U.S. Fideicomiso reporting

Discussion in 'Living in Cancun' started by V, Feb 8, 2011.

  1. V

    V I can choose my own title Registered Member

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    Having recently bought a condo, and with it needed to create a fideicomiso, I'm now having to take a more serious look at the reporting requirements that are imposed on U.S. citizens by this form of ownership, a subject that has come up on this forum, before, but in which I only had an "academic" interest, at the time.
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    Last edited: Feb 16, 2011
  2. Windknot

    Windknot Regular Registered Member

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    I reported mine and whereas I cannot and will not advise you, I will say that I probably would not do it again. Certain people south of you have a condo, but their fideocomiso is with a Belize-based bank. They did not report and are betting that the IRS will not think to ask Belize for their records. I wonder if that will do any good, if the IRS does ask for a list, since they will be asking the Mexican Federal Government and not the individual banks.

    Whereas there is ongoing litigation in the US, pertaining to the removal of individual dwellings used solely for a home (no income involved) from being considered as an offshore trust, there is no guarantee as to the outcome of this litigation and if you did not report now, you would be grandfathered in to breaking the law, anyway. Be aware also that the penalty for not reporting can be as much as 20% of the value of the property. That's no small change, and the reason I finally broke down and reported.

    If you have a bank account in Mexico, the IRS wants to know about that too. Even if the average balance of the account(s) is/are less than the $10,000 reportable limit. In my case, they even want information on my closed account....the one I opened to handle the transfer of funds to Mexico, in order to buy my house. It has been closed for 2 years now.
     
  3. V

    V I can choose my own title Registered Member

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    Thanks for the comments, Windknot. In general, I'm not too put off by these kinds of requirements- I've been filing reports of foreign bank accounts ever since I first had one- but I'm just at the stage of reading the regulations, now, relating to foreign trusts (the instructions that come with the form leave me with some unresolved questions of my own, so I'll want to see what the regulations say), and am not ready to submit anything.

    My first look left me wondering about the applicability, but I usually err on the side of caution in these matters and don't object to filing if I can understand what I'm doing. I'm also planning to have a chat with my bank, Scotiabank, to see what assistance/information they may have to offer, relative to this potential requirement and the information required to complete the forms.
     
  4. gabesz

    gabesz Addict Registered Member

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    There was a requirement a year or longer ago that you are supposed to report your off shore holdings if you are a US Citizen. They have just announced another chance to report these holdings though with a penalty. However since having a fideicomiso may or may not need to be reported, I would strongly urge you to contact your tax professionals in the USA to get the proper answer to see if you are required to report anything at all.

    Also note if you have funds in any foreign account or have signature authority with any bank outside of the USA, that is mandatory for reporting no matter how small the amount of funds in the account. If the account was closed pre 2006 then you need not worry about this. But again check with your tax professional about this to be sure.

    There are a lot of small print items in this requirement and some may be required to report this others may not.
     
  5. V

    V I can choose my own title Registered Member

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    Foreign bank accounts

    Gabesz wrote:
    Gabesz, I've always been under the impression that the aggregate value of all accounts must have exceeded $10,000 USD at some point during the year to trigger a reporting requirement. Here's what IRS said about, this year.

     
  6. V

    V I can choose my own title Registered Member

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    Last edited: Feb 13, 2011
  7. gabesz

    gabesz Addict Registered Member

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    There is a section on the form 1040 or attachements, bear with me at the moment am not sure where but it asks if you have a signatory authority for ANY foreign bank account. If you answer yes, then you have to give details as to what bank, etc. If you answer no then its not a problem. But this is not for the purpose of the fideicomiso. This is for actual bank accounts. The new rules are somewhat vague in the case of Mexico and its home ownership to foreigners. This is why I would urge everyone to contact a tax professional to research this matter for them. The fines are steep if you do not file the proper paperwork if you have to file paperwork at all.
     
  8. V

    V I can choose my own title Registered Member

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    Contractual trust

    I have to say, the whole subject makes rather interesting reading, Gabesz. But, I appreciate the wisdom of seeking legal advice when I run across something that either stumps me, or in which I am left with a feeling of uncertainty.

    It seems our fideicomiso names the seller of the condo as the "trustor" (the person establishing the trust), and my wife and I as "trustees," (those who are responsible for caring for the trust estate). It places all rights of use, and responsibility for expenses, including all tax obligations, squarely on us. The trust is said to be irrevocable by the seller; in fact, all the normal incidences of ownership are placed in the trustees (that's us), except for legal title.

    As it is set up, the named "fiduciary," Scotiabank in our case, absolves itself of almost all responsibility for the trust estate. There some reporting requirements that are placed on them. They are required, under Mexican Law, to receive an annual report on the status and use of the property from the trustees (us): they are required to report to the Ministry of Foreign Affairs, annually, on each trust they have in their portfolio, and to report if a Fideicomiso is closed. As Windknot pointed out, the MFA must authorize the creation of the Fideicomiso, and from these reporting requirements, we see that they remain involved in the process.

    The fideicomiso is both a product of Mexican Law relating to foreign ownership, and a product of a contractual agreement between all the parties to it- the seller who, for valuable consideration, and acting with the buyer and bank, agrees to transfer the property, irrevocably, to a trust in which the buyers are trustees (in our case), and the bank, who will act as a fiduciary in holding legal title to the property- while the buyers are guaranteed the present use and enjoyment of the property with a right to rent, transfer their interest in the trust property to another; or, with aid of the fiduciary, to transfer the title to a third party, lawfully entitled to hold title under Mexican Law. With these rights, the full responsibility to bear all costs relating to the property or its use are the trustees'.

    The buyer having paid valuable consideration, both to the seller and the proposed fiduciary for the establishment of the trust, and the seller having irrevocably transferred his property to the trust for the use and present enjoyment of the buyers (practically speaking, in perpetuity, because the trust, although initially of a 50 year duration, may be renewed under current Mexican Law), this transfer has many of the characteristics of a contractual trust; in fact, it is so termed in the document itself, which declares that it is a "Contrato de Fideicomiso Translativo de Dominio".

    At this point I may be no more than 50% of the way towards having satisfied myself about the nature of the trust we are a part of, now, and the way in which the activities of this trust are to be reported to the IRS. I'll be meeting with Scotia Bank, this week, to see if they've appointed a U.S. agent for service, something that puts them in the loop for receiving notice of any communications from IRS regarding the trust; and, also to find out when their fiscal year ends, a thing that figures in the timing of one of the required, annual reports.
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    Last edited: Feb 13, 2011
  9. V

    V I can choose my own title Registered Member

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    As I expected, according to the representative for Scotia Bank, they do no reporting of any kind to the U.S. regarding the fideicomisos on which they are listed as "fiduciary," and holding legal title. He did say they get the occasional inquiry from the U.S. Government, asking if this or that person holds a fideicomiso interest in property with them, but that they don't respond to these. U.S. tax law's got this covered, of course, placing the burden of reporting and accounting on the U.S. person who has a role to play in the trust, or receives or might receive a benefit from it. The tax regulations go further, saying it is not reasonable cause for failing to file that others who hold information needed to complete the filing will not divulge the info, or otherwise cooperate. You are left with the duty to file based on the info you have available.

    According to this same representative, Scotia Bank has not appointed a U.S. agent for service as required by Sections 7602, 7603 and 7604 of the U.S. Code. Because there are negative consequences to a failure to make this appointment, I intend to appoint a representative for the trust, myself, acting in my capacity as trustee, if I can find no evidence that they have made the required appointment.

    As the readers will understand, responsibility for filing and responsibility for paying any taxes are separate. The penalties for failing to file in a timely fashion are sufficient to motivate me to get to the bottom of the filing requirement: nonfilers are left with the possibly thin thread of hoping the Mexican Ministry of Foreign Affairs refuses to report the thousands of fideicomisos they have approved to the U.S. Government, upon its request.
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    Last edited: Feb 20, 2011
  10. V

    V I can choose my own title Registered Member

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    I mentioned in my previous post that, regarding fideicomisos, the U.S. Government might simply ask the Mexican Government to disclose the names and Mexican addresses of all U.S. persons who have obtained an interest in Mexican property through this mechanism.

    There is another, obvious route through which this information might be obtained, and that would be the Mexican banks, themselves. Would Mexican banks cooperate in such a thing?

    Can't find an answer to that question, when the subject is fideicomisos, but a willingness to comply with other U.S. regulatory schemes is evident from this document, in which Scotiabank Inverlat (the title holder in my fideicomiso) responds to a U.S. regulatory requirement, by appointing a U.S. agent for receipt of legal notices from the U.S. Treasury, or Attorney General's Office. It is dated, March 8, 2010.

    http://www.scotiabank.com.mx/ES/qui...contenidoespanol/Scotiabank's Patriot Act.pdf
     
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