While a step in the right direction, the new PLR regarding a Fideicomiso may create more harm than good!

FAQs regarding the recent Fideicomiso Private Letter Ruling

Does the letter ruling mean that the IRS doesn’t require Form 3520/3520-A for a Fideicomiso anymore?

www.irs.gov/pub/irs-wd/1245003.pdf

Unfortunately, the answer to that question is NO. The only person with a Fideicomiso that is not required to file Form 3520 & 3520-A is the person who requested the Private Letter Ruling (PLR). Think of a PLR as a “get out of jail free card” in the game of Monopoly.

The only person who can use the card to “get out of the jail free” is the person with the card. The same thing applies to a PLR. It only relates to the person who requested it. Additionally, the PLR only helps the person who requested it if it included all relevant information necessary for the IRS Counsel to make a correct determination.

The PLR states that the ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the IRS Tax Code provides that it may not be used or cited as precedent.

Tax professionals look to PLRs to see how the IRS is leaning toward an issue. This is helpful if the IRS has not provided previous clues regarding how the IRS might rule on an issue.

However, on June 24, 2011 the IRS released a General Information Letter stating that “Any U.S. person who transfers property to or has an interest in a Mexican Fideicomiso that is classified as a foreign trust must comply with section 6048 (File Forms 3520/3520-A).” and “If you would like a definitive determination as to whether a particular Fideicomiso is classified as a foreign trust for U.S. federal income tax purposes, you must request a private letter ruling.”

www.irs.gov/pub/irs-wd/11-0052.pdf

For a PLR to be valid it must contain full and accurate information. Unfortunately, after reading the PLR, I wonder if all important information about the Fideicomiso was disclosed. If not, the PLR may not be a valid “get out of jail free” card for the taxpayer who requested the PLR.

“A PLR is issued in response to a written request submitted by a taxpayer and is binding on the IRS if the taxpayer fully and accurately described the proposed transaction in the request and carries out the transaction as described.”

http://www.taxalmanac.org/index.php/Private_Letter_Rulings

Since the PLR says that the person doesn’t have to file Form 3520/3520-A, doesn’t that mean the IRS would say the same thing if they found out about my Fideicomiso?

Forrest Gump said, “Life is like a box of chocolates. You never know what you are going to get”. The statement holds true for the IRS.

As mentioned, the recent PLR that decided that the particular Fideicomiso was not a foreign trust could have been based on incomplete information.

The IRS Counsel reasoned that the Fideicomiso was not required to file Form 3520 or Form 3520-A because the sole purpose of the Fideicomiso was to satisfy the Mexican Federal Constitution Article 27 by vesting legal title to the property in the name of the trustee. As sole means one and only, there is not much grey area to wiggle around in regarding the definition.

While the sole reason of using the Fideicomiso to purchase property may have been to hold title that does not mean that the Fideicomiso only has one purpose!

Most likely, there are multiple purposes for your Fideicomiso. Have you read your trust document? They are not all the same.

Here are a few excerpts from translated Fideicomiso Agreements that we’ve read or that our bilingual Enrolled Agent & CPA candidate translated: Note that they definitely suggest the fiduciary is responsible for more than simply holding the title. Remember, not all Fideicomiso Agreements are the same.

“Fiduciary obtains permit from the Department of Foreign Affairs which authorizes the Fiduciary to purchase the real estate.”

“The beneficiaries shall periodically notify the fiduciary as to the amount of construction or improvements carried out and their progress, so that the fiduciary in turn may modify the assets of the trust and carry out the accounting computations required.

“The fiduciary has the ability to administer, control, improve and repair, the property entrusted.”

“The Fiduciary, as the proprietor of the patrimony in Trust, upon administering it, will have all the rights and actions required to fulfill it … having all kinds of powers as owner, including, in a declaratory and non-restrictive way, all powers for litigation and collections related to administration and dominion that may require a specific clause as well as powers to acquire and mortgage in any ways, or to collect any payments and issue receipts, to endorse titles of credit, to grant legal powers and to waive protection lawsuits.”

“The fiduciary shall present a report on the trust with fiduciary substitution to the Department of Foreign Affairs annually and provide a description of any substitute beneficiaries.”

“When the duration period of the trust runs out the beneficiaries must request that the fiduciary extend the contract or the fiduciary will proceed to sell the property. The proceeds of the sale will be invested and maintained by the fiduciary for the trust beneficiaries. The fiduciary shall manage such account as long as the beneficiaries don’t claim it.”

“The beneficiaries are considered legally as the depositaries of the property and must inform the fiduciary of any problem or irregular situation related to the property so it can carry out any necessary actions or procedures.”

“In the case of an emergency, the fiduciary may discreetly carry out essential actions required to defend the validity of the trust.”

We know that it’s tempting to believe what you want to hear. However, think about it. You know that you used a Fideicomiso to get around the law prohibiting foreigners from purchasing property in the restricted zone. Also, remember what’s too good to be true is often too good to be true.

Moreover, a Private Letter Ruling is not valid unless the information is fully and accurately described. Therefore, it is important that all relevant information be provided to the IRS when requesting a PLR and a statement stating that the sole purpose of the Fideicomiso is to hold title, is actually correct.

There are additional benefits to having property held in a Fideicomiso. See the following excerpts found by doing a simple Google Search.

“The bank handles all of the paperwork including filing for all of the necessary permits with the Ministries of the Interior and Foreign Affairs. In general, the bank has the responsibility to the government to ensure precise fulfillment of the Trust agreement, assuming full technical, legal, and administrative supervision in protecting the interests of the beneficiary (purchaser).

Since by law Mexican banks enjoy government protection against bankruptcy, the Trust is indirectly guaranteed by the government. As a practical matter, even in unrestricted zones many foreigners prefer to hold their property in Trust.”

http://caborealty.com/Nav.aspx/Page=%2FPageManager%2FDefault.aspx%2FPageID%3D990064

The following is from BBVA Bancomer’s Preferred Customer webpage:

“The Fiduciario: A Mexican bank, in this case BBVA Bancomer, which holds the title of the property for up to 50 years, and acts on behalf of the non-Mexican beneficiary in all transactions related to the property held in trust.

http://www.bancomer.com/pcu/pcu.asp?mainf=pcu_banfi_decri.html

Additional excerpts follow. Note that the excerpts contradict the statement in the PLR that the bank disclaims all responsibility for the condominium, including obtaining clear title, and has no duty to defend or maintain the condominium.

“The bank has the authority to determine what fees will be charged for any other types of activities they have to be involved in, such as reviewing documents, authorizing federal zone permits, authorizing mortgages, etc. Do not give this power to the bank. Set a fixed price for reviewing and signing documents other than powers of attorney or the sale of the property.”

http://www.mexicolaw.com.mx/taking-control-of-trust-fees/

“The trustee is responsible to the buyer/beneficiary to ensure precise fulfillment of the trust, according to Mexican law, assuming full technical, legal and administrative supervision in order to protect the interests of the buyer/beneficiary.

For practical purposes, even in unrestricted zones many foreigners and Mexican Nationals, for that matter, prefer to hold their property under a Fideicomiso.”

http://bestonproperties.com/real-estate-info/foreign-ownership/foreign-ownership/

“If you are familiar with Bank Trusts or Family Trusts in the United States then you will find Bank Trusts in Mexico to be very similar.

“Bank trusts or “Fideicomiso’s” are not just for foreigners. Throughout Mexico many Nationals with money use this instrument as an Estate Planning tool for the ease of passing property to individuals who are not direct family and saving on Capital Gains taxes.

http://www.paradiseproperty.com/FAQs__BUYERS/page_2398091.html#3

“The Trustee is liable for loss or damage suffered by the Beneficiary as a result of the Trustee’s negligence.”

http://www.siestarealty.com/legal.php

“Although the formation process for a land trust may seem relatively easy, and one where little effort is needed, it is advised that beneficiaries negotiate as much freedom and flexibility relative to the assets in trust, and that such terms be clear in the trust itself. Otherwise, the involvement of the trustee will be required, and it is well known that banks can be slow and bureaucratic. Generally speaking, beneficiaries will have the ability to use, and enjoy the property.

However when it comes to renting, managing or making improvements, securing permits, federal zone concessions, and the like, or other more specific actions, unless its negotiated and included in the trust, beneficiaries may find out that they require the participation of the trustee.

Trustees usually grant powers of attorney to beneficiaries to perform such actions, but the granting process takes time, and money, although bank fees are mostly reasonable. Some banks are more flexible than others when it comes to granting powers of attorney and their overall response time, so it’s important to choose wisely who the trustee will be when the trust is set up.”

www.mdtlaw.com/…/The%20Mexican%20Trust%20Fideicomiso.pdf

“Both foreigners and nationals may establish a Fideicomiso (an Irrevocable Bank Trust). This trust is created with a Mexican bank. The bank accepts the fiduciary responsibilities of a Trustee. The Fideicomiso allows you to purchase anywhere in Mexico including the restricted zone.

The Notario requests that a bank of your choice act as a trustee on your behalf. The bank then will receive a permit to acquire the chosen property in trust. The trust is irrevocable and is established for a maximum of 50 years then it may be renewed for another 50 years. You are the beneficiary of the trust and have all the benefits of direct ownership. This includes the option to sell, remodel, lease, mortgage, or transfer the rights to a pre-appointed heir or another third party. The trust may also include language to bypass the probate court with joint ownership to transfer with the rights of survivorship. You do have the absolute right to transfer the title to another party at any time.”

The bank has a fiduciary responsibility to represent your interest in the property”. Advantages of the Fideicomiso:

If the title papers, property dimensions and corresponding documentation are not perfect, the bank will not issue the Fideicomiso.”

http://www.costamayaliving.com/HowToBuyPropertyInCostaMaya.html

As you can see your fees to set up and service your Fideicomiso might pay for a bit more than for the bank to simply hold and transfer title.

Anyone at the IRS could also conduct a minimal amount of research on the internet and suspect that holding title might not be the “sole purpose” of a Fideicomiso and that the Trustee has more responsibilities than simply holding and transferring title. Another PLR request or an audit situation could prove disastrous if you rely strictly on the recent PLR without reviewing your Fideicomiso Agreement.

In fact many tourist areas in Mexico have free Real Estate Guides. (IRS Agents do take vacations). On Thanksgiving, I looked at the “Vallarta Real Estate Guide” and read an article on Buying Real Estate in Mexico, it stated:

“The trustee is responsible to the buyer/beneficiary to ensure precise fulfillment of the trust, according to Mexican law, assuming full technical, legal and administrative supervision in order to protect the interests of the buyer/beneficiary.

Even if the result of the PLR was based on complete information, the PLR applies to a husband and spouse that own a corporation that created the Fideicomiso. Additionally, the PLR states that there is no arrangement to utilize the property in an activity for profit.

Therefore, the specifics of the PLR might not apply to those who rent the property or to multiple owners that are not married to each other.

To summarize: The PLR was decided regarding a specific agreement and may not have contained complete information. The missing information may have resulted in an misleading Private Letter Ruling.

As a result, people with a Fideicomiso could be lulled into a false complacency and later subject to huge penalties, because they did not take advantage of the current IRS Offshore Voluntary Disclosure Program.

What should I do – request a PLR, file Form 3520/3520-A or do nothing?

If you want a “get out of jail card” like the person who requested the PLR, you’ll need to follow the IRS General Information Letter and PLR and request your own PLR.

Unfortunately, the IRS recently raised the minimum fee for a PLR from $625 to $2,000 (the fee is more if your income is greater than $250,000). For a valid ruling, you’ll need to provide complete information.

(We have been successful with PLRs. However, we value our ability to practice before the IRS too much to knowingly submit a PLR that states that the trustee’s sole responsibility is to hold and transfer title.)

If you have not yet filed Form 3520 & 3520-A, the IRS Offshore Voluntary Disclosure Program (OVDP) is currently available. The program provides a guarantee of no penalties if you previously reported all foreign income on your tax returns. This program is unusual as there is no end date. However, the IRS can close the program at any time. Therefore, it is advisable to address this issue as soon as possible.

If you have been filing Forms 3520 & 3520-A, continue to timely file the forms.

Do nothing and be possibly subject to huge penalties: 35% of the fair market value in the year of purchase and additional contributions, and 5% of the fair market value of your property each year. Don’t forget the $10,000 penalty for not filing Form 8938.

A tax professional who helped write the PLR stated the following:

“Now, before you run out and tell your advisors that you don’t need to file Forms 3520 and 3520-A to report your Fideicomiso (or a similar structure), please remember that this guidance came in a PLR. As a result, only the client who requested it may rely on it. The benefit? It does indicate that the IRS does not see Fideicomisos as a direct threat, at least for now.”

http://johnthelawyer.wordpress.com/2012/10/16/fideicomisos-a-private-letter-ruling-for-the-taxpayer/

Note that he ended with “at least for now”. Unfortunately, if you want a guarantee of no late filing penalties you need to deal with this before the IRS decides to terminate the current Offshore Voluntary Disclosure Program.

Additionally, the author of the PLR stated in a nonpublic article that the PLR can’t be cited as precedent, but it’s a good indication of how the IRS will view similar arrangements. In any case, the PLR doesn’t need to be cited at all if you can apply Treas. Regs. Section 301-7701-4(a) and Rev. Rul. 92-105 to your clients facts and come to the same result.

Unfortunately, the only way that you can apply the above mentioned Treas. Reg. & Rev. Rul. is to state that you are not aware of the entire responsibilities and duties required by the trustee of the Fideicomiso. Either that or find a tax professional that is willing to risk their ability to practice before the IRS under Circular 230 and draft an incomplete and possibly misleading PLR or advise you that you don’t need to file the foreign reporting forms.

Currently, outside of the three choices previously mentioned. The best thing that you can do to fight the Foreign Trust filing requirements for your Fideicomiso is to contact your congressperson. Maybe this is something that we can get congress to agree on!

Let us know if you need any help with your IRS Foreign Reporting Requirements

John Dillinger, CPA, CGMA, PFS, MS.tax
“Nationally recognized expert in International Taxation”
http://www.knowledgecongress.org/event_2010_Form_5471.html

Dillinger Carter & Associates, Inc.
400 Oyster Point Blvd., Suite 114
South San Francisco, CA 94080
T: 415-524-7572
F: 415-524-7571
jdillinger@dcataxservice.com
www.dcataxservice.com

IRS Circular 230: This message (including any attachments) contains confidential information intended for a specific individual and purpose, and is protected by law. If you are not the intended recipient, you should delete this message. Any disclosure, copying, or distribution of this message, or the taking of any action based on it, is strictly prohibited.

Any tax advice included in this communication was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.

Revenue Ruling 2013-14 states that a Fideicomiso is not a Foreign Trust. Great News, or is it?

After few discussions with those involved with obtaining the Revenue Ruling, my previous post has been edited.

At first my main concern with the Revenue Ruling was the comment that the Revenue Ruling left an opening for the IRS regarding activities beyond holding title.  After the discussions mentioned above, this post will begin with additional concerns regarding the Revenue Ruling followed by activities beyond holding title.

An IRS Revenue Ruling is not valid unless it agrees with current IRS Code.  Unfortunately, I learned that Revenue Ruling 2013-14 does not agree with current IRS Code for the following reason.

The culprit is § 301.7701-1(b).  This regulation discusses the classification of organizations for federal tax purposes and states that §§ 301.7701-2, 301.7701-3 & 301.7701-4 determine whether organizations are recognized as separate entities.  § 301.7701-4 was used in the Revenue Ruling to determine that a Fideicomiso was not a trust.  It cannot do that!  The definition is used to determine if the trust is a separate entity, not to determine whether a trust is a trust!   This is comparing apples and oranges. 

In other words, § 301.7701-4(a) does not determine whether a trust is a trust, that is determined by local law.  What § 301.7701-4(a) does is determine whether a trust is considered to be a separate entity.  This is extremely important when determining if a 1031 Exchange is permitted as with Rev Rul 92-105. 

You can use Rev Rul 92-105 and § 301.7704-4(a) to determine that a property held in a Fideicomiso is eligible for a 1031 Exchange with other eligible Foreign Properties.  Additionally, you can determine that a Fideicomiso is not considered to be a separate entity (just like a Single Member LLC and a Living Trust).  However, just because a Living Trust is not considered to be a separate entity does not mean that it is not a Trust. 

The following definition of a Trust was obtained from Black’s Law Dictionary.  “An equitable or beneficial right or title to land or other property, held for the beneficiary by another person, in whom resides the http://thelawdictionary.org/legal-title/”>legal title or ownership, recognized and enforced by courts of chancery.” 

A Land Trust is a Trust.  This is evident.  However, the IRS does not classify a Land Trust as a separate entity. 

A US Living Trust, a US Land Trust, and a US Single Member LLC are not required to file returns with the IRS as separate entities.  However, if a similar entity is organized in a Foreign Country, it is required to file Foreign Reporting Forms with the IRS.

IRS Code Trumps a Revenue Ruling.  Code Section 7701 states that any trust that is not a US Trust is a Foreign Trust.  It does not state only trusts that are categorized as a separate entity, it states any trust.

 § 7701(31) Foreign estate or trust

 (B) Foreign trust

The term “foreign trust” means any trust other than a trust described in subparagraph (E) of paragraph (30).

§ 7701(30)(E)any trust if—

(i)a court within the United States is able to exercise primary supervision over the administration of the trust, and

(ii)one or more United States persons have the authority to control all substantial decisions of the trust.

Unfortunately, I now have serious doubts as to the validity of the Revenue Ruling as it does not agree with current Tax Code.  I also wonder how many clever, knowledgeable Revenue Agents familiar with the tax code would come up with a similar conclusion regarding the validity of the ruling.

What we need is a ruling that provides an exception from IRS Foreign Reporting Requirements for a Foreign Land Trust, not a ruling that is not in agreement with Internal Revenue Code.  This is why I have been advising people to contact their Congressperson and request an exception for a Fideicomiso or at least a simpler Form as the IRS did with a Canadian RRSP and Form 8891.

Issue #2

If you read the ruling all the way to the end you’ll discover that as with a scorpion, it’s what’s at the end of this ruling that can sting you.

http://www.irs.gov/pub/irs-drop/rr-13-14.pdf

This Revenue Ruling may look like a gift. However, there is a good chance that it is a Trojan Horse!

Under the Holding(s) section of the Revenue Ruling, it states that if the Mexican Bank is permitted or required to engage in any activity beyond holding legal title to the property, the Revenue Ruling does not apply to you.

In other words, if you use the Revenue Ruling 2013-14 to determine that you do not have a foreign trust without making sure that the ruling applies to you, and don’t file Forms 3520 & 3520-A, you could be stung by the IRS.

To apply the ruling to your Fideicomiso you must determine whether or not the Fideicomiso Trust Document provides for any activities that are either permitted or required by the Mexican Bank.

Most likely, when you read your Fideicomiso Document you will find at least one activity that is either permitted or required to be performed by the Mexican Bank.

Here’s what BBVA Bancomer states on their website regarding a Fideicomiso.

“The Fiduciario: A Mexican bank, in this case BBVA Bancomer, which holds the title of the property for up to 50 years, and acts on behalf of the non-Mexican beneficiary in all transactions related to the property held in trust.

http://www.bancomer.com/pcu/pcu.asp?mainf=pcu_banfi_decri.html

Does BBVA Bancomer sound like they are permitted to provide activities beyond holding title to the property?

Here are a few examples of activities that are mentioned in Fideicomiso Documents that I have read:

 “The beneficiaries shall periodically notify the fiduciary as to the amount of construction or improvements carried out and their progress, so that the fiduciary in turn may modify the assets of the trust and carry out the accounting computations required.

Is carrying out accounting computations an activity beyond holding title?

“The Fiduciary, as the proprietor of the patrimony in Trust, upon administering it, will have all the rights and actions required to fulfill it … having all kinds of powers as owner, including, in a declaratory and non-restrictive way, all powers for litigation and collections related to administration and dominion that may require a specific clause as well as powers to acquire and mortgage in any ways, or to collect any payments and issue receipts, to endorse titles of credit, to grant legal powers and to waive protection lawsuits.”

Is the granting of legal powers an activity beyond holding title?

“The fiduciary shall present a report on the trust with fiduciary substitution to the Department of Foreign Affairs annually and provide a description of any substitute beneficiaries.”

Is providing an annual report an activity beyond holding title?

“When the duration period of the trust runs out the beneficiaries must request that the fiduciary extend the contract or the fiduciary will proceed to sell the property. The proceeds of the sale will be invested and maintained by the fiduciary for the trust beneficiaries. The fiduciary shall manage such account as long as the beneficiaries don’t claim it.”

Is the management of the account permitted and therefore an activity beyond holding title?

“The beneficiaries are considered legally as the depositaries of the property and must inform the fiduciary of any problem or irregular situation related to the property so it can carry out any necessary actions or procedures.”

Is the carrying out of actions or procedures an activity beyond holding title?

“In the case of an emergency, the fiduciary may discreetly carry out essential actions required to defend the validity of the trust.”

Is defending the validity of the trust an activity beyond holding title?

Do your answers to the above questions lead you to believe that the Mexican Bank might be permitted or required to engage in any activity beyond holding legal title to the property?

What does your Fideicomiso Document state regarding the activities of your Mexican Bank Fiduciary?

Remember, if the Fideicomiso Document is permitted or required to engage in any activity beyond holding title to the property, the Revenue Ruling does not apply to you, and you have a Foreign Trust reporting requirement.

If you rely on Revenue Ruling 2013-14 and do not file the required Foreign Reporting Forms, the Revenue Ruling could diminish any hope of relief from a reasonable cause from penalties for not filing.

For example, let’s say you’re audited by the IRS and they ask about your Foreign Property. They find out it’s held in a Fideicomiso and they refer to the Letter Ruling. The first question a reasonable Agent would ask if is the Fiduciary was permitted or required to engage in any activity beyond holding title to the property. Answering “no” probably won’t cut it. Instead, the Agent would want to look at the trust document. If the document states that the Fiduciary is permitted or required to engage in activities beyond holding title you are stung!  An Agent might also be familiar with the code and regulations mentioned earlier and realize the the ruling is not valid.

Before relying on this ruling, make sure what powers the Mexican Bank that holds your Fideicomiso can and could perform.

If you determine that the Mexican Bank has the ability to engage in activities beyond holding legal title or that the ruling is invalid, I suggest that you continue filing returns. If you have not yet filed, there continues to be an Offshore Voluntary Disclosure Program that allows you to file without fear of penalty as long as there was no unreported foreign income.

If the Mexican Government changes the law so that a Fideicomiso is no longer required to own property in the restricted zone, everything will change if you no longer desire the benefits that a Fideicomiso provides.

Until then, you have several things to consider.

First, is the Revenue Ruling valid?  I discussed why it does not agree with the current IRS Code and that a Ruling is not valid if it does not agree with the Code.  However, the decision is up to you and your advisors.  If you are not certain that the ruling is valid it may be prudent to file the required returns.

If you are comfortable accepting the Revenue ruling as valid authority, the next step is to determine whether or not the Mexican Bank is permitted to perform any activity beyond holding title.  If it does, the Revenue Ruling does not apply to you.  From my experience, many US Persons with a Fideicomiso do not read Spanish and did not have their trust documents translated into English.  Therefore, determining what the Mexican is permitted to perform may be a challenge.

The decision is yours and will be made based on your risk tolerace.

Let me know if you have any questions or require any help.

John Dillinger, CPA, CGMA, PFS, MS.tax
“Nationally recognized expert in International Taxation”
http://www.knowledgecongress.org/event_2010_Form_5471.html

Dillinger Carter & Associates, Inc.
400 Oyster Point Blvd., Suite 114
South San Francisco, CA 94080
T: 415-524-7572
F: 415-524-7571
jdillinger@dcataxservice.com
www.dcataxservice.com

IRS Circular 230: This message (including any attachments) contains confidential information intended for a specific individual and purpose, and is protected by law. If you are not the intended recipient, you should delete this message. Any disclosure, copying, or distribution of this message, or the taking of any action based on it, is strictly prohibited.

Any tax advice included in this communication was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.

 

New FAQs for the IRS OVDP (Offshore Voluntary Disclosure Program).

On June 26, the IRS posted new FAQ’s for the Offshore Voluntary Disclosure Program, #3.  Number 18, is the same as before.  No Penalties for filing late returns if all income from the trust was reported and all taxes on the income was paid.  As with the previous programs, you need to file returns from 2004 to 2011.  From 2003, for a form due with an extended Form 1040.

The program concerns everyone with a Fideicomiso, Sociedad de Responsabilidad Limitada (SRL), Sociedad Anomima (SA), etc.  Forms required include, 3520, 3520-A, 5471, 8832, 8838, 8858. 8865, TD F 90-22.1, etc.

If you’re a non-resident, you only have to go back 3 years for your foreign reporting forms except for the  FBAR. Form TD F 90-22.1, which is 6 years.  Not fair for those living in the US!  However, those are the new rules.

Another thing that is unfair is under the previous programs a US person with a Canadian RRSP had to file a private letter ruling to avoid penalties for not Filing Form 8891.  This is a complex and expensive route, which I have successfully completed.  Currently, under FAQ 54, the process is much easier.

One big difference, the IRS states in FAQ #1 that the terms of the program can change or end at any time going forward.

FAQ #18

“A taxpayer who has failed to file tax information returns, such as Form 5471 for controlled foreign corporations (CFCs) or Form 3520 for foreign trusts but who has reported, and paid tax on, all their taxable income with respect to all transactions related to the CFCs or foreign trusts, should file delinquent information returns with the appropriate service center according to the instructions for the form and attach a statement explaining why the information returns are filed late. (The Form 5471 should be submitted with an amended return showing no change to income or tax liability.)

The IRS will not impose a penalty for the failure to file the delinquent Forms 5471 and 3520 if there are no under reported tax liabilities and you have not previously been contacted regarding an income tax examination or a request for delinquent returns.”

http://www.irs.gov/businesses/small/international/article/0,,id=256774,00.html

If you require help catching up with your IRS Foreign reporting requirements for your Fideicomiso, Sociedad de Responsabilidad Limitada (SRL), Sociedad Anomima (SA),and Forms: 3520, 3520-A, 5471, 8832, 8838, 8858. 8865, TD F 90-22.1, etc., contact me before the current program either ends or changes.

John Dillinger, CPA, CGMA, PFS, MS.tax

Dillinger Carter & Associates, Inc.

4235 24th St

San Francisco, CA  94114

T: 415-524-7572

F: 415-524-7571

jdillinger@dcataxservice.com

www.dcataxservice.com

IRS Circular 230:

Any tax advice included in this communication was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.

Good News!

There is more evidence that the IRS is beginning to understand that those who didn’t know about their Foreign Filing Requirements are not criminal tax evaders.  They didn’t file because they didn’t know they were supposed to file!

“The Internal Revenue Service today announced a plan to help U.S. citizens residing overseas, including dual citizens, catch up with tax filing obligations and provide assistance for people with foreign retirement plan issues.”

“The IRS also announced that the new procedures will allow resolution of certain issues related to certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans). ”

http://www.irs.gov/businesses/small/international/article/0,,id=256772,00.html

So far it appears that the new procedures are only for nonfilers living overseas and US persons with Canadian Retirement Accounts.

Will report more soon.  Remember to get your TD F 90-22.1 (FBARS) to the IRS by the end of the week.

John Dillinger, CPA, CGMA, PFS, MS.tax
Dillinger Carter & Associates, Inc.
4235 24th St
San Francisco, CA  94114
T: 415-524-7572
F: 415-524-7571
jdillinger@dcataxservice.com
www.dcataxservice.com
 
IRS Circular 230:  
Any tax advice included in this communication was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.

There is much misinformation regarding the FATCA provisions of the HIRE Act and having to pay tax on the value of using your property, uncompensated use.  Those stating that your personal use is taxable are interpreting the Internal Revenue Code out of context.

Here’s why: The FATCA provisions regarding personal use are for nongrantor trusts.  A Fideicomiso is considered a grantor trust!  If you claimed the fair market value of the use of your property, we can amend your returns and provide a more technical explanation.

Please see the following excerpt from a post I wrote last year:

Having property in a Fideicomiso does not require you to pay tax on the value of using your property.

By glancing at the FATCA provisions of the HIRE Act and the subsequent revised Internal Revenue Code, it is easy to see why someone may jump to that conclusion and believe that they are required to pay tax on using their property.

(It’s a sad commentary on Congress and the IRS, that people actually believe that they are required to pay tax for simply using their own property!)

I think that the misinformation regarding uncompensated use is due to a literal interpretation, taken out of context, from the HIRE Act and the revised Internal Revenue Code.

Therefore, I repeat:  Just because you have property in a Fideicomiso does not mean that you have to pay tax on the value of using the property!

Please contact us if you require help correctly filing or amending your required Foreign Reporting Forms.

John Dillinger, CPA, PFS, MS.tax
Dillinger Carter & Associates, Inc.
4235 24th St
San Francisco, CA  94114
T: 415-524-7572
F: 415-524-7571
jdillinger@dcataxservice.com
www.dcataxservice.com

IRS Circular 230: Any tax advice included in this communication was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency

Issue Number:    IR-2012-5

Inside This Issue


IRS Offshore Programs Produce $4.4 Billion to Date for Nation’s Taxpayers; Offshore Voluntary Disclosure Program Reopens

WASHINGTON — The Internal Revenue Service today reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.

The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward. For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.

“As we’ve said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”

The third offshore effort comes as Shulman also announced today the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program.  That number will grow as the IRS processes the 2011 cases.

In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures. Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDP program.

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.

For the new program, the penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.

Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations. This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax. The IRS is currently developing procedures by which these taxpayers may come into compliance with U.S. tax law. The IRS is also committed to educating all taxpayers so that they understand their U.S. tax responsibilities.

More details will be available within the next month on IRS.gov. In addition, the IRS will be updating key Frequently Asked Questions and providing additional specifics on the offshore program.

http://www.irs.gov/newsroom/article/0,,id=252162,00.html

Please contact us if you need assistance

John Dillinger, CPA, PFS, MS.tax

jdillinger@dcataxservice.com

www.dcataxservice.com

415-524-7572 or 800-385-6757 

IRS Circular 230:

Any tax advice included in this communication was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.

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