January 25, 2021
Based on questions about the very negative consequences of attempting to renounce US citizenship, we have added a new section at the end of this article.
Aug 19, 2013
According to a recent WSJ article on American Expats: http://online.wsj.com/…014772169287210.html more American expats are considering renouncing US citizenship.
For CURRENT details, see our master article on taxes at: IRS Tax Issues for Americans Living and Working Abroad in Mexico – Master Article
“… . In 2004, Congress imposed severe penalties—up to $100,000 or 50% of the account, whichever is greater, per year—on U.S. taxpayers who choose not to tell the IRS about foreign financial accounts totaling $10,000 or more.
Critics point out that this penalty is for not filing a form, not for evading taxes. Bryan Skarlatos, a New York partner with law firm Kostelanetz & Fink who has handled hundreds of offshore accounts cases, says the total includes more than a dozen in which the tax and interest owed on offshore accounts was less than $20,000. Yet the IRS assessed penalties of more than $1 million, he says. The IRS declined to comment. “
FATCA and the Exit Tax Problems with Renouncing US Citizenship
“… In 2010, Congress passed the Foreign Account Tax Compliance Act, known as Fatca, which requires further disclosures by U.S. taxpayers with offshore accounts. The law also requires foreign financial institutions to report information to the IRS about U.S. account holders or face steep costs for not doing so.
Important Fatca provisions have been postponed until July 1, 2014, but the law has a long reach. For example, it could require a foreign-based trust to report information to the IRS about a beneficiary who holds a green card, even if that person gets no money from the trust and doesn’t know it exists, says Dean Berry, a partner with law firm Cadwalader, Wickersham & Taft.
Accidental tax cheats may be able to avoid large penalties. The IRS has a limited-amnesty program that offers protection from criminal prosecution, typically in exchange for stiff penalties.
Taxpayers deemed less culpable—for instance, because they inherited money in a foreign account they didn’t touch—can face lesser penalties. But the exceptions are often narrowly defined.
There are other options. People who have already entered the IRS’s limited-amnesty program sometimes choose to opt out. That leaves them vulnerable to a regular IRS audit, though the penalties are often lower.
But there are risks: Outside the program, there is less protection from prosecution and penalties can be higher, although experts say both outcomes are rare.
Advisers often recommend that taxpayers whose violations were unintentional and haven’t entered the limited-amnesty program should consider making “quiet disclosures” instead. That means catching up with back returns as well as filing them in the future.”
“…The IRS hasn’t officially sanctioned such (quiet disclosure) filings, and going this route may not offer protection against prosecution. But experts say the IRS seldom challenges quiet disclosures. In practice, says Mr. Skarlatos, the IRS almost never looks back more than six to eight years.
Taxpayers need to be able to show their violations weren’t willful, however.
Experts say the evidence could include never having filed a U.S. return if you live abroad, having the undisclosed account in the country where you live, rather than a tax haven, or not having lived in the U.S. for many years. It also helps to have little to no income earned in the U.S. and not to hold the undisclosed account within a trust or foundation.”
“Expatriation can have stiff costs of its own. People who renounce often have to certify they have complied with U.S. tax laws for the past five years. That means expatriation is a bad strategy for cleaning up past problems. “
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Expatriation can also bring severe estate-tax consequences. The U.S. heirs of people who paid an exit tax often owe a 40% tax on assets they inherit from the expatriate, whether the assets are in the U.S. or not. Unlike with typical estates, there usually isn’t a $5.25 million exemption.
In addition, law requires that the names of people who surrender their citizenship be published by the government, which some consider embarrassing.
At the same time, there are important exceptions to the exit tax. For example, people who have been dual citizens from birth can be exempt. For more information, see the instructions to IRS Form 8854. “
It is worth noting that the key provisions of FATCA supposedly will not kick-in until July, 2014: http://americansabroad.org/issues/fatca/acas-position-fatca/ ? On July 12, 2013, the US Treasury Department said that due to overwhelming questions and comments from countries around the world, (effectively postponing agreements with other countries), Treasury has extended the start of the withholding and account due diligence requirements of the Foreign Account Tax Compliance Act, or FATCA, for 6 months, until July 1, 2014, to allow the Treasury Department more time to complete agreements with foreign jurisdictions. Treasury Delays FATCA Withholding Requirement – Accounting Today.
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If you liked this article, you might also check out our growing body of articles on tax issues for expats in Mexico:
~ 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)
~ Summaries of US Tax Laws Affecting Citzens Living Abroad
~ Comparing Tax Rates and Tax Policies for US Earned Income and Mexican Earned Income
~ FBAR’s and Fideicomisos: To File or Not to File, That is the Question
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For USA Citizens considering renouncing their citizenship, realize that it is not easy. There are key steps that happen when you renounce your USA citizenship. Note that renunciation almost always costs you far more $$ in US taxes than just maintaining your US citizenship, and working in Mexico on an appropriate visa.
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Additional information on FATCA requirements for filing Form 8938 can be found at:
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Please Continue to Make Comments and Replies to Help Keep This Information Current!
Disclaimer: This information is not meant as legal advice. It is for educational and informational purposes only. Government policies vary between States and offices, and Mexican Government officials have broad discretion in how they individually enforce policies, so, your personal experiences may vary. 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.
Pingback: FATCA Fallout for US Expats Living Abroad | Surviving Yucatan
Thanks! a bit befuddled here… what form is required to be filed?
Form 8938. Check out: Updated 2012 & 2011 IRS Requirements: Foreign Account Tax Compliance Act (FATCA) https://yucalandia.com/2011/12/20/new-2011-irs-requirements-foreign-account-tax-compliance-act-fatca/
Pingback: IRS – FATCA Reaches Out and Touches in Unexpected Ways | Surviving Yucatan
I own property here through a Mexican corporation…..no income is produced. Is there a reporting form requirement that I need to include in my tax return each year for this?
Your question is beyond our ken. I have only learned a little about personal taxes, and rely on our laboratory group’s accountant for advice.
Really, I think anyone who you ask will need some details of your situation, and details of your corporation (how it is structured for payments). The last Mexican corporation I had, the accountant said we had 3 different options for reporting and paying: by the job, by the month, or by …. (I forget). I chose by the job, with is different from yours – because I had income.
I was told that if I structured it monthly, I had to file even in months when there was no income… but that was 6 years ago, and tax laws have changed… Ask your accountant who set up the corporation.
a US tax return for the IRS?
yes, as of two years ago there was a form for foreign owned investments.
income is not necessary, still required.
but I no longer file so no form from me.
Hola, Steve. I am a journalist living here in San Miguel for past 7 years. Due to all the new banking and IRS regs it’s difficult for expats now to exchange US checks for pesos. I usually go to an exchange house two a month and get my peso and put some (not a lot in a MX bank to use my card which has a chip). Since we are a cash economy this is the way we all live –and I am sure you probably do,too. After August only CI Banco will cash USA check for pesos. The other Intercam and others will do so with wire transfers with stiff rates on either end. My wife works in the USA as a traveling nurse since she is younger and I am retired. If CI Banco stops cashing that leaves Plan B the ATM. I got whacked by a scam….I know what a reader looks like and this was a total machine that was compromised. My USA card does not have a chip. When in Canada recently and last year in paris for a month many of the POS machines would not accept USA cards. Had anyone written on this dilemma without gloom and doom and given a coherent idea of the costs of getting our pesos to live on via ATMs. Many older folks are writing their hangs and I just see the ATM as a solution (but not sure how safe maybe using the in bank machine) and the wires are OK and costly but then pout you into the FACTA arena. I served in the military (before we became Quakers), am a fourth generation firefighter, worked in government (state and local) and pay all of your taxes. We have always done things the right way and want to be good citizens. I am sure the government knows the hardship that expats face not just here in Mexico but the world over. Your thoughts always appreciated. Thanks. BTW, been a very wet rainy season here for first time in a long time. Best wishes !!! Bill
Good insights, good updates.
Cashing US checks at Mexican banks has definitely become more difficult since the US Govt’s July 1 FATCA new rule additions. Some banks and financial institutions are saying there are additional new rules changes coming in August, which has left banks check cashing policies in limbo until they deal the with rule changes and figure out their costs and consequences.
ATMs are still a good option for getting cash out in Mexico. There have been sporadic problems with ATMs being modified by thieves installing skimmers. You likely know about the angles, and advice on how to detect them, but here’s a link to an article on stopping this kind of information theft at ATMs – about halfway down: https://yucalandia.com/answers-to-common-questions/banking-currency-exchanges-using-credit-cards-atms-in-mexico/
There’s also a route using Wells Fargo’s Express Send service. Account holders can send up to $1,500 U.S. per day to certain Mexican banks for $5 USD. One poster described using BBVA Bancomer here to receive the wire. They said there is no charge for receiving if you have an account which can be opened with a $2,000 pesos min. balance/no fee. This process takes 2 days.
Since some bank’s policies are temporarily in flux, and others are on hold, we’re waiting until any August settle in and turn into long-term bank policies, before writing a summary article on what’s available.
For example: Bancomer is still cashing foreign checks for account holders. Intercam currently accepts personal checks from the USA, but will stop cashing them in August. Actinver is saying they will no longer deposit checks from the USA. Merryl Lynch transfers money for free, if you have enough on deposit with them. Citibank US accounts can transfer $$ for free to MEXICAN Banamex accounts – but who knows how long that will last…. You can also open an HSBC bank account in the US or Canada, and one in Mexico. You link the accounts and make free transfers between accounts between countries if you deposit enough. The HSBC transferred money appears instantly. XE.com does exchanges from US accounts and transfers within 4 days. Capital One 360 debit card with no fees allows free withdrawals at Banorte ATMs – up to $3,000 pesos a day. Monex still has its fans where you can wire money from any US bank to Monex, and then withdraw funds from Monex Mexico offices. Also note that the information I listed above has eccentric twists like: one way to get around Capital One 360/Banorte’s $3,000 peso a day withdrawal, MultiVa allows withdrawals up to $10,000 pesos a day for about $2 -$3 in fees. Also note that if you have a MultiVa account, then you can currently deposit US checks here in Mexico with them.
Be aware that if you start pulling lots of cash from Mexican ATMS, and then making cash deposits to a Mexican account, it creates an electronic “paper” trail that Hacienda/SAT tracks. The good lawyer Spencer McMullen reports that Hacienda then requires the expats (or Mexicans) “to explain why the deposits are not income”. Hacienda/SAT only gives us a short time frame to explain why its not income, or we face taxes, fines and penalties.
some US banks and credit unions have a facility for you to scan them and upload the scanned endorsed check. never does the paper check see the bank/credit union