Tax Planning Time !
Yucalandia reader “Pedro” offered a very helpful reference/comment in our FBAR’s and Fideicomisos: To File or Not to File, That is the Question article.
Up to this point, the FATCA reporting requirements for US citizens owning property in Mexico using a Fideicomiso, have not been clear. Fortunately, with US TAX SEASON looming, the US Treasury (parent of the IRS) has issued a guidance document that describes how the U.S. Treasury Department collects information regarding financial accounts and products held by American citizens residing in Mexico, and how the US Treasury is committed to exchanging such information with the Ministry of Finance of Mexico and pursuing equivalent levels of exchange.
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.
The parts of this recent US-Mexico agreement that affect Mexican bank’s FATCA reporting of Fideicomisos are spelled out in:
ANNEX II, NON-REPORTING MEXICAN FINANCIAL INSTITUTIONS AND PRODUCTS
from page 33:
” II. Deemed-Compliant Financial Institutions.
The following categories of institutions are Non-Reporting Mexican Financial Institutions that are treated as deemed-compliant FFIs for purposes of section 1471 of the U.S. Internal Revenue Code:
A. Any exempt organization resident of Mexico entitled to the benefits provided in Article 22 of the Convention between the Government of the United States of America and the Government of the United Mexican States for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and paragraph 17 of its Protocol.
B. Consistent with paragraph 3 of Article 5, a fideicomiso, to the extent that the fiduciaria of the fideicomiso is a Reporting Mexican Financial Institution and reports any information required to be obtained and exchanged pursuant to this Agreement with respect to any Controlling Person of the fideicomiso.
C. A fideicomiso that serves solely as escrow for a debt or purchase obligation of the settlor.
D. A fideicomiso the assets of which consist solely of real property. ”
These decisions seem quite clear cut: Fideicomisos for property that serve solely as escrow for a debt or purchase obligation, (as are commonly used by gringos to buy real estate in Mexico’s coastal and border zones), ARE EXEMPTED FROM REPORTING by MEXICAN FINANCIAL INSTITUTIONS.
Happy Holidays ! steve
* * * * * * *
For those with US tax obligations: Yucalandia has a growing body of US IRS information in several articles:
~ FBAR’s and Fideicomisos: To File or Not to File, That is the Question ,
~ Income Tax Liabilities in Mexico,
~ US Income Tax Filing Information for Ex-Pats, and
~ 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
* * * * * * *
Feel free to copy while giving proper attribution: YucaLandia/Surviving Yucatan.
© Steven M. Fry
Read on, MacDuff.