V, it is all a matter of principle. First, the only reason we have to suffer this reporting of our homes and bank accounts, is because the Mexican government calls a fideicomiso a "trust." Had they chosen to call it by another name, this would all be moot. Second, if someone wanted to hide vast quantities of money in Mexico, they would locate in an inland locale, like Puebla or Mexico City, where foreign ownership is possible without a fideicomiso and therefore no reporting is required. (for a simple non-income producing home, that is) YES, you are supposed to report income, but that becomes a different topic. The above example is dealing with a criminal of sorts, so he is not going to report anything. It is like the retort to the gun law...."If guns are outlawed, only criminals will have guns." See? Criminals aren't going to report anyway!! So just because we choose to live within 30 miles of the coast, we have to go through all this mess, while those who live inland, do not. V, have you found a CPA who is familiar with offshore trusts and more specifically a fideicomiso? Mine is in So. Florida and she did not have a clue. She even called a bunch of other CPA's and none of them did either. Between the two of us, we could not figure out how to fill out the forms for the first time. I was also corresponding with the Texas lawyer who wrote the article (link to which is in another thread here somewhere) He wanted $1000 USD to fill out forms 3520 and 3520-A. Fortunately, in the course of this correspondence, he made a mistake and accidently divulged a little piece of information that made everything else fall into place. My CPA eventually charged me an extra $400. Point is, that if you are on a fixed income, a grand is a pretty decent hit, if you do not plan for it. Finally, (and briefly) there is my utter contempt for the IRS, and the way they treat people, even ones like me and millions of others who are trying to do the right thing, every year. I do not owe them now but I did, several decades ago. It was a nightmare; guilty until proven innocent. I am just ecstatic (sarcasm here) that the IRS has been chosen to oversee compliance with the mandatory health insurance issue, should it ever become one.
Windknot, thanks for your comments. IRS filing and reporting requirements are indeed complex, and easy to run afoul of, as is keeping up with taxes owed: many who've been in business, or self-employed, can relate to your complaints. As for getting an accountant, I've never found them to be much help, but I've had the time through the years- and this year is no exception- to wade through the regulations and instructions sufficiently for the lights to come on. As you and others have discovered, many general accountants will not bother to read sufficiently to fully understand the particulars we're looking at, whereas we have a personal stake in the outcome which provides a little extra incentive to get it right!
IMO, Obama and Company stuck it to us again! These changes are but an attempt to fund his nonexistent Jobs Programs by taking more from those who "must have more $ to be able to own in a 'restricted zone'" and to redistribute it. I did not even know that the HIRE Act had been passed nor what they once again snuck into it until I began reading this thread. I too have NOW read quite a bit on this and had neglected to so in my haste to get it done before coming back to Cancun... Amendment here I come since the uncompensated use issue took effect March 18, 2010. http://www.irs.gov/businesses/small/article/0,,id=106566,00.html PART I—ESTATES, TRUSTS, AND BENEFICIARIES Subpart A—General Rules for Taxation of Estates and Trusts (§§ 641—646) Subpart B—Trusts Which Distribute Current Income Only (§§ 651—652) Subpart C—Estates and Trusts Which May Accumulate Income or Which Distribute Corpus (§§ 661—664) Subpart D—Treatment of Excess Distributions by Trusts (§§ 665—669) Subpart E—Grantors and Others Treated as Substantial Owners (§§ 671—679) Subpart F—Miscellaneous (§§ 681—685) http://tinyurl.com/3kel5q3 I do believe that it could be fought by stating that it is discriminatory to those who just happen to own property in a Mexican 'restricted area' as opposed to those who own in the "interior" because of the mere use of the word 'trust' by the Mexican government. IMO, the IRS has now defined the fideicomiso as a trust for their purposes with the sentence that I italicized above. I have been doing both forms myself since 2009 when all this first came to light back in 2009 with no problem as long as I read he instructions, LOL! Maybe Mexico will negate the need for the fideicomiso and put the screws to this discriminatory practice of taxation... after all it might be good payback for BO's denial of knowing about the guns being allowed into Mexico! So what is FMV for those of you who live here full-time? And, how does one figure the FMV of staying in their own Casa? Only in America!
I am with windknot on this one. This is simply hype caused by the age of the internet and bloggers like these cpa's who posted news articles on this subject and using it as a marketing campaign using scare tactics. They prey on people using their services and create a need out of fear. The trust reporting is not aimed at owners of property in Mexico and in my opinion if you do not rent your unit there is no further reporting other then to disclose via 3520 and 3520A you own the trust. If you do rent your unit then the similar law would apply as for owning US property, you are allowed 2 weeks per year uncompensated use and after that it would lower the amount of deductions and depreciation you can take. Example If you use your unit 10% of the year and rent it 90% you can only deduct 90% of the expenses
New Forms, Instructions! BVG, I agree that you face fewer issues on this point as your uncompensated use, if any, if very limited in scope. It's a much bigger issue for those who reside all or part of a year on the trust property. Since I started this thread, new forms and instructions have been issued which include lines in which to report uncompensated use. I saw them for the first time, yesterday. (See 2010 instructions for Form 3520 and the new Form 3520a: they are eye openers.) This is not just about Mexico's unfortunate choice of using trusts to get around foreign ownership restrictions: it worked fine for over 30 years. And, it's not just about whether Mexico calls these instruments trusts- they are, in fact, trusts, but of a very particular nature, designed to serve no illegitimate purpose and should not subject their owners to punitive, and discriminatory taxes in the U.S. Our trust, in particular, makes it rather clear that the fiduciary is a mere figurehead, disavowing all responsibility for the trust property, and having no meaningful duty other than to deliver title, as we instruct, should we decide to dissolve the trust. This is primarily about uncertainty, and possible unfairness, created by law makers who pass bills which are hundreds of pages long, with unrelated, tacked on changes to the tax code- which themselves have been written without considering the full impact of the changes imposed, and caring too little for any unfairness that may result. Those who've been living and working abroad for many years will remember the changes wrought in 2006, in which massive tax increases were imposed, midyear- retroactively to the first of the tax year- on those with foreign earned income. Our personal income taxes paid jumped 300% as a result of those changes, making this latest possible insult seem mild by comparison. Under the worst case scenario, if we were assessed for uncompensated use of trust property at FMV of rental use- in spite of having paid full market value for the trust property and the full use and enjoyment of same- our personal income taxes might be increased three or four thousand dollars. For many, this would make buying along the coast a far less attractive option than it would otherwise appear to be. If underlying these changes is a Desire to keep U.S. assets at home, it might just work.
the trusts exist for one reason at this point in time, they are money makers for the banks. the reasons why they restricted purchase need the borders date back hundreds of years ago to protect Mexico against a foriegn invasion. They never repealed them because the bank lobby is strong and it is all about charging the fees
You mean I pay $690 + IVA per year just so the bank and Mexico can make money! The price I pay for sun and relaxation. The 3520 and 3520a both say uncompensated use of property owned by a nongrantor trust must be treated as a distribution. Most articles I have seen leave this very important distinction out.
Thanks for the comment, Mr B, and this is one of the issues I'm taking a close look at, as ours is clearly a grantor trust; that, plus the fact that we paid FMV for the use and enjoyment of the trust property- up front- are the two lines of reasoning that have appeared, so far, in favor of the buyer under a fideicomiso, in my reading and review of the code, forms and instructions. I wonder, though, if you´d mind elaborating on your thinking regarding the difference that it being a grantor trust may make in terms of the concept of uncompensated use of trust property by the owner of the trust, as my own thinking has not progressed very far in that direction.
Page 3 of the 3520 instructions and page 2 of the 3520a instructions both have the definitions section talking about distributions (they are the same). This is where the nongrantor trust language comes in when referencing the changes from the HIRE act. Since these are Grantor Trusts, I don’t believe part III, line 25, of the 3520 applies since according to the definitions sections, only use of nongrantor trust property is a distribution. If only the instructions for Section III are read, one would be led to believe a reportable event would have occurred from use of trust property. Taken in its entirety, I don’t think the type of trust set up by a fideicomiso and subsequent use by those person defined in the instructions is what they are are after. I do file both of the forms and like most people feel, my CPA firm has little experience in this area. I am covered either way since my use last year was relegated to putting on cabinet knobs, hanging pictures, and shopping for more stuff. My kids want to know when we go to Mexico and not have to work.
Hi everyone, I'm new here, I've actually been following posts on the forum for quite a while and decided to finally register and post. I have the same questions about the "uncompensated use of trust property" as everyone else. I also would like to add to Mr b's comments, when you read pg 3 of form 3520, under the definitions of a Distribution, look at the last sentence of the paragraph under Note. It says "Thus, in the case of a trust with a US grantor that is treated as a grantor trust, the following two paragraphs will generally not apply to loans made to US persons from such a foreign trust or to the use of other trust property by US persons from such a foreign trust after March 18, 2010." Then as you read the following two paragraphs as Mr b says it apperars to apply to use of any property of a foreign nongrantor trust. I'm thinking/agreeing with Mr. b, but I've tried to get an answer from several CPA's and attorneys with conflicting answers. One CPA firm told me they not filling the forms out any different, then one lawyer says yes we need to file differently regarding the use of trust property. I also called the Philadelphia office for International return/info and was told that if we were a grantor trust then it doesn't apply, but it's hard to trust the IRS, they give out so much mis info too! (I had to bring the statements on pg 3 to their attention, then they agreed with me) So I'm not sure what to think!
