Yucalandia’s comments sections and various expat forums continue to have questions come up on US citizen’s upcoming responsibilities for 2014 filings of: FBAR FinCen Form 114, Form 8938 Statement of Specified Foreign Financial Assets, and/or Foreign Trust 3520/3520-A forms (this coming March 15, 2014). This post is an attempt to drag the dialogue out of the semi-buried forums, and cast a little sunshine onto the issue of official 2013 IRS rulings on fideicomisos.
Note: For CURRENT details, see our master article on taxes at: IRS Tax Issues for Americans Living and Working Abroad in Mexico – Master Article
Fideicomisos (Mexican Land Trust – MLT) for foreigners owning property in Mexico’s special border and coastal zones can be written/worded in one of 2 basic ways:
~ One type of fideicomiso – aka Mexican Land Trust (MLT) – grants the bank the single solitary right of ONLY “holding legal title” to the property.
=> 1 Right to “hold legal title” = EXEMPT from filing.
~ The other variety of fideicomisos grant the foreigner multiple rights or hold multiple properties, in addition to the basic “holding legal title” right to the property.
=> More Rights: Has to file with the IRS and Treasury.
Each fideicomiso holder – (as either a corporation or an individual US citizen), must read their fideicomiso/MLT and determine if it was written so they ONLY have the right to “hold the legal title” to the property, ~ or ~ if their fideicomiso also allows or requires additional rights or “additional assets” or “additional activities“.
IRS Bulletin 2013-26 specifies: http://www.irs.gov/irb/2013-26_IRB/ar06.html
“If, under the MLT agreement, (the taxpayer) holds legal title to any assets other than (the fideicomiso property) or is permitted or required to engage in any activity beyond holding legal title to (the fideicomiso property), the holding of this revenue ruling does not apply and the rules of §§ 301.7701-1 through 301.7701-4 will determine the federal tax classification of the MLT.”
This means that if your fideicomiso includes only 1 property (“asset”) and only allows “holding legal title”, then you are EXEMPT from 3520 / 3520-A filing requirements on that fideicomiso / MLT.
If however, your fideicomiso / MLT is worded to: ~ hold title to more than one property or asset; or ~ allows you to engage in additional activities with that property (beyond simple “holding legal title”), then you are NOT exempt,and you must file under IRS requirements (Form 3520-A et al) by the 15th day of the 3rd month after the end of the trust’s tax year – which is typically March 15.
Finally, if your fideicomiso is worded to allow the additional rights or additional assets or additional activities, then you are also potentially required to file a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) and a Form 8938, Statement of Specified Foreign Financial Assets. Check this IRS summary table to determine your responsibilities: http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements
Finally, MLTs do 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.
Sidelight: One US tax firm is advising people who have, in previous years, previously filed on their Mexican fideicomiso property (property that now qualifies as EXEMPT from filing in 2014), can also now consider filing one (1) last set of forms with the IRS – boldly declaring FINAL FILING on their 2014 IRS 3520 and/or 3520-A filings. http://www.btjlaw.com/index.php/fideicomisos-are-not-trusts-per-revenue-ruling
Hope this clarifies things and lifts some worries.
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Disclaimer: This information is not meant as legal advice. It is for educational and informational purposes only. See a professional for advice on important issues.
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Feel free to copy while giving proper attribution: YucaLandia/Surviving Yucatan.
© Steven M. Fry
Read-on MacDuff . . .