It's that time of year, again, to start thinking about dealing with these IRS requirements, for those who have bank or other financial accounts in Mexico, have at least a 10% ownership interest in a Mexican Corporation, or who hold property here either through a fideicomiso or corporation. Financial accounts are reported on form TD F 90-22.1, due by end of June, each year. Fideicomisos are reported on form 3520a, due by March 15 for most tax payers; and, form 3520, due at the time the tax return is due, with any extensions that have been granted for the filing of the tax return. Both are returned to an address different from the addresses used for filing the return. A copy of form 3520a must be attached to form 3520 (it seems a number of filers forget to do this, guaranteeing at least a letter from IRS in the mailbox). Interests in corporations, and properties held through corporations, are reported on form 5471. There is a new form, introduced this year, which will also need to be considered by some filers, which is intended to act as a kind of summary report of all foreign holdings, form 8938. For those who'd like to see if this form may be required of them, please consult the IRS website for details. http://www.irs.gov/ The information contained in my post may be of interest to those who are new to ownership of property in Mexico. The subject, in general, was hot several years ago for those who owned property then, but by now each of them has made a decision to either comply or ignore the requirements. Those who've chosen not to comply would just as soon not be reminded of these requirements. IRS has not fully figured out how to bring non filers into compliance, the threat of draconian penalties proving to be inadequate to the task. They will continue to look for ways to root out this group. When they do, those with years of non compliance will have plenty of explaining to do. (Simply reporting all income in tax returns does not address the issue of noncompliance.) I'm a filer, always have been, feeling it's just easier in regard to those things related to IRS to file, rather than worry. These forms do not affect the tax obligation in any way. For those who are already declaring income derived from foreign sources they are informational returns and reports only, yet required. _________________
V can you please share with me information I.e. documentation that the IRS may require along with the 3520a. In addition you say the deadline is march 15th.... It can't be done with your regular return April 15th? Very much appreciate you sharing your knowledge.... Kathy
Hi, Kathy! Am I right in thinking you're asking because you acquired property in Mexico subject to a fideicomiso? If so, read on.... It will make a difference if 2012 was the year in which you acquired the property: if so, the filing will be "initial" and the approach a little different from subsequent, annual filings. On the otherhand, if this is not the first year in which you've owned the property, filings will also be needed for prior years, with an appropriate cover letter. I've yet to hear a report of filers being penalized for filing, just for incomplete or improperly executed filings (for example, missing pages, or missing required attachments and statements). If the only issue is failure to file, and there are no unsatisfied tax obligations from prior years, late filing shouldn't raise too many alarm bells at IRS, who are generally happy to see people make an effective effort to comply. The 3520a functions much like a 1099, or W-4, in the sense that it is meant to inform those who may owe taxes arising from income, or earnings: if there was reportable income from your property, then it informs both the IRS and any one else who shares that tax burden that returns could be expected which will include this income. That's why it has to be filed, and copies mailed to other interested parties, ahead of the deadlines for their tax returns. To properly execute the filings you'll need to have your escritura handy, and read it to see how each of the parties to the title document and fideicomiso are named, and what duties are assigned to each. (This could be painful, without assistance, if you don't have at least a mid level of Spanish). See how you do with the reading and we can continue the conversation.
Very much appreciate the information my situation is a little more complicated would it be ok if I send a personal message with a little more detail?
Sure, with no guarantees at this time that your issues may not go beyond what I know about the subject.
On another Mexico forum a poster has just reported today that they have received a demand for the payment of penalties in the amount of 10,000 USD for matters relating to the filing of these forms. I personally believe that enforcement in this area is still in the early years and that more and more people who hold property by fideicomiso will be receiving notices of a similar type in the future. Many took comfort in the report that IRS had agreed not to require Mexican Banks to report the existence of fideicomisos but this agreement did not apply to the Ministry of Foreign Affairs which must approve all fideicomisos, and from which reports could be made to the U.S. Treasury Department by intergovernmental agreement, if one does not exist already to accomplish this transfer of information. It's just easier to file these than to take chances with penalties that can range as high as 35% of the value of the property: Form 3520a for 2012 is due March 15, 2013 for most filers.
The simplest answer is that U.S. persons are subject to the tax laws of the U.S., where ever they happen to be: whether they will be paying taxes depends on what kind and how much income they have. Foreign earned income, for example, is not taxed until it hits near $100,000 USD per year: unearned income, such as rental income, is taxed almost from the first dollar. The subject of income, and taxes, is not the subject of this thread, interestingly: this thread is about the duties of U.S. persons to report certain types of transactions to which they may be a party; for example, bank accounts, investment accounts, real estate holdings abroad, participation in trusts, and large gifts. The type of forms we are discussing are informational in nature, informing the IRS what to watch for when the taxpayer files his tax return and declares the extent of his obligation for taxes, each year. ________________
Ides of March Much that follows are things I mentioned before on older threads but, to save the readers time, I'll mention it again, here! The filing deadline for 3520a is March 15, for most people. It is possible to get an extension, using Form 7004, but the request also has to be filed by March 15, and is not automatically granted. Second, the filing deadline for Form 3520 is usually the time when your federal tax return is due, with any extensions that have been granted (though it is NOT filed with the return). Form TD F 90-22.1 is due by the end of June: there are no provisions for extensions of time for filing (this is mainly of concern to those who maintain foreign bank or brokerage accounts: this form is not required, as you’ve mentioned in other places on this blog, of those who do no more than hold title to Mexican property via a fideicomiso). For those who live abroad, the filing deadline for Form 1040, the individuals tax return that we all know and love, the deadline is June 15, unless an extension of time for filing is requested, and granted. Any request for extension of time for filing should also be filed by the original deadline for the tax return. Again, for those living abroad, if there is no way to get your informational returns, or tax return, posted in the U.S. mail by the filing deadline, the IRS offers the option of posting your documents by several different delivery services, including DHL, among others, and recognizes the date you deliver the document to them as equivalent to posting in the U.S. mail for the purposes of calculating the date filed. There are several pitfalls that can be encountered when trying to comply with the reporting requirements besides failing to meet the filing deadlines that should also be mentioned; for example, a copy of page 3, of Form 3520a must be attached to Form 3520, and failure to attach page 3 of Form 3520a to Form 3520 could result in the assessment of a penalty. In addition, Form 3520a requires the attachment of a statement of the law on which the claim that the trust is a grantor trust is based. (I’ll mention what I see as the greater importance of this, later, but for now we’re just dealing with the reporting requirements). Failure to attach this statement is another of those things that could lead to a penalty being assessed. In my case, and based on the wording of my fideicomiso, I believed the following to apply: “Section 674: Power to Control Beneficial Enjoyment: by the terms of the trust instrument, beneficial enjoyment of the corpus, or the income therefrom, is subject to a power of disposition which they can exercise without the approval or consent of any adverse party; and, Section 677: Income for the Benefit of Grantor: by the terms of the trust instrument, income from the trust may be distributed, held or accumulated for future distribution to the grantors, without the approval or consent of any adverse party.” Having the trust determined to be a grantor trust has any number of practical benefits, among which is that it avoids the trust being treated as a taxable entity; instead, the grantor is fully responsible for any tax obligations created by the existence and functioning of the trust. No tax return need by prepared and filed on behalf of the trust, as would be the case in a non grantor trust (though the informational returns are still required). Further, it avoids any question relating to the potentially taxable nature of the beneficial use of the trust which otherwise would arise from the use of the property by those who purchased, subject to a fideicomiso, as would arise if the trust were a non grantor trust. Simply put, the owner’s own use of his own property could create a tax obligation for him if the trust were not a grantor trust, based on the fair market value of the use of the property; i.e., rental value. More could be said, but the more I type the greater the risk of a misstatement! As always, if I've made a misstatement, I invite the readers to please point us to the law that says otherwise. ___________________ Failure to file, misfiling, missed deadlines for filing, etc. continue to be problems for some, as follows: I personally believe that enforcement in this area is still in the early years and that more and more people who hold property by fideicomiso will be receiving notices of a similar type in the future.
Not to be forgotten is Form 8938 which was new last year and must be filed along with the Income Tax forms. Both Forms 3520-A and 3520 are sent to Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409.
