And Now Here Is The Really Bad News

It’s a scary world out there
BY: ORLANDO GOTAY

Earlier this month, the SAT (Mexican IRS) chief announced that Mexico has begun receiving information on U.S. bank accounts held by residents of Mexico. So the banks are ratting out account holders that earn more than $10 in interest. Pretty low threshold. This information helps determine how many Mexicans have accounts in the United States, types and amounts of income, and the banks where the accounts are held.

It gets worse.

money.jpgUncle Mexican IRS also admitted Mexico has provided information to the U.S. Treasury on U.S. citizens. That’s you, Bunky. According to the agreement,bank accounts ratted out are those with a balance of $50,000 or more as of Dec. 31, 2013.  The information exchange will be automatic after that.

While the Mexican IRS referred to accounts held by “American residents” in Mexico, the fine print reveals it is far broader in scope.  Reportable accounts have any of a number of markers which include  U.S. citizenship, U.S. place of birth; U.S. mailing address or phone numbers, and other indications of being a “U.S. person” such as standing instructions to transfer money to stateside accounts.

Mexico reports not just personal accounts.  It is required to report information on Mexican business entities that have “U.S. Persons” as “controlling persons”.  So if a Mexican business has U.S. persons with authority over financial accounts, those accounts are reportable to the U.S. Treasury too.

What is Mexico required to report?  Name, tax ID number, address, bank name, account number, and average monthly balance of the reported account.  In the future, Mexico will also report interest and gross proceeds from the sale of assets credited to the account (such as sales of securities) held in custodial accounts.

Mexico will cross-reference with its own databases in an effort to detect those who have U.S. assets or income that should have been reported to Mexico but was not.

The U.S. will match information in a similar way.  U.S. persons that meet thresholds were already required to file information returns, ‘Foreign Bank Account Reports’ and ‘Forms 8938’ to declare “specified foreign financial assets”.

The good news about all this automated reporting?  Deep in the bowels of the Mexico-U.S. agreement, “a fideicomiso the assets of which consist solely of real property” is not reportable by Mexican authorities to the U.S. But if your Mexican fideicomiso does not meet IRS requirements, it is reportable by you on your federal tax return as a “foreign trust” anyway.

The U.S. Foreign Account Tax Compliance Act (FATCA) has turned tax reporting for U.S. persons a high stakes game and it is already making it so for persons of other nationalities.

Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court and other taxing agencies.  His love of things Mexican has led him to devote part of his practice to the tax matters of U.S. expats in Mexico.  He can be reached at tax@orlandogotay.com.