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.
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.