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#21 Ron

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Posted 24 March 2011 - 07:10 PM

Ok
Spoke to the IRS and my accountant. Both said yes they have to be filed. Also my accountant attached written articles from other lawyers and accountants who agree that they need to be filed.
So it appears this is like the third time I thought I had it right. I am closing in on getting it right.

Ron
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#22 El Graduado

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Posted 02 April 2011 - 07:21 PM

Howdy all,

I have been reading over your tax questions this evening and thought I might kick in my two cents. I ran across the article I have included below (I tried to attach it, but the CMC system wouldn't let me) when I was doing research on making a new fideicomiso. The new FATCA Act is chock full of bad news. It is not only the reporting on forms 3520 and 3520a you need to worry about. The act has LOTS of other bad stuff tucked inside. Check out the part on uncompensated use.

Offshore Services -
USA
Uncompensated use of foreign trust property: HIRE Act treats as trust distribution

June 24 2010

Background
Uncompensated use of property held in foreign trust to be treated as distribution
US beneficiary's use of foreign trust property to cause grantor trust status
Reporting use of foreign trust property
Uncertainty regarding tax consequences of use of trust property
Comment

The Hiring Incentives to Restore Employment (HIRE) Act, which was signed into law on March 18 2010, includes several provisions that change the rules applicable to foreign trusts and their beneficiaries, causing the use of trust property to be treated as a deemed distribution. This results in different rules for foreign trusts compared to US domestic trusts. The act also broadens the grantor trust rules which treat US settlors of foreign trusts as owners of the trust property for income tax purposes. When coupled with the HIRE Act requirement that US individuals disclose "any interest in a foreign entity", the new law signals increased scrutiny of foreign trusts, even when no tax obligation exists. (For a discussion of HIRE Act provisions requiring disclosure of foreign financial assets with an individual taxpayer's income tax return filing, please see "Reporting of offshore investments - proposed regulations and the HIRE Act".)

Background
Loans by foreign trusts treated as distributions
Section 643(i) of the Internal Revenue Code provides that a foreign trust's loan of cash or marketable securities to a US grantor, a US beneficiary or any US person related to a US grantor or a US beneficiary will be treated as a distribution from the foreign trust to such grantor or beneficiary. As a result, a US beneficiary of a foreign trust cannot avoid US tax on the income accumulated in the trust by obtaining a loan from the trust in lieu of a distribution, with the exception of a 'qualified obligation' having a prescribed interest rate and repayment terms (for further details please see "Taxation of offshore trusts and impact of new lower tax rates"). Before the enactment of the HIRE Act, this section did not apply to the loan or use of a trust's tangible or real property by a beneficiary.

US grantor treated as owner of foreign trust with US beneficiary
Although trusts can be taxpayers, Sections 671 to 679 of the Internal Revenue Code contain the so-called 'grantor trust rules', which treat certain trust settlors (and sometimes persons other than the settlor) as the owner of a portion or all of a trust's income, deductions and credits for US tax purposes. A trust where the settlor (or other person) is treated as the owner of the trust assets for US tax purposes is referred to as a 'grantor trust'. The grantor trust rules apply to both foreign and domestic trusts, but in different ways.
Under the grantor trust rules, a US person who transfers property to a foreign trust is generally treated for income tax purposes as the owner of that portion of the trust attributable to the transferred property, even if the trust would not have been a grantor trust had it been domestic. (For a discussion of when a trust is considered foreign for US tax purposes please see "Taxation of offshore trusts and impact of new lower tax rates"). This is the result for any tax year in which any portion of the foreign trust has a US beneficiary. A foreign trust is treated as having a US beneficiary for a tax year unless (i) under the terms of the trust, no part of the trust's income or corpus may be paid or accumulated during the tax year to or for the benefit of a US person, and (ii) if the trust is terminated at any time during the tax year, no part of the income or corpus could be paid to or for the benefit of a US person. The Internal Revenue Service (IRS) regulations under Section 679 of the Internal Revenue Code generally treat a foreign trust as having a US beneficiary if any current, future or contingent beneficiary of the trust is a US person.

Reporting distributions from and transfers to foreign trusts
Section 6048 of the Internal Revenue Code imposes reporting obligations on foreign trusts and persons creating, making transfers to or receiving distributions from such trusts. For example, a US person who transfers property to a foreign trust must report the transfer to the IRS, and a US beneficiary who receives a distribution from a foreign trust must report the distribution. Both reports are made on IRS Form 3520 and failure to file the form in a timely manner results in a penalty generally equal to 35% of the gross value of the transfer or distribution. In addition, if a US person is treated as the owner of any portion of a foreign trust under the grantor trust rules, the US person is responsible for ensuring that the trust files an annual information return on Form 3520-A and provides information to each US person who is treated as the owner of any portion of the trust, or receives (directly or indirectly) any distribution from the trust.

Uncompensated use of property held in foreign trust to be treated as distribution
The HIRE Act broadens Section 643(i) of the Internal Revenue Code to provide that any use of foreign trust property after March 18 2010 by a US grantor, a US beneficiary or any US person related to a US grantor or US beneficiary will be treated as a distribution to such US grantor or US beneficiary of the fair market value of the use of the property. As discussed below, the recipient of the deemed distribution will be required to file Form 3520 to report the distribution from the foreign trust.

This deemed distribution rule will not apply to the extent that the foreign trust is paid fair market value for the use of the property within a reasonable period of time. There is no indication as to what period of time will be considered 'reasonable' and the IRS is likely to provide guidance on this issue.
Under Section 643(i)(3) of the Internal Revenue Code, as amended by the HIRE Act, when the use of trust property is taken into account as a distribution to a US person, any subsequent transaction pursuant to which such trust property is returned to the foreign trust will be disregarded. As discussed below, these changes in the law leaves several important questions unanswered.

US beneficiary's use of foreign trust property to cause grantor trust status
The use of trust property by a beneficiary will now also affect whether a foreign trust has a US beneficiary for purposes of the grantor trust rules under Section 679 of the Internal Revenue Code. The HIRE Act revises Section 679 to provide that the use of trust property by, as well as a loan of cash or marketable securities to, a US person will be treated as a payment from the trust to the US person in the amount of the loan or the fair market value of the use of the property. This will cause the US settlor to be treated as the owner of the foreign trust for income tax purposes. Such a loan or use of trust property will not cause the recipient to be treated as a US beneficiary to the extent that the US person repays the loan at a market rate of interest or pays fair market value for the use of the trust property within a reasonable period of time.

The HIRE Act adds several other new provisions to Section 679, which codify the presumption found in the regulations that a foreign trust has US beneficiaries and is thus a grantor trust. The other new provisions provide that:
• amounts accumulated in a foreign trust are treated as being for the benefit of a US person even if the US person's interest in a foreign trust is contingent on a future event;
• if any person has the discretion to make a distribution from a foreign trust to, or for the benefit of, any person (US or otherwise), the trust will be treated as having a US beneficiary unless the terms of the trust specifically identify the class of persons to whom the distributions may be made and none of those persons can be US persons during the tax year;
• if a US transferor is directly or indirectly involved in any agreement or understanding that may result in the trust's income or corpus being paid or accumulated for the benefit of a US person, the agreement or understanding will be treated as a term of the trust; and
• a foreign trust will be presumed to have a US beneficiary unless the US transferor submits IRS requested information demonstrating that no part of the income or trust may be paid or accumulated to or for the benefit of a US person.
Only in rare cases will a foreign trust funded by a US person not now be treated as a grantor trust for US income tax and reporting purposes. The new grantor trust rules contained in the HIRE Act are effective for transfers to a foreign trust after March 18 2010.

Reporting use of foreign trust property
Form 3520
As a result of the HIRE Act, a US beneficiary of a foreign trust who uses trust property will be treated as having received a distribution from the foreign trust, and thus will be required to report that deemed distribution on Form 3520. The instructions to the 2009 Form 3520 released by the IRS before the enactment of the HIRE Act note pending legislation pertaining to the uncompensated use of trust property and treatment as a trust distribution. The IRS will need to release guidance and a revised Form 3520 before the April 15 2011 due date for reporting distributions (and deemed distributions) received in 2010.

Increased penalties for failure to file Form 3520
In addition, the HIRE Act amends the penalty for failure to file Form 3520 to impose a minimum penalty of $10,000, so that the penalty will now be the greater of $10,000 or 35% of the gross reportable amount. The penalty increases by $10,000 for each 30-day period following an IRS notice that the filing is delinquent with a 90-day grace period following such notification before the additional penalties begin accruing. The total penalty assessed for failure to file Form 3520 will not exceed the gross reportable amount. The HIRE Act penalty increase is effective for Forms 3520 required to be filed after December 31 2009 so that taxpayers who failed to file a required Form 3520 with their 2009 income tax return, due on April 15 2010 (unless there were extensions), will be subject to the new penalty structure.

Uncertainty regarding tax consequences of use of trust property
A distribution from a trust (whether domestic or foreign) has potential income tax consequences for the recipient beneficiary. The HIRE Act's characterization of the use of foreign trust property as a distribution imposes a different rule for foreign trusts than for US trusts (where the use of trust property does not give rise to a deemed distribution). Among the issues that require further guidance from the IRS are those related to the proper accounting treatment of any deemed distributions resulting from the use of foreign trust property.

In the case of a loan from a foreign trust, the full amount is treated as a distribution, except to the extent that the loan is a qualified obligation as provided in regulations. Since the loan is of cash or marketable securities, the dollar amount to be reported by the recipient as a distribution is easy to determine. However, in the use situation, appraisers will likely be needed to determine the fair market value of such use.

The US recipient of a distribution from a foreign trust is required to treat the entire distribution, whether from income or corpus, as an accumulation distribution for tax purposes, which is includible in the gross income of the recipient and subject to interest charges. A different tax result is permitted if (i) the trust provides the US recipient with a statement regarding the US tax accounting treatment of the distribution, or (ii) the recipient can utilize the default calculation.

Section 643 of the Internal Revenue Code provides that any trust treated as making a distribution as a result of a loan or use of trust property under Section 643 will be subject to US tax accounting rules as a complex trust. These rules, set out in Sections 661 to 663 of the Internal Revenue Code, provide that amounts distributed to a trust beneficiary are treated first as ordinary income to the extent of that beneficiary's share of the trust's current distributable net income, then as a distribution of accumulated or undistributed net income, and finally as a distribution of principal. Each classification has a different tax consequence to the US beneficiary. The HIRE Act does not explicitly address to what extent the uncompensated use of non-income-producing foreign trust property (eg, a holiday home) will result in certain classifications of trust income being attributed to the US beneficiary. Since the taxation of a complex trust does not involve the 'tracing' of trust income to the recipient, perhaps income from other trust property will be deemed distributed to the extent of the fair market value of such use.

This may impact on current trust planning. For example, where a foreign trust has been making regular cash distributions to its non-US beneficiaries equal to the trust's distributable net income in order to avoid undistributed net income, and has permitted its US beneficiaries to use a home owned by the trust, those US beneficiaries may now have taxable income (without having received cash with which to pay the tax) and some portion of the fair market value of the use could be a principal distribution. If the trust has instead been accumulating income, would the use of trust property cause undistributed net income to be attributed to the beneficiary? This could result in the US beneficiary paying steep interest charges.

On the other hand, suppose there is no current income-producing property in the foreign trust, and the beneficiary has been paying maintenance and insurance expenses while using the home rent free. The IRS may treat the payment of those expenses as income to the trust, which will cause the trust to have distributable net income. If the use of the home is then considered a distribution, is that deemed distributable net income attributable to the beneficiary using the home? Will the beneficiary then be reporting (and paying tax on) income with no offsetting expense deduction? Alternatively, will the IRS treat the beneficiary's payment of expenses as a deemed contribution to the foreign trust? Or as undistributed net income without a corresponding deemed distribution to the beneficiary? Each scenario has tax and reporting implications to the US beneficiary. If items of trust distributed and undistributed net income are not allocated to the beneficiary in amounts equal to the value of the use, then the 'deemed distribution' is merely for reporting purposes and is, in essence, a fiction for income tax purposes that is disregarded for accounting purposes.

In the situation where a shareholder uses corporate property, the tax law provides for a deemed dividend to the extent of earnings and profits and a return of capital as to any excess value of the use. If the fair market value of the use of trust property is instead characterized as a distribution of principal (which seems unlikely given that one of the purposes of the legislation is to raise revenues), there is generally no tax consequence (although there is still a reporting obligation). Since the HIRE Act provides that any subsequent return of such property "shall be disregarded for purposes of this title" (meaning Title 26 - the Internal Revenue Code), the beneficiary should not have a reporting obligation or deemed contribution to the trust when he or she gives up the use of the property.

What if the beneficiary pays fair market rent? Will this cause the foreign trust to be treated as conducting a US trade or business (with corresponding deductions for rental expenses), or will the IRS reject this approach and disallow any offsetting expense deductions, thus increasing the distributed or undistributed net income profile of the trust? Will the beneficiary have an obligation to collect the withholding tax on rent paid to the foreign trust?
It is imperative that the IRS issue guidance addressing these issues.

Comment
The United States has moved beyond collecting information only where a tax is to be imposed, and now seeks disclosure of a US taxpayer's interests in foreign trusts, accounts and entities. The HIRE Act creates additional distinctions between the reporting and tax treatment of foreign trusts as compared to their domestic counterparts. Children and grandchildren of international family clients have previously been counseled that the mere use of a home, yacht, artwork or other property owned by a foreign trust would not cause the beneficiary to have any US reporting obligations or tax consequences. That is clearly no longer the case, and offshore trust structures must be reviewed and their US beneficiaries advised to report where applicable. Even US beneficiaries who are not using foreign trust property and who have not received any cash distributions, but are merely members of a discretionary class of beneficiaries of a foreign trust, should consider consulting US tax counsel. The provisions affecting foreign account compliance and foreign trusts are being used as a revenue offset for the HIRE Act, giving the IRS further incentive to audit taxpayers and enforce these new measures.

For further information on this topic please contact Jennie Cherry at Kozusko Harris Vetter Wareh LLP's New York office by telephone (+1 212 980 0010), fax (+1 212 751 0084) or email (jcherry@kozlaw.com). Alternatively, contact George N Harris, Jr at Kozusko Harris Vetter Wareh's Washington, DC office by telephone (+1 202 457 7200), fax (+1 202 457 7201) or email (gharris@kozlaw.com).
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#23 Kandy

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Posted 02 April 2011 - 09:25 PM

I don't have the first clue what I just read! My primary residence is in Cozumel. Yes, of course, my property is in a trust. I own no property in the US. So what the heck does all that mumbo jumbo mean? This is insane! Right up there with the run around I got at CFE this past week!
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#24 El Graduado

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Posted 03 April 2011 - 11:15 AM

Hi Kandy,

Here is the article I was writing. It condenses the facts and puts them in simpler language. Regardless, the news is bad. Read on:

WHAT AN OBAMANATION!

Are you one of those Americans that have the philosophy that by keeping your head down and your cards close to your chest you can avoid the long reach of the IRS? If so, you better re-examine you situation and prepare for some major adjustments to the way you operate. Mr. Barak Hussein Obama promised change, and change things he did. One such change was the HIRE Act (Hiring Incentives to Restore Employment, or HR287), which passed on March 18, 2010 and is now Public Law 111-147. The HIRE act was a piece of legislation supposedly crafted to create new jobs, but deep within the act’s many pages lurked a wolf in sheep’s clothing. The Democrats managed to slip in the Foreign Account Tax Compliance Act (FATCA), when it seemed like no one was looking. FATCA is just another one of the “tax the rich to spread the wealth” ideas that helped sweep Obama into the presidency. The effect that this new law will have on middle-class US taxpayers with foreign assets like Fideicomisos and Mexican bank accounts is hard overstate.

In the past, the IRS Code required US taxpayers to report any of their foreign financial accounts with balances over $10,000 USD. This reporting was supposed to be made by the taxpayer voluntarily on IRS form 1040 and followed up with IRS Form TD F 90-22.1, also known as Report of Foreign Bank and Financial Accounts (FBAR). Failure to report carried a $10,000 penalty. Many folks spread their money around in various accounts, or else took the attitude “what they don’t know won’t hurt me.” Well, prepare for the hurt, because they are going to find out. The new FATCA law requires the taxpayer to report all their foreign financial assets if they total over $50,000USD. Not a problem you say? Your Mexican bank accounts total less than $50K? Not so fast! Here’s where they got crafty.

Section 6038D(e) of the new act states that if the IRS finds out the taxpayer has an interest in a foreign asset and the taxpayer did not provide sufficient information to demonstrate the aggregate value is less than $50,000, the taxpayer may still be liable for the penalty for non-reporting. In other words, you will need to report all accounts, even if they total less than $50K, just to make sure you don’t get penalized for not reporting. But how can they find out about your Mexican bank accounts and your Fideicomisos (more bad news about these land trusts later) if you keep your head down and your lips sealed?

Here’s how! In order to “flush out” taxable US taxpayer-held assets overseas, Section 501 of the FATCA Act now requires all foreign financial institutions with US customers and foreign non-financial entities (read Mexican corporations, Mexican LLC’s, and Fideicomiso’s) with substantial US owners to disclose this information to the US IRS. And just what stick will they use to make these foreign financial institutions comply? A new 30% withholding tax applicable to all foreign transactions (read wire transfers) passing through US financial institutions. The threat is laid out very clearly. If the foreign institutions give up the information freely, the tax withheld from their funds passing through the US will be refunded. If they do not comply, the 30% tax will be levied and not be refunded. And since nearly every foreign bank does at least some of its business in the US, they will all turn over their customer’s info in order to avoid paying the tax.

Now, you really have nowhere to hide. Info regarding your Mexican bank accounts, Mexican corporations, Mexican LLC’s, and Fideicomisos will be turned over to the IRS whether you like it or not. The new FATCA Act’s individual taxpayer reporting requirement is already effective as of its date of enactment, September 14, 2010. Failure to report your Fideicomso, Mexican company, Mexican bank account, or Mexican investment on your 2010 tax return (due this year) may result in a penalty of $10,000 or 35% of the amount unreported, whichever is greater. This penalty increases by $10,000 for each 30-day period following IRS notification that the filing is delinquent. And here is some more bad news: The new FATCA Act has changed the “look back” period from three to six years.

If that wasn’t enough to make your head spin, it gets worse. Section 679 of the IRS Code says that when a US person transfers assets to a foreign trust (like a Mexican Fideicomiso) with US beneficiaries (that’s you), that foreign trust is deemed a Foreign Grantor Trust. Section 533 of FATCA provides that “any use of Grantor Trust property after March 18, 2010, by a US Grantor, US Beneficiary, or any US Person related to the Grantor, is treated as a deemed distribution.” Under Section 643(i)(1) the individual (which could be you, or your relative) using the trust property will be subject to income tax on this deemed distribution. Yep, Obama wants to tax you for sleeping in your own house!

The bottom line? To completely avoid any possibility of penalties you need to:

1. Report all your foreign financial accounts on your IRS Form 1040 (due June 15, 2011 for ex-pats, April 15, 2011 for most everyone
else, although you can file an amended return later)
2. Report those same assets on IRS Form TD F 90-22.1, or FBAR, due June 30, 2011.
3. Report your Fideicomiso on IRS Foreign Reporting Forms 3520 and 3520-A by March 15, 2011.
4. Report your Mexican corporation on IRS Form 5471, due when your 1040 is due.
5. Report your Mexican LLC (S. de L. R de C. V.) on IRS Form 8865, due when your 1040 is due.
6. Report as income the fair market value of all the nights you or your family uses your house in Cozumel on your IRS Form 1040.
7. Report everything else you may be worried about on IRS Form 8275, or Disclosure Statement, and attach it to your IRS Form 1040.

Alternatively, you could become a Mexican citizen and avoid staying in the US for more than 183 days per year to avoid being liable for US taxes.

For the record, I must state that I am not a CPA; just a US businessman who has kept a keen eye on tax law relating to my companies’ interests over the past 20-plus years. To determine the best route you need to follow to minimize FATCA’s impact on your life, I recommend you speak to a competent US CPA or tax attorney that is well informed and up-to-date with US tax law. And, next time vote Republican.
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#25 Kandy

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Posted 03 April 2011 - 12:08 PM

Well isn't that interesting. If you are reading this correctly, and I'm going to have to pay to sleep in my own home, that's bull****. It's not gonna happen. I just signed my fideicomiso on 2/28 of this year, so I'm not affected by this until next year's taxes. Perhaps ACA will have made some progress by then. If not, I'll go back to stuffing money in a mattress and wait for the government to find me. There has to be a solution to this insanity - I already voted Republican!
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#26 DebB

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Posted 04 April 2011 - 11:10 AM

Whoa!!! Let's go to simple concepts that everyone can understand (now that I've read the IRS info on this -- not anyone's blog -- but the IRS!)

#1 job if you have a Fideicomiso: Get the Trust EIN, its 3520A's, your 3520's and any FBAR returns up to date per IRS amnesty and/or the OVDI.

According to IRS Notices regarding the Key Provisions of FATCA as of 25 Feb., 2011 and Abusive Offshore Tax Avoidance Schemes as of 27 Jan., 2011,

-- FATCA was enacted to combat tax evasion by U.S. persons holding investments in offshore accounts.

-- Under FATCA, U.S. taxpayers holding financial assets of $50,000US or more outside the United States must report to the IRS on a new form 8938 attached to their tax return. Reporting is required for assets held in taxable years beginning on or after January 1, 2011. The form is still in draft phase and does not apply to Foreign Trusts -- only to US individuals who have large bank balances or investment portfolios in countries other than the USA.

-- As part of this, on or after Jan. 1, 2013, foreign financial institutions must report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. So the IRS will likely find out that you have a Fidei after 2013 -- if the Mexican banks comply.

-- Uncompensated Use. How the IRS will treat this is very hazy right now. The legislative history of the bill in Congress and, so far, IRS notices, give little indication how the regulations will affect us. Basically, the act requires that "uncompensated use of foreign trust property by a U.S. grantor, U.S. beneficiary, will be treated as a distribution by the trust. This provision applies to loans made and uses of property after March 18, 2010." However, it also states that "The Act creates a presumption that all foreign trusts have U.S. beneficiary if a U.S. person directly or indirectly transfers property to a foreign trust. This presumption can be challenged if it is shown the trust instrument prevents trust property from benefitting a U.S. person. This provision is effective for property transfers after March 18, 2010." What does this mean??? Don't know. Please tell us!

At the same time, the IRS tells us that, based on Supreme Court decisions, "Substance -- not form -- Controls Taxation." Let's look at this more closely.

The "Substance" (or, what the US government is after here: "Is it a scam?") I'm referring here only to individual taxpayers who own real estate in Mexico as a primary or secondary residence and who are required by Mexican law to have the deed to that property held in trust. (In other words, a situation for which any other arrangement by an individual would not conform to Mexican law.) We do not know how the IRS will classify our trusts down the road. However, if you comply with 3250A and 3250 which show the FMV paid, that the trust is irrevocable (Fidei's are), and you declare ownership on your 1040 Schedule B for years 2011 and after, you have met the test of Substance.

"Form" -- Due to prior IRS rulings, the form is a "Foreign Grantor Trust." This is merely their way of classifying what a Fidei is, and everyone admits that it's a bit inaccurate on face but it has worked OK up until now. But keep in mind: "Substance not form controls taxation."

Back to Form's problems: The IRS now holds that if the grantor of a foreign trust uses trust assets, he is also a beneficiary who must declare the FMV of that use as income. There are a couple of problems here that the IRS needs to be made aware of and work out. (Contact Kay Holman at the IRS Chief Counsel Office (International) at (202) 622-3840. This is not a toll-free call.)

The first issue concerns whether or not there really is "uncompensated" use. For trusts existing prior to March 18, 2010, the FMV was paid in full prior to the act. Are these exempt from the new provisions?

For trusts established after enactment, the FMV would be paid and transferred to the trust as a one-time event. Is the intention, then, that owners of new trusts -- for US tax purposes -- declare a gain in value to the full/original FMV over time?

Since the trust document reflects the full FMV on date of purchase, do the trust and individual books of account need to be different?

The second issue is that there may be offsetting expenses to ownership which the individual taxpayer could use to reduce part of all of the FMV income -- potentially worsening IRS total tax receipts. Again, guidance is needed.

At this point, it's best to start a dialogue with the IRS about our status rather than panic about unreported income. Most of us have filed our 2010 returns by now. Though the intent of the new law is clear, its application and requirements are not. While I'm not a tax accountant, I've had a lot of dealings with the IRS and they are reasonable people. This lack of clarity should be enough to argue and receive a penalty waiver down the road if 2010 returns need to be amended to comply with FATCA. But I think the best thing to do now is wait and seek a definitive opinion.
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#27 DebB

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Posted 04 April 2011 - 05:08 PM

Ron, that is IRS's language, not mine.
To rephrase your questions: If you sleep the night in your Mexican home, are you receiving a taxable benefit from the Mexican Trust? And If you sell the assets of the Trust do you create a US taxable event?
I don't have the answers to these questions. The answer to the first is unclear and I've not researched the other.
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#28 DebB

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Posted 04 April 2011 - 05:46 PM

I'd like to read & digest the text of IRC Section 6038D but haven't had time to do it.

Regarding 8938 and FFI reporting & income tax withholding:
see http://www.irs.gov/p...op/n-10-60.pdf.

My reading of this proposal leaves me with the impression that the 8938 is to root out tax evasion by investors with accounts at foreign financial institutions -- individual and business bank accounts, brokerage accounts, investment trusts, etc.

In our case, the 3520 and Draft 8938, Part D data are almost the same and the IRS guidelines are supposed to eliminate duplicate reporting. If the IRS decides that we need to submit the 4 bits of data it wants in Part D, Form 8938, it's not that big a deal.
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#29 Charles

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Posted 05 April 2011 - 01:09 AM

This whole discussion is regarding the IRS in the United States. Just wait until all the people that have been renting properties held under fideicomisos get to meet SAT, La Hacienda. It is a cake walk to wade through IRS regulations compared to their Mexican counterparts. The IRS changes rules for the future. SAT can decide to change the rules and make them retroactive. I sure liked the one that they changed in April one year, notified accountants in May that I now owed an extra $65,000 pesos in purchased inventory for the first quarter that they decided should be no longer tax deductible and I should be taxed as salary. What will happen here when the government starts enforcing Mexican laws and the rules as they pertain the fideicomiso held property? SAT even sends out notices in English and in Spanish in Pacific coast areas. Every part of Mexico I have seen has long been in compliance except here where it is largely ignored. As the countries continue to integrate their data bases and share more information, it will only get to be more fun!
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#30 Ron

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Posted 06 April 2011 - 10:39 AM

This is all very new and the will be guidance that will clarify this very murky subject. Meanwhile if there is a cpa on this forum. I would very much like to talk with him/her.

Ron
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#31 Ron

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Posted 08 April 2011 - 10:20 AM

One small good piece of info. I called the IRS Fbar dept. I started to explain that I have a trust in Mexico. She started to use the word Fedicomiso. I asked how she knew it? She said last year a lot of people called in concerning the trusts.
Last year she said it was discussed in great detail. And she said since it is only your home that can be held in the trust it is not necessary to do an Fbar. I asked are you sure? She said yes She said if you want it in writing I should email Fbar and they will confirm what she said.
So a good thing small as it is.
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#32 Ron

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Posted 08 April 2011 - 11:13 AM

Just got the email back from the IRS
Man that was fast Hours!!

Here it is no Farba filing

----- Original Message -----
From: *SBSE FBAR Form
To: \
Sent: Friday, April 08, 2011 12:58 PM
Subject: RE: Fbar and Mexican trust (fidecomiso)


correct



--------------------------------------------------------------------------------
From: R\
Sent: Friday, April 08, 2011 11:46 AM
To: *SBSE FBAR Form
Subject: Fbar and Mexican trust (fidecomiso)


To IRS
I have a trust in Mexico called a Fidecomsio. This trust is soly so a foreigner can buy land in Mexico
I called the people that work with Fbar today. I spoke to a representive named Pam ID #259642
She told me that this topic of Fedicomiso were discuseed in full detail by your dept. last year.
And she assured me that since this trust is only holding land that a Fbar is not required to be filled.
She said if I wanted confermatiion in wrting I should ask you.

I thank you for your time
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#33 Ron

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Posted 08 April 2011 - 04:51 PM

Second piece of good news.
I got home and I had a message from the Treasury Dept. I called back and spoke to a Mr.Egart
Real nice guy! We spoke for maybe 20 minutes on several matters.

He is one of the people that set policy for Fatca and we got into this conversation in depth.
He new about fidecomisos and what they are. meaning just to hold land. I expressed my concern as well as mentioning others in Mexico are very concerned as well. He said he is fully aware of peoples concerns his colleges have gotten calls as well. I don't want to get into the entire conversation. But the meat of what he said is this.
Fatca is not going after Grantor trusts. If you are a grantor then you are the owner of the trust. Fatca is meant for trusts with people as benefiiaries or others. In other words they are not considered owners of the trust.
He gave me another number to call, of a women who is actually doing the nuts and bolts of this law. Mr Egart is involved with policy. I don't know if I am going to call her.
But it looks very good.
I asked him if he can do me a favor and express to his colleges the concerns of the American Mexican community.
And if they can give further clarification or guidance it would be much appreciated by all.
I also told him that I realize that a law is many many pages and it would be easy to pass up a certain section of a law and still leave ambiguity for a small amount of people and I hope this would not happen.

Anyway I hope my information helps for what it is worth. My many posts were to try to keep everyone informed.
If I dominated this topic I apologize.
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#34 3gatitos

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Posted 26 April 2011 - 12:18 PM

After reading about these tax forms, I asked several people if we would be required to file them, having just recently purchased a home here in Cozumel. I even called the IRS and they could/would not say that we needed to file these forms, they said to contact your accountant. I asked a local American (recently retired) CPA, who in turn asked her previous employer to look into the matter. Here is her reply: "The woman CPA who was my employer and has been in practice Many years has advised me that Form 3520 is not needed unless there are distributions from the trust. "
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#35 Carey

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Posted 28 April 2011 - 10:15 AM

Much ado about nothing so it seems.
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#36 Ron

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Posted 28 April 2011 - 01:08 PM

A cpa is an accountant not versed in tax law. I checked with the treasury and several other places. I do not want to dispute what you say since you believe differently then I. But I will say this right or wrong. (an once of prevention is worth a pound of cure) You have to file an origional 3520 when the trust is created. That is fact!! and you have to file a 3520A every year that is fact as well!!
I did believed like you but upon further investigation I found a different answer. That being said it is a lot simpler to file the 3520 every year then to deal with the possible problems not filing posses.
File or not that is something we all need to decide but just because a CPA gives you an answer it does not mean it is the correct answer. Again I will not say if he or she is right or wrong But most CPAs have no idea about tax law period they are accountants there is another set of letters E something or other they do taxes as well, but they specialize in Tax law.

Ron
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