To file or not to file, that is the question:
Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing end them?
To die: to sleep; No more;
and by a sleep to say we end
The heart-ache and the thousand natural shocks
That flesh is heir to,
’tis a consummation Devoutly to be wish’d.
To die, to sleep;
To sleep: perchance to dream: ay, there’s the rub;
For in that sleep of death what dreams may come
When we have shuffled off this mortal coil,
Must give us pause: . . .
Yes, sometimes it seems easier to shuffle off this mortal coil, than to fill-out and file Federal Forms with the US Treasury and the IRS. (Where filing on-time from Mexico presents its own problems: if you use Turbo-Tax, you can only e-file from Mexico if you still have and list a US address, while H&R Block’s TaxCut allows e-filing from Mexico, without a US address.)
Back to the points about FBAR’s and Fideicomisos:
Requirements for US Tax filing . . .
Since we just went through the annual Tax-Time angst rituals, I raised the question among some ex-pat internet pals on filing requirements the FBAR (Foreign Bank and Financial Account Reporting) for aggregate foreign accounts and trusts worth more than $10,000K on the Mexconnect website – with emphasis on Fideicomiso requirements – and the following reply came back:
“I was concerned about Fbar filing. I called the treasury dept.
I spoke to a women in the Fbar division I started telling her about fidecomisos before I could get the entire word out she mentioned fidecomisos. I asked her how she knew about them? She said many people called last year to ask if they have to file Fbar for the trust. She said it was discussed in full detail and since the trust is not used for stock bonds, or any other type of investment and no cash could go in or out you do not have to file no matter the value of the property in the trust.
She said if I wanted to I could ask the IRS that deals with Fbar, she gave me their email address.
I emailed the question in explaining I have a fide. and explained that the other person in Fbar division said you do not have to file if you have a trust.
I got an answer back (one word: correct)”
This seems to tie a nice bow onto the question of whether US expats who own homes/property using Mexican real estate trusts (Fideicomisos ): Since no cash, nor stocks, nor options are transferring is moving in or out, the logic says thatFideicomiso trusts for Mexican real estate do not require Form TD F 90-22.1 filing.
Having cleared that up, note that current national IRS policy is that US taxpayers with Mexican property Fideicomisos must file 3520’s and 3520-A’s by March 15 of every year, unless they get a personal waiver letter from the IRS. Read IRS Manual Chapter 22. International Error Resolution – Section 19. Foreign Trust System – 220.127.116.11.1.1 (01-01-2013) FIDEICOMISO (a.k.a. Foreign Trust)
2013 FIDEICOMISO UPDATE
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.
Skeptics might note the date (Jan. 1, 2013), if they believe that IRS policy has changed.
Further: If you have aggregate foreign bank accounts or investment or cash trusts exceeding $10K in that Tax Year, you still have to file.
In a follow-up report of the web author’s communications with Treasury Dept. officials, the Treasury and IRS are currently standing behind the stipulation that if filers are reporting all income, then the Fideicomisos on property are not an issue, yet the Treasury folks further explain that they are currently drafting a formal release of their final opinion(s)/ruling(s) on the matter of Fideicomisos, which leaves the door slightly open for higher-ups to possibly reverse the US Govt’s current position.
The official IRS & Treasury rules on FBARS are listed in these web Publications & FAQ’s:
The actual form is at:
Disclaimer: Yucalandia and its authors are not tax preparation experts, though they have been doing their own US tax filings for 46 years, are 10:10 in disputes raised by US tax officials, have coincidentally prepared returns for 8 other individuals over the years, and enjoy accumulating and passing along helpful tidbits of tax information for others to do with what they wish. Granted, this truly is an odd hobby. . .
* * * *
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
* * * *
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.
* * * *
Feel free to copy while giving proper attribution: YucaLandia/Surviving Yucatan.
© Steven M. Fry
Read on, MacDuff!