Re: more tax info including land trusts

by **dean** Wed May 29, 2019 11:19 am

Federal Library

Federal Editorial Materials

Federal Taxes Weekly Alert Newsletter

2013

06/13/2013 - Volume 59, No. 24

Articles

Mexican Land Trusts used to avoid ownership restrictions aren't trusts for tax purposes
(06/13/2013)

Federal Taxes Weekly Alert,

Mexican Land Trusts used to avoid ownership restrictions aren't trusts for tax purposes

Rev Rul 2013-14, 2013-26 IRB

In a Revenue Ruling, IRS has determined that described "Mexican Land Trust" arrangements (MLTs) with Mexican banks, which allow non-Mexican persons to hold residential real properties in certain areas of Mexico that they are legally prohibited from holding directly, don't qualify as trusts under Reg. §
301.7701-4(a). IRS found that the banks aren't acting in a true trustee capacity where their only function is to hold property. However, IRS noted that if the banks hold title to additional assets or have duties beyond merely holding legal title, then the tax classification of the MLT is determined under the regs.

Background. Under Reg. § 301.7701-1(a)(1), whether an organization is an entity separate from its owners for federal tax purposes is a matter of federal tax law and does not depend on whether the organization is recognized as an entity under local law. Reg. § 301.7701-2(a) defines a "business entity" as any entity recognized for federal tax purposes (including an entity with a single owner that may be disregarded as an entity separate from its owner under Reg. § 301.7701-3) that is not properly classified as a trust under Reg. § 301.7701-4 (see below) or otherwise subject to special treatment under the Code.

The term "trust" refers to an arrangement created by a will or by an inter vivos declaration where trustees take title to property for the purpose of protecting or conserving it for beneficiaries. Although the beneficiaries of a trust usually do no more than accept its benefits, the beneficiaries may be the persons who create it, and it will be recognized as a trust if it was created for the purpose of protecting and conserving the trust property for beneficiaries who stand in the same relation to the trust as they would if the trust had been created by others for them. An arrangement is generally treated as a trust if its purpose is to vest in trustees the responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility. However, if a trustee's only
responsibility is to hold and transfer property at the direction of a taxpayer, then the trustee is merely an agent and the taxpayer is treated as directly owning the property for tax purposes. (Rev Rul 92-105,
1992-2 CB 204)

Facts. The Mexican Federal Constitution prohibits non-Mexican persons from directly holding title to residential real property in areas of Mexico located within 100 kilometers of its inland borders or 50 kilometers of its coastline ("restricted zones"). Non-Mexican persons, however, may hold residential real property located in the restricted zones through a Mexican Land Trust (MLT, also called a "fideicomiso") with a Mexican bank after obtaining a permit from the Mexican Ministry of Foreign Affairs.

RIA observation: Apparently, MLTs are commonly used to allow non-Mexican persons to purchase homes in desirable vacation areas.
Earlier private ruling. In PLR 201245003, IRS ruled that an MLT arrangement between a domestic corporation wholly owned by two non-Mexican individuals and a Mexican bank involving a condominium within a restricted zone wasn't a trust for U.S. federal income tax purposes. The PLR found that, similar to Rev Rul 92-105, the sole purpose of the MLT was to satisfy legal requirements by vesting legal title to the property in the name of the trustee. The trustee had no duty or right to defend, maintain, or manage the property.

Three situations. Rev Rul 2013-14 provided three fact patterns to illustrate its holding:

... In Situation 1, a U.S. citizen is the sole owner of a domestic LLC that is a disregarded entity. In order to purchase a residential real property in a restricted zone, the LLC obtained a permit from the Mexican Ministry of Foreign Affairs and signed an MLT with a Mexican bank. The LLC did the negotiating and paid the seller directly. The MLT agreement gives the LLC the right to sell the property, and the LLC is responsible for paying all liabilities relating to the property. Any rental income from the property is received by the LLC and reported by the individual on his return. Legal title is held by the bank, which is identified as a fiduciary in the MLT agreement but which disclaimed all responsibility for the property.
... Situation 2 is identical to Situation 1, except that the entity involved is a corporation under Reg. §
301.7701-2(a). Any rental income is received by the corporation and reported on its return.

... Situation 3 is identical to Situation 1, except that the individual deals directly with the bank, obtains the requisite permit, signs the MLT agreement, and negotiates the purchase of the property. The provisions in the MLT agreement pertaining to the LLC in Situation 1 instead apply to the individual. Any rental income is received and reported by the individual. The LLC collects a nominal annual fee from the individual.

MLTs aren't trusts. IRS analyzed the facts and found that in Situation 1, the bank's only duties are to
hold and transfer legal title at the direction of the LLC, which has the rights to manage, control, and collect rent on the property, as well as the obligation to pay taxes and other liabilities due on it. Accordingly,
since the LLC is treated as a disregarded entity, the individual is treated as the owner of the property. In Situation 2, the analysis is identical except that, since the entity is treated as a corporation, it is treated as the owner. In Situation 3, these rights and obligations are held by the individual, who is treated as the owner.

Thus, IRS determined that, in all three situations, the MLT isn't a trust under Reg. § 301.7701-4(a). However, it noted that if, under an MLT agreement, a bank holds legal title to any assets other than the property or is permitted or required to engage in any activity beyond holding legal title to the property, then this ruling won't apply. In that case, the rules of Reg. § 301.7701-1 through Reg. § 301.7701-4 will determine the proper tax classification of the MLT.

RIA observation: Although the PLR described above wasn't mentioned in Rev

Rul 2013-14, both reached the same conclusion.

References: For the characteristics of a trust, see FTC 2d/FIN ¶ C-5000 et seq.; United States Tax
Reporter ¶ 77,014 et seq.; TaxDesk ¶ 651,025 et seq.; TG ¶ 2605 et seq.

© 2013 Thomson Reuters/RIA. All rights reserved.

by **dean** Sun Mar 24, 2019 4:30 pm

fcebook wrote:from facebook

22 hrs ·
Dont let that fideicomiso expire.

This applies to old fideicomisos.

If your trust agreement (fideicomiso) has expired, you must renew it, thus be ready to pay costs and fees similar to a brand new trust since notarios treat it now that way, (alleging that is now required due to the anti-money laundering law) thus the current trust beneficiary (ies) must invest in a new layout of the property, no lien certificates, an appraisal (as if this involved a transfer of property, how ridiculous!), the cost of a permit from the federal government to create a new trust, the fiduciary fees for accepting to become the fiduciary (again), annual handling fees, the notary's fee, recording duties, etc.

Rafael Solorzano.

77
6 Comments
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Jacky Joki
Jacky Joki What causes it to expire? I pay on time every year. Thank you in advance.
1
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· Reply · 20h
Rafael Solorzano
Rafael Solorzano Why do Fideicomisos expire?
When the Mexican government grants a permit for a bank to create a fideicomiso on behalf of a foreign national, it instructs both the bank and the Notario to includes a number of obligations that are included within the clauses of the fideicomiso, while granting a 50 year term for the trust beneficiary owners (renewable) to use and enjoy the property held under trust. The first Fideicomisos began in 1973, and they all expired around 2002/3 and most, not all of them, where renewed months ahead of the expiration date on them, thus there are a number of 30 year fideicomisos created around 1990 that are bound to expire by 2020.
1. Why does the fideicomiso expire? Because the term granted in the permit has been reached or has elapsed already,
2. Why aren’t banks warning clients about this? Because they are neglectful and eventually it winds up costing the client, not the bank, to renew.
3. What is involved in getting the fideicomiso renewed: A) Approaching the bank and instructing them in writing to seek a new trust permit; B) Paying the bank its fees (agreed within the clauses of the trust agreement); C) Paying the government fees to grant a new permit with a fresh 50 year term. D) Getting a new survey, No lien certificates and a new appraisal (I know its ridiculous!): E) Paying notary fees; F) Pay state recording fees, and G) Recording the trust with the National Register for Foreign investment.
There you have it in black and white!
Regards,
Rafael Solorzano.
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· Reply · 19h
Gloria Oceguera
Gloria Oceguera Rafael Solorzano thanks
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· Reply · 13h
Gloria Oceguera
Gloria Oceguera At what point do they expire?
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· Reply · 13h
Jason T Vogt
Jason T Vogt Depends on the bank... You do not have to use the same bank if they are being difficult... Shop around for best rates... As of right now banco de bahía is far Best to deal with
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· Reply · 12h
Rafael Solorzano
Rafael Solorzano The topic applies for old fideicomisos. Jason, you are referring to BanBajio.

by **dean** Tue Jun 28, 2016 11:54 am

Subject: Message for U.S. Citizens: IRS Webinar "Foreign Earned Income for U.S. Overseas Taxpayers"
To:
Date: Monday, June 27, 2016, 11:43 AM
Message for U.S. Citizens
1. The Internal Revenue Service (IRS) will host a webinar
“Foreign Earned Income for U.S. Overseas
Taxpayers” on June 29, 2016, 2:00-3:00 p.m.
EDT.
2. To register and attend this webinar,
use the Foreign Earned Income for U.S. Overseas Taxpayers orhttps://www.webcaster4.com/Webcast/Page/445/15416
webinar link. Attendees should log in 10 minutes prior
to the start time. The session will be recorded and
made available at a later time on http://www.irsvideos.gov/
or http://ca.m.state.sbu/sites/clearance/OCSClearanceQueue/Lists/Clearances/Attachments/985/irsvideos.gov
.
3. The webinar will cover:
Requirements for claiming the
foreign income exclusion
Identifying which form to use: Form
2555 or 2555-EZ
Specifying information to include on
Form 2555 or 2555-EZ
Live Q&A with IRS subject matter
experts."

by **dean** Sat Apr 11, 2015 10:32 pm

http://www.irs.gov/uac/Interactive-Tax-Assistant-%28ITA%29-1

Like - Click this link to Add this page to your bookmarks Share - Click this link to Share this page through email or social media Print - Click this link to Print this page

Interactive Tax Assistant (ITA)
The ITA tool is a tax law resource that takes you through a series of questions and provides you with responses to tax law questions.

Simply answer the questions and click the "Continue Button" to progress to the next question screen.
When you reach the response screen, you have the option to print the entire interview and the final response.

The tool is designed for use by taxpayers that were U.S. citizens or resident aliens for the entire tax year for which they are inquiring about. If married, the spouse must also have been a U.S. citizen or resident alien for the entire tax year. For information regarding nonresidents or dual status aliens, please see Publication 519, U.S. Tax Guide for Aliens.
The ITA tool covers a limited number of topics listed below. If you use the search feature and the requested topic is not covered by the tool, then you may be sent to the IRS.gov Tax Trailsapplication. See our new topic lookup tool, the IRS Tax Map. To use the IRS Tax Map you’ll need to click a button that says "Leave IRS Site" Please continue! The IRS Tax Map contains official information; it’s just delivered from a different government website.
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Disclaimer
Conclusions are based on information provided by you in response to the questions you answered. Answers do not constitute written advice in response to a specific written request of the taxpayer within the meaning of section 6404(f) of the Internal Revenue Code.

by **dean** Sat Apr 11, 2015 10:04 pm

US IRS

http://blogs.wsj.com/expat/2015/04/01/on-the-trail-of-the-elusive-u-s-expat-taxpayer/?utm_source=taboola&utm_medium=referral

The U.S. State Department estimates there are about 7.6 million American expats living abroad, excluding military personnel, but the Internal Revenue Service typically hears from fewer than a million of them, indicating that many who owe U.S. taxes aren’t paying them. The IRS has no idea how many are breaking the law.

“To our knowledge, the IRS does not have the ability to estimate how many expats may have a filing requirement,” says Kenneth J. Drexler, senior adviser to the Taxpayer Advocate of the IRS.

An IRS publication of projected tax returns for 2014 suggests that just 938,800 1040, 1040-A and 1040-EZs will be returned this year from outside the 50 states. The IRS has been dinged for this lackluster number by the Treasury Inspector General for Tax Administration.

Advertisement

IRS officials say the agency’s ability to track down taxes owed by expats is impeded by the unknown number of U.S. taxpayers living abroad who use a stateside address when filing their returns, and expats who are listed as a spouse or dependent on a fellow U.S. taxpayer’s return. It’s also impossible for them to know whether earnings from abroad exceed the threshold to require a U.S. tax filing (for 2014, $10,150 for a single person under the age of 65; $20,300 for couples filing jointly).

The United States stands alone as the only major coun

Key Filing Dates & Fun Facts

For the first time this year, American expats should attach a completed Form 8965 to their 1040, which indicates to the IRS that you benefit from “deemed covered” status by a foreign health plan and thus do not need to participate in a U.S. plan, as set out under the new Affordable Care Act. If you don’t attach this form you could be subject to a $600 penalty for not having U.S. health coverage.
April 15, 2015: Deadline for U.S. resident citizens to file their U.S. tax returns
June 15, 2015: Deadline for expat Americans to file their U.S. tax returns; also the deadline for those unable to file their returns by this date to apply for an extension until October 15, by filing form 4868 (Note: interest in both cases will, however, be due on any tax not paid by April 15.)
June 30, 2015: Deadline for expat Americans to file FBARs (Report of Foreign Bank and Financial Account). No extension is possible and this must be filed electronically.
Top Five Tax Documents for U.S. Expats to Gather Before Filing

Last year’s U.S. tax return: This is particularly helpful if you’re a new client, as it gives your tax preparer a good initial understanding of your tax situation.
Your foreign country tax return for this tax year (if applicable): This will confirm how much tax you have already paid, and therefore, what benefits you may be eligible for on your U.S. tax return.
Foreign wage statements: Your tax preparer will want to have to hand all the details about what you’ve been paid during the year in question. Your pay checks should provide him or her with details of any pension plans you are enrolled in at work, and the amount of foreign tax you have already paid
Account and brokerage statements (where applicable): These statements are particularly important to avoid fines and penalties from the IRS. They help to determine your obligation to report your foreign bank and financial accounts under the FBAR reporting requirements, which are dependent on how much you have in the accounts during the year and/or at year’s end.
U.S. reporting documents such as forms W-2, 1099, K-1, 1098, etc.: These documents are still needed to prepare your tax return if you work for a U.S. employer while living abroad; still receive passive income from the U.S.; or have U.S. student loans or a mortgage.

by **dean** Mon Dec 08, 2014 6:15 am

4. Things to keep in mind when buying property
Posted by: albawalker
Date: Sun Dec 7, 2014 3:01 pm ((PST))

THINGS TO KEEP IN MIND WHEN BUYING REAL ESTATE IN BAJA1. If you are paying for the closing, it is highly recommended that you hire a closing agent that represents you instead of using the real estate company or that company’s agent.2. There are only two legal ways in which a foreigner can own real estate in Baja:1) Fideicomiso, 2) Mexican Corporation. Unless you are serious about having a business in Mexico DO NOT set up a corporation just to hold Real Estate, this is no longer a good option.3. Get a clear idea of all the alternatives when choosing a bank for the Fideicomiso. It is the buyer who has to deal with the bank in the future.4. There are many banks that offer Fideicomiso services; before making a decision ask all the important questions; how much the annual fee is, fee for assignment of rights, if the bank’s representative speaks your language (you will have to deal with him once a year at least), location of the bank’s office, etc.5. Ask your closing coordinator about the differences in price and service of the different banks and choose the one that better fits your needs, not the sellers or the Real Estate agent’s needs, you will be the one who will have to deal with that bank once the closing is finished.6. Be aware that some closing agents hide the real price of their services in some of the closing costs such as public registry fees or appraisals, when the closing is finish ask for all the receipts so you know exactly how much and what you paid for. 7. Make sure you understand the terms of the transaction and the Fideicomiso contract before you sign it. ASK QUESTIONS!For more info visit our blog at The Paper Chase - Business, Legal & http://www.thepaperchase.com.mx/ The Paper Chase - Business, Legal & http://www.thepaperchase.com.mx/ Paperworks baja, administrative and legal work, immigration documents, litigation, real estate law, fideicomisos, work permits, official translations, real estate closing services in baja, corporations for investors, Federal Zone Concessions, etc. View on www.thepaperchase.com.mx http://www.thepaperchase.com.mx/ Preview by Yahoo

by **dean** Tue May 27, 2014 9:10 am

remember the fbar are not generally needed so the below article in the GG seems off.

Via the Gringo Gazette: This is for info only and not the opinion or a statement by the BPE. (5/24/14)
Key Expat Tax Deadline
If you are an American living abroad, you are entitled to an automatic two month extension to file your U.S. tax return. That means that your tax deadline this year is June 16th. Also, if you are required to file Foreign Bank Account Report (FBAR), it must be submitted electronically before June 30th. This form is filed independently of your tax return. Unfortunately there are no extensions for FBAR - it must be received by June 30.

So shake a leg.

For more information about how much trouble you may be in on the home front, read the next GG, as there will be a simple explanation of what you must do even if you haven’t set foot in the United States in many years. There will also be information on how much trouble you’re in if you haven’t been diligent in supporting your former country. And, what to do about it, including resigning your citizenship. Yikes! People are dying to go to America, give that some serious thought before you do that!

by **dean** Sat Nov 30, 2013 6:13 am

What about tax changes for investors and real estate owners?
Mexico has caught up to many other countries and will tax capital gains on the sale of stock at a rate of 10% as well as tax dividends at the same rate of 10%.
For real estate sales there will be a maximum capital gains tax exemption pegged using the UDI index (investment units) with a new limit of 700,000 which equates to about 3,500,000 pesos so any gains over that amount from a sale will be taxed, the prior limit was 1,500,000 UDIs with that exemption waived if someone could prove they lived in the home for the preceding 5 year period.

http://yucalandia.com/living-in-yucatan-mexico/new-2014-tax-laws-for-mexico/

by **dean** Thu Jun 13, 2013 3:35 pm

Checkpoint Contents

Federal Library

Federal Editorial Materials

Federal Taxes Weekly Alert Newsletter

2013

06/13/2013 - Volume 59, No. 24

Articles

Mexican Land Trusts used to avoid ownership restrictions aren't trusts for tax purposes
(06/13/2013)

Federal Taxes Weekly Alert,

Mexican Land Trusts used to avoid ownership restrictions aren't trusts for tax purposes

Rev Rul 2013-14, 2013-26 IRB

In a Revenue Ruling, IRS has determined that described "Mexican Land Trust" arrangements (MLTs) with Mexican banks, which allow non-Mexican persons to hold residential real properties in certain areas of Mexico that they are legally prohibited from holding directly, don't qualify as trusts under Reg. §
301.7701-4(a). IRS found that the banks aren't acting in a true trustee capacity where their only function is to hold property. However, IRS noted that if the banks hold title to additional assets or have duties beyond merely holding legal title, then the tax classification of the MLT is determined under the regs.

Background. Under Reg. § 301.7701-1(a)(1), whether an organization is an entity separate from its owners for federal tax purposes is a matter of federal tax law and does not depend on whether the organization is recognized as an entity under local law. Reg. § 301.7701-2(a) defines a "business entity" as any entity recognized for federal tax purposes (including an entity with a single owner that may be disregarded as an entity separate from its owner under Reg. § 301.7701-3) that is not properly classified as a trust under Reg. § 301.7701-4 (see below) or otherwise subject to special treatment under the Code.

The term "trust" refers to an arrangement created by a will or by an inter vivos declaration where trustees take title to property for the purpose of protecting or conserving it for beneficiaries. Although the beneficiaries of a trust usually do no more than accept its benefits, the beneficiaries may be the persons who create it, and it will be recognized as a trust if it was created for the purpose of protecting and conserving the trust property for beneficiaries who stand in the same relation to the trust as they would if the trust had been created by others for them. An arrangement is generally treated as a trust if its purpose is to vest in trustees the responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility. However, if a trustee's only
responsibility is to hold and transfer property at the direction of a taxpayer, then the trustee is merely an agent and the taxpayer is treated as directly owning the property for tax purposes. (Rev Rul 92-105,
1992-2 CB 204)

Facts. The Mexican Federal Constitution prohibits non-Mexican persons from directly holding title to residential real property in areas of Mexico located within 100 kilometers of its inland borders or 50 kilometers of its coastline ("restricted zones"). Non-Mexican persons, however, may hold residential real property located in the restricted zones through a Mexican Land Trust (MLT, also called a "fideicomiso") with a Mexican bank after obtaining a permit from the Mexican Ministry of Foreign Affairs.

RIA observation: Apparently, MLTs are commonly used to allow non-Mexican persons to purchase homes in desirable vacation areas.
Earlier private ruling. In PLR 201245003, IRS ruled that an MLT arrangement between a domestic corporation wholly owned by two non-Mexican individuals and a Mexican bank involving a condominium within a restricted zone wasn't a trust for U.S. federal income tax purposes. The PLR found that, similar to Rev Rul 92-105, the sole purpose of the MLT was to satisfy legal requirements by vesting legal title to the property in the name of the trustee. The trustee had no duty or right to defend, maintain, or manage the property.

Three situations. Rev Rul 2013-14 provided three fact patterns to illustrate its holding:

... In Situation 1, a U.S. citizen is the sole owner of a domestic LLC that is a disregarded entity. In order to purchase a residential real property in a restricted zone, the LLC obtained a permit from the Mexican Ministry of Foreign Affairs and signed an MLT with a Mexican bank. The LLC did the negotiating and paid the seller directly. The MLT agreement gives the LLC the right to sell the property, and the LLC is responsible for paying all liabilities relating to the property. Any rental income from the property is received by the LLC and reported by the individual on his return. Legal title is held by the bank, which is identified as a fiduciary in the MLT agreement but which disclaimed all responsibility for the property.
... Situation 2 is identical to Situation 1, except that the entity involved is a corporation under Reg. §
301.7701-2(a). Any rental income is received by the corporation and reported on its return.

... Situation 3 is identical to Situation 1, except that the individual deals directly with the bank, obtains the requisite permit, signs the MLT agreement, and negotiates the purchase of the property. The provisions in the MLT agreement pertaining to the LLC in Situation 1 instead apply to the individual. Any rental income is received and reported by the individual. The LLC collects a nominal annual fee from the individual.

MLTs aren't trusts. IRS analyzed the facts and found that in Situation 1, the bank's only duties are to
hold and transfer legal title at the direction of the LLC, which has the rights to manage, control, and collect rent on the property, as well as the obligation to pay taxes and other liabilities due on it. Accordingly,
since the LLC is treated as a disregarded entity, the individual is treated as the owner of the property. In Situation 2, the analysis is identical except that, since the entity is treated as a corporation, it is treated as the owner. In Situation 3, these rights and obligations are held by the individual, who is treated as the owner.

Thus, IRS determined that, in all three situations, the MLT isn't a trust under Reg. § 301.7701-4(a). However, it noted that if, under an MLT agreement, a bank holds legal title to any assets other than the property or is permitted or required to engage in any activity beyond holding legal title to the property, then this ruling won't apply. In that case, the rules of Reg. § 301.7701-1 through Reg. § 301.7701-4 will determine the proper tax classification of the MLT.

RIA observation: Although the PLR described above wasn't mentioned in Rev

Rul 2013-14, both reached the same conclusion.

References: For the characteristics of a trust, see FTC 2d/FIN ¶ C-5000 et seq.; United States Tax
Reporter ¶ 77,014 et seq.; TaxDesk ¶ 651,025 et seq.; TG ¶ 2605 et seq.

© 2013 Thomson Reuters/RIA. All rights reserved.
Mexican Land Trusts used to avoid ownership restrictions aren't trusts for tax purposes

by **dean** Tue Apr 12, 2011 8:20 am

bpe

Still worrying about getting your US income taxes filed? Looking for an easy way to get the work done without leaving Mexico?
I've just had my taxes done by Marian Wellman, www.taxesinmexico.com, who has lived in Mexico for seven years, and has been doing US income taxes for 28 years. We handled everything by email and phone, I never had to leave my living room, and my taxes are e-filed and completely finished.
Marian's prices and procedures are all listed on her website, and I highly recommend her services.
Kimberly Ford, Ford Properties
kiminbaja@gmail.com
624 132 2510 cell

by **dean** Fri Sep 11, 2009 9:50 am

From Pony Express:

I just talked with an IRS Agent in the Voluntary Disclosure Branch (510 637-1031) who was very knowledgeable about property ownership in Mexico and the require process. I will be filing the Voluntary Disclosure Paperwork by Sept 23. I just finished the process and that took nearly an hour of my time start to finish. I needed the IRS Form TDF 90-22.1 (available on the web) and a Personal Disclosure Statement. Here are the addresses to send the completed forms and statements:
TDF 90-22.1
Report of FBAR
Original and Explanation, Annual Requirement
Department of Treasury
PO Box 32621
Detroit, Michigan 48232-0621
Copy and Explanation
IRS
11501 Roosevelt Blvd
South Building Room 2002
Philadelphia, PA 19154
Attn: Charlie Judge
Offshore Unit, DPS-611
The IRS agent and I concluded that no amended returns were necessary since I received no income from the properties in Mexico. Seems easier than the lawyers make it out to be.

by **dean** Tue Aug 25, 2009 7:54 am

from BPE

IRS OFFSHORE VOLUNTARY DISCLOSURE DEAL ENDS 9/23/09

By Don D. Nelson, Attorney, C.P.A.

A lot of US Citizens living and working in Mexico have not been filing their US Income Tax Returns as required by U.S. Tax law. The Brits, Canadians and many those from many other countries in world, the U.S. Requires you file returns yearly no mater where you live or work in the world so long as you are a U.S. Citizen. Some have put off their returns so long, that they are now afraid to surface and file them. Often that is an unfounded concern since due to the US foreign earned income exclusion and foreign tax credits, when many years past due returns are filed, no tax is found to be due anyway.

To try to bring U.S. Expatriates out of the closet, in March the IRS announced the Offshore Voluntary Disclosure Program which allows those who have not filed returns or who have filed returns and not included their foreign source income to correct these errors and have some certainty of what might happen when they do file those returns. Entering this program will avoid criminal action and will also set a predetermined limit on the amount of penalties which may be imposed. Though the IRS envisions the program will mostly be used by wealthy taxpayers hiding assets and income abroad, unfortunately due to the its requirements it does immediately affect the average American working or operating a small business in other countries around the world. The program is extremely complex and therefore cannot be fully explained with this article, but we will try to cover some of the major points. More details are available using the internet links set forth later below.

The general requirements:

File last six years previously unfiled tax returns or amend your last six years tax returns to include all foreign source income.

These returns should include all previously unfiled foreign tax forms required under us tax law such as those for foreign bank and financial accounts (TDF 90- 22.1), foreign corporations (Form 5471), foreign partnerships, foreign LLCS, foreign investment companies, and foreign trusts (Form 3520 and 3520A) (Mexican real estate trusts required by Mexican law). There are other US foreign tax forms too numerous to mention which also have high penalties for non filing.

Pay all taxes, penalties and interest due on unpaid taxes

Follow certain filing procedures requiring an announcement you plan to participate
in the program.

In lieu of paying the extremely high penalties for failure to file the special foreign tax forms mentioned above, pay a penalty of 20% of the highest balance in all foreign bank and financial accounts during the year with the highest combined balances during that 6 year period. This is often much less than the year penalty for failing to file the form. For example the penalty for failure to file the foreign bank and financial account form (TDF 90-22.1) is $10,000 per year or more.

If you have reported all foreign income (including interest, dividends, corporate income, rents, etc) in your previously filed your tax returns for the past sixyears, but failed to include all of the special foreign forms (some of which arementioned above) you are required to now file those forms with an amended return, and also include a reasonable excuse for your failure to file those forms and in most situations no penalties or additional taxes will be imposed. The IRS has failed to define what an acceptable reasonable excuse would be.

If your foreign activities have produced no taxable or reportable income during the past six years and you now file all required foreign forms that were previously omitted with amended returns for those years, no additional tax or penalties will be charged if you attach a reasonable excuse for failing to file the required foreign bank account report, foreign corporation report, foreign trust form (fideicomiso in Mexico), etc. Also if you failed to file your tax returns, but need to file returns for the period you lived and or worked abroad, and due to the nature of your income and activities have none of the special foreign income tax forms previously mentioned or on the the complete list are required to be filed, you can now file without any fear of the 20% penalty. All that would be owed is any tax due plus normal penalties and interest on that tax due. Form 2555 (to claim the foreign earned income exclusion) and form 1116(Foreign tax credits) do not trigger the 20% penalty if filed late. However, in certain situations, the IRS can disallow the foreign earned income exclusion if a tax return is filed more than 18 months late and taxes are due with that return.

The IRS has indicated that it is possible after the 9/23/09 deadline for the Program, it will impose all civil, monetary and full criminal penalties against those who have not filed the required foreign income forms or who have failed to report their foreign source income by that deadline. Anyone who thinks they might have problems with nonreported foreign source income, unfiled returns, or unfiled special foreign tax forms should immediately consult with their legal and tax advisors to determine whether they should be participating in the Voluntary Disclosure Program or to file all past unfiled returns. The program is extremely complex and some guidance is essential to determine if you should participate and to determine your personal criminal and civil liability if you do not participate.

It should be noted that the IRS has currently been very successful with their program to force foreign banks and other financial institutions to disclose the names, etc. and all US citizens who have accounts. It is presumed they will be matching that data against the tax returns filed by those citizens.

Relevant Web Links:

Wall Street Journal Article:http://online.wsj.com/article/SB124804796387763807.html

IRS Information:
http://www.irs.gov/newsroom/article/0,,id=105689,00.html

Frequently Asked Questions:
http://www.taxmeless.com/IRS%20Disclosure.htm

Don D. Nelson, Attorney, C.P.A. has been assisting US Citizens living abroad and with
their U.S. Income taxes for the past 20 years. His email is
donnelsonattycpa@yahoo.com . His website includes a lot more information on the Offshore Disclosure Program and is located at www.TaxMeLess.com . His blog which includes the most current expat developments is at www.usexpatriate.blogspot.com.

US phone number is 949-481-4094 and the fax is 949-218-6483
Copyright Don D. Nelson, Attorney, CPA 2009. All rights reserved. / donnelsonattycpa@yahoo.com