IRS Rules That Fideicomiso's Holding Title to Property in Mexico in most situations are not Foreign Trusts

After 10 years of controversy and refusals to make a ruling, the IRS has finally ruled that most Fideicomiso's in Mexico are not foreign trusts and are not required to file Forms 3520 and 3520A.

Revenue Ruling 2013-14 describes a typical fideicomiso or Mexican Land Trust (MLT) and concludes that the arrangement is not a trust within the meaning of § 301.7704-4(a)   You should read this ruling carefully since it only applies to the situations described therein. If you have Fideicomiso that falls outside the the ones described in this ruling, you may still be a foreign trust under US tax law and be required to file special forms.

Revenue Ruling 2013-14 will be in 2013-26, dated June 24, 2013.

PRIVATE LETTER RULING ON FIDEICOMISOS - THIS ONE DOES NOT HAVE TO FILE FORM 3520 ET. AL.

For the first time ever the IRS has made pronouncement concerning whether a Mexican Fideicomiso beneficiary has to file US tax forms 3520 and 3520A.

The bad news is that it made this pronouncement by way of a Private Letter Ruling which is only binding on the IRS with respect to the taxpayer who applied for the ruling. The IRS  IS NOT bound by the holdings in the ruling with respect to other taxpayers. Other taxpayers also by law can not cite a Private Letter Ruling as authority for their position.

The Private Letter Ruling held that in the particular factual situation of the Taxpayer who applied for the ruling that the US Taxpayer was not required to file the Forms 3520 for that Taxpayer's Fideicomiso.

Whether referring to this private letter ruling will cause the IRS to eliminate penalties for not filing Forms 3520 for a Fideicomiso cannot be determined at this time.  For any filer to be completely certain they did not have to file these forms, the IRS would need to make a written public announcement that such filing was not required.  For the last 7-9 years the IRS has been requested to make such a public written holding, and has not done so to date.   SEE THE REDACTED RULING HERE. THE IRS HAS NOT YET PUBLISHED IT.

Retirement Plans That May Be Available to Expats Abroad

As a US expatriate, you may be eligible to create a tax deductible  (for US tax purposes) retirement plan if you operate your own business abroad through your own sole proprietorship or by utilizing a US corporation or LLC.  The funds contributed are tax deductible and the earnings grow tax free until you withdraw the funds when you retire.  AN IRS EXPLANATION OF THE AVAILABLE PLANS IS HERE

It is important to keep in mind, that if you operate abroad through a sole proprietorship, in most situations you can only make a contribution to an IRA or self employed retirement plan if the net taxable profit from your business exceeds your foreign earned income exclusion (if you are taking it).  We can help you put together a US tax deductible retirement plan that will work for you.

Unless provided otherwise by a US tax treaty with the country in which you work (and there are only a few treaties that have favorable provisions) if a contribution is made to a foreign pension plan by your employer in your behalf, you must report that contribution as income on your US tax return and any earnings made on the funds in your foreign pension plan may also be immediately taxable to you.  If you have a separate account in that foreign pension plan you may also be obligated to file Forms 3520 and 3520A each year to report information on that separate account which the IRS deems a foreign trust.  Failure to file these two forms can result in extremely large penalties.