptions of Rev. Rul. 2013-14. http://www.irs.gov/pub/irs-irbs/irb13-26.pdf
In “Situation 1” on p 1267 the IRS clearly describes the exempt type of Mexican Land Trusts (fideicomisos) and on page 1268, the IRS describes under “Situation 1”:
“X (the American taxpayer) retains the right to manage and control Greenacre. X has the right to collect any rent on Greenacre. In addition, X has the obligation to pay directly any taxes and other liabilities due with respect to Greenacre. Accordingly, because X is treated as a disregarded entity under § 301.7701–2, A is treated as the owner of Greenacre. ”
This one IRS publication clearly identifies an American taxpayer who has a fideicomiso as an exempt Mexican Land Trust, is not a foreign trust for tax purposes, and does not have to file the 3520/3520A forms – and DOES have the right to collect rents.
For those who have not read the individual ruling ( http://www.irs.gov/pub/irs-wd/1245003.pdf ) that John cited: There are various discussions going on local and national expat websites where some individuals say that this letter exempts them from reporting their Fideicomisos. Unfortunately, there are also current reports by at least 2 individuals who are currently being forced to pay $10,000 and $25,000 USD fines for not filing.
The interpretations that advise US expats to not report their Fideicomisos, unfortunately ignore one clause on the last page of this IRS individual agent’s personal ruling:
“… 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. ”
This seems to clearly put the issue to bed.
Happy Holidays ! steve
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For readers with US Tax obligations: Yucalandia has a growing body of US IRS information in several articles:
~ Capital Gains Taxes on Mexican Properties
~ Income Tax Liabilities in Mexico
~ Fideicomisos and FATCA: US – Mexico Agreement on FATCA Reporting Requirements
~ IRS Reporting Requirements for Mexico: Fideicomisos / Mexican Land trusts
~ FBAR’s and Fideicomisos: To File or Not to File, That is the Question ,
~ US Income Tax Filing Information for Ex-Pats
~ Tax Issues for Americans and Other Expats Living in Mexico
~ Updated 2011 IRS Requirements: Foreign Account Tax Compliance Act (FATCA)
~ Comparing Tax Rates and Tax Policies for US Earned Income and Mexican Earned Income
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Feel free to copy while giving proper attribution: YucaLandia/Surviving Yucatan.
© Steven M. Fry
Read on, MacDuff.