Fideicomisos and IRS Reporting Requirements

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Today’s article will probably only be of interest to you if you’re an American with a Mexican land trust, known as a fideicomiso, and you’ve been wondering if you are required to report it as a foreign trust to the IRS each year.

For the rest of you, feel free to read one of our previous articles or perhaps improve your Spanish skills by watching one of our instructional videos. Seriously, this is some pretty dry material and you should get out while you can.

FATCA

In 2010, the United States enacted a piece of legislation called the Foreign Account Tax Compliance Act (FATCA) which significantly impacted Americans living abroad. The purpose of the law is to track the foreign assets of United States citizens and legal residents in order to locate any income that is subject to tax.

One of the requirements of the legislation is that United States citizens, even non-resident citizens, are required to submit an annual report to the Financial Crimes Enforcement Network (FinCEN) to report foreign assets that meet a certain criteria.  The report is known as the Report of Foreign Bank and Financial Accounts (FBAR).

To learn more about the FBAR and the severe penalties for failure to file, click HERE.

After FATCA went into effect, there was quite a bit of confusion and conflicting opinions about whether or not a fideicomiso would have to be reported annually as a foreign trust.

On June 6, 2013 the IRS issued Revenue Ruling 2013-14 which gave taxpayers specific direction in this area.

IRS Revenue Ruling 2013-14

The Mexican Constitution specifically prohibits non-citizens from holding direct title to land in certain areas of Mexico (restricted zones). However, non-citizens can still acquire property through a Mexican land trust held by a Mexican bank (fideicomiso).

In the majority of these agreements, the bank has no function other than to hold the title. In these cases, the IRS ruled that a Mexican land trust (MLT) is not a trust within the meaning of § 301.7701-4(a).

That means that there is no need to report the fideicomiso as a foreign trust on Forms 3520, 3520-A or the FBAR.

If, however, the bank engages in other activities beyond just holding the deed, then it may actually be considered a foreign trust and would have to be reported as such.

The IRS ruling is well written and provides additional information on the topic. To read it in its entirety, click HERE.

Let’s Wrap This Up

This article is purely informational and is not intended to constitute legal or tax advice. If you have questions related to your own tax situation, you should contact a tax professional or the IRS to assist you.

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About the Author

Q-Roo Paul

Paul Kurtzweil (Q-Roo Paul) was a deputy sheriff in Florida for 25 years and retired at the rank of lieutenant in 2015. He moved to Mexico with his wife six days later to enjoy a laid-back, Caribbean lifestyle on a tight budget.

In 2016, Paul started a blog to share information with other people who may be thinking of making the move to Mexico. The blog, Two Expats Living in Mexico (qroo.us), has been viewed over a million times and Paul’s articles appear in periodicals across Mexico.

24 Comments on "Fideicomisos and IRS Reporting Requirements"

  1. QROO Paul,

    The thing I like best about your articles is that you always provide a link back to your source material. There is no need to question the validity or accuracy of your information! Much appreciated!

    Regards,
    Troy

    • That comes from 25 years of doing legal research and appearing in court back in the States. I got in the habit of always citing my sources.

  2. Glenn McDougall | December 7, 2017 at 1:17 pm | Reply

    Hi Paul, I am not a land owner in Mexico but my wife and I live in Canada (Tracy and Glenn we met you last Feb in Akumal)… and I would think that the second largest group of your readers are from Canada… so perhaps a Canadian could talk about the impacts from a Canadian perspective… all jmo … Best, Glenn

    • Hi Glenn. We do have a lot of Canadian readers. Maybe one of them is a tax attorney who is willing to share their insight in the comments section.

  3. Great explanation!

  4. Thank you Paul. My CPA was not sure about this as he never dealt with Mexican property owner/holder

  5. Paul……..I thought I was a smart guy until I read the latest blog. Since my wife and I carry less than $10,000 in our Mexican banks and we do own a home with a trust held by a bank, do we or are we required to file anything with our dear friend Uncle Sam? Thanks……….Steve & Lynn Luchs

    • Hi Steve! I’m certainly not qualified to give you any legal or tax advice. The purpose of the article was just to share the information and links that I have gathered on the subject.

      I know that answer is a little lame, so I will answer it as a hypothetical situation. By no means should you base any of your future actions on a blog article written by a retired sheriff’s lieutenant.

      Depending on your income, Uncle Sam might want to see a tax return from you. The IRS has an online assessment too to see if you need to file a tax return:

      https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return

      If your fideicomiso is the standard one that most of us have where the bank only holds the title but does nothing else, then according to the IRS ruling, you won’t have to fill out any special forms related to that one. If you’re not sure what the terms of your fideicomiso are, you need to have a tax professional look it over to make that determination.

      As far as the bank accounts are concerned, I assume you’re referring to a standard checking or savings account. Keep in mind that if the aggregate value of all your foreign accounts exceeded $10,000 at any point during the tax year, you’ll need to file that FBAR form. If not, no worries.

      Again, this is not meant to be legal or tax advice — just two friends gabbing online and sharing information online.

  6. Gail Stansberry-Ziffer | December 7, 2017 at 3:05 pm | Reply

    Paul, I love your blog!! We’ve spent a fair amount of time in San Miguel (SMA) over the past nine yrs and love the mountain air and culture. We’re seriously considering buying a place with another couple to live in 4-6 mo a yr., rent out the rest of the time. I prefer renting so we can stay in various properties and places we can’t afford to purchase. Still debating! Your insights are so helpful. Make me want to travel down to your area and meet you guys for a beer on the beach!
    I’m also a Floridian. Did you by chance work with our friend, Mitch Shaban at the OC Sheriff’s Ofc.? Lorri used to be a client of ours and they’ve visited us in Tally. I figured it’s such a small world…
    Peace & Joy,
    Gail

  7. Thank you so much for All your info regarding moving to Mexico I am looking to buy there within a year.
    I have a quick question .
    I have heard that then government can come and take your condo or house if they wanted to. Since as non citizen you can not own land in Mexico , is this true?

    • That’s not true, Sandra. They can only seize your legally acquired property if you don’t pay taxes on it or use it for illegal purposes. Those are the same ways that you can lose your property in the States.

  8. A retired law enforcement lieutenant has a large pension and should do just fine in Mexico. That is not living in a touristy area

    • It depends where the LT retired from. Salaries vary greatly across the country and our agency was not one of the ones with high salaries. In fact, I have met several officers with no rank from other states who made much more than I did as an LT at the peak of my career.

  9. I wonder how owning a Mexican corporation differs?

  10. Paul you continually read my mind! I was just wondering this the other day!

    “As far as the bank accounts are concerned, I assume you’re referring to a standard checking or savings account. Keep in mind that if the aggregate value of all your foreign accounts exceeded $10,000 at any point during the tax year, you’ll need to file that FBAR form. If not, no worries.”

    In a purely HYPOTHETICAL situation if an American Expat with a Permanent Residence Visa were to have his Mexican bank account balance exceed the $10,000 threshold are you aware/know whether the Mexican banking authorities are required to/would report that info to Uncle Sam? Hypothetically speaking of course…

  11. Thank you for the information Paul! I was trying to read about the buisness side of owning a home in the restricted area. If someone rents out a room through Airbnb, I guess that could be deemed as a buisness?

    • You can rent out rooms without establishing a formal business structure in Mexico; however, you’ll still have to pay taxes to the Mexican government.

  12. Hi Paul for Canadian’s the tax rule is very similar to the US in what we have to report to revenue Canada. Not much difference at all 🙂

  13. Thanks once again Paul! You were, as has frequently been the case, a step ahead of me and saved me the time and effort to research this question (as well as the question about foreign bank accounts). Bless you, my good Friend!

    • When it comes to matters of finance and taxes, it isn’t easy to be a step ahead of you so I will take that as a huge compliment! Have a great week 🙂

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