How To File Forms 3520 and 3520-A for a fideicomiso

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Re: How To File Forms 3520 and 3520-A for a fideicomiso

Post by dean on Mon Mar 22, 2010 7:27 am

bwo
Tax & Trust issues with the IRS
Hello to all.

I have been in touch with the IRS about my Fideicomiso and this is the information I received. I was under the impression that since I was accepted into the "Voluntary Disclosure Program" that I was to await marching orders from the IRS. Not the case.

Good Afternoon Mr. Bowker,

It appears, in the IRS's eyes, your Fideicomiso requires you to file a
trust return. Based on instructions for filing Form 3520-a, you can
file for a 6-month extension using Form 7004, attached below. Ask your
accountant about the requirements for a 3520 versus a 3520-a. The 3520
appears to be required when you have a reportable event, such as the
creation of the trust and then 3520-A is an annual filing. You will not
find anything on IRS.gov regarding the treatment of Fideicomiso. This
is what has caused so much confusion. Some taxpayers are filing the
forms and others are probably not. When I asked the question, I was
told that the IRS is telling taxpayers to err on the side of caution as
a Fideicomiso is defined as a trust, although most do not have income
generated from a trust, the fact that it is defined as a trust causes a
reportable event. All your other returns are already late but your
accountant can ask for reasonable cause as to the late filing - No
penalties will be imposed if the taxpayer can demonstrate that the
failure to comply was due to reasonable cause and not willful neglect
(from instructions for Form 3520-A)
http://www.irs.gov/pub/irs-pdf/i3520a.pdf

Extension - http://www.irs.gov/pub/irs-pdf/f7004.pdf

Instructions - http://www.irs.gov/instructions/i3520a/ch01.html#d0e30

Special Agent, Arlette Lee
Arlette.Lee@ci.irs.gov

I used Extension Form 2758 instead of Form 7004 since I don't have a business in Mexico associated with my Fideicomiso. If anyone has received info on the "Voluntary Disclosure Program" and requirements, etc. please pass them on. I live in the Seattle area and would love to be put in touch with an accountant who has expertise with a Fideicomiso and the filings etc. Better yet, an accountant who has a Fideicomiso. Thanks Stephen.

dean

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How To File Forms 3520 and 3520-A for a fideicomiso

Post by tom137 on Wed Sep 16, 2009 2:32 pm

THE IRS JUST ISSUED A NEW PROCUDURE FOR REPORTING A FIDEICOMISO AS A FOREIGN TRUST

GO BACK AND CLICK ON THE LINK TO THE NEW PROCEDURE FOR REPORTING A FIDEICOMISO.

DISREGARD THE FOLLOWING UNLESS YOU CAN COMPLETE THE FORMS AND GET THEM TO THE IRS OFFICES BY OCTOBER 15,2009.

THE FOLLOWING OUTLINE SHOULD BE CONSIDERED AS AN AID ONLY. I DO NOT CLAIM IT IS CORRECT. IT IS WHAT I DID TO FILE MY FORMS. READ THE INSTRUCTIONS FOR THE FORMS OR CONSULT AN ACCOUNTANT IF YOU HAVE QUESTIONS.



HOW TO FILE FORMS 3520 AND 3520-A FOR A FIDEICOMISO. At the present time the IRS requires that Americans owning property in Mexico with title held in a fideicomiso to file “information” returns. Many people have been filing these returns annually. There is a big penalty for not doing so. The IRS says you can file without fear of penalty if you get the completed forms to them by October 15. 2009. To comply you need to complete and file forms 3520 (individual) and 3520-A. Copies of the forms and your tax returns for the years 2003-2008 (or the years since 2003 you have been an owner) along with a copy of your fideicomiso and a cover letter explaining why you are filing delinquent returns should be mailed to centers in Utah and Pennsylvania. Unless the IRS makes a different ruling, you should file again each year in the future. NOTE. The TD form for foreign bank accounts is only necessary to file if at any time the sum of all foreign bank accounts was more than $10,000. Any interest income should be reported on Schedule B when you normally file a tax return. People with property or business in a corporation are required to file form 5471.

I am not advising as to whether you should file these forms or not. And I cannot say whether the following procedure is completely correct or not. But an IRS agent in the criminal investigation department told me it is better to file to the best of your ability than not to file. So if you decide to file and do the work yourself, the following outline may be of help.

A. Preliminaries.
1. Make two copies of your federal tax returns for 2003-2008 (or the years since 2003 that you’ve had a fideicomiso.

2. Make two copies of your fideicomiso (if you can’t find tax returns or left your fideicomiso in Mexico file the required forms anyway with a note you will submit the missing documents as soon as possible).

3. Write down a name for your fideicomiso such as “CONTRATO DE FIDEICOMISO EN FAVOR DE JOHN DOE AND JANE DOE,” or “Contract of trusteeship in favor of John Doe and Jane Doe,” and the date created (on the fideicomiso).

4. Download form SS-4 from irs.gov/publications. Fill in the name of your trust, name of bank on line 3, and, very important, your name on line 7a (your are the owner and grantor of the trust). This allows you to get the EIN number over the phone and not have to fax or mail in the form. Phone the IRS international trust department at 215-516-6999 and ask for an EIN number for your trust. They will ask for the name of the trust and assign you a number over the phone. If they don't ask, tell them you are the grantor and owner of the trust and also the agent. Remind them that you will be filing forms 3520 and 3520A, not form 1041. Record the EIN number on the copies of your trust. If asked, tell them you are both the owner and agent for your trust and authorized to sign form SS-4 if necessary. Note: you do not need to fill out or send in form SS-4.

5. Make up, to the best of your ability, a trust balance sheet with the following information for each year beginning with 2003 (or your year of purchase after 2003): a) total value of your land and improvements at the beginning of the year, b) dollar value and type of improvements made during the year, c) total value of land and improvements at end of year. Note: If necessary, make the best estimates for what you paid, not the amount you think your property and improvements are worth now. You will need this information to complete page 4, oine 23 of form 3520, and page 2, Part III of form 3520A.

6. If there are other owners (other than spouses) or you received and reported rental income in Mexico but not to the IRS, you will need to get this information and read the special instructions for such cases, as well as write a letter of voluntary disclosure.

7. Finally, download and save forms 3520 and 3520-A and instructions from IRS.gov/publications. If you download you can fill in common information for all years on the form, then make 12 more copies (or 2 copies for each year)to fill in additional yearly information by hand (or do each year on computer after printing out a completed year).

B. You need to write a cover letter and Summary of oral or written agreements related to your Fideicomiso. If there have been no changes or oral agreements made in relation to your fideicomiso you can skip the summary. But it might be helpful if you write a summary something like the following under the name and EIN number for your fideicomiso:

1. This trust is a document securing title to property we bought in Baja Sur, Mexico. There is no income from this trust, and no other owners. Other than the trust or “fideicomiso” document itself, there are no other written or oral agreements or understandings relating to the trust. Nor are there memoranda or letters of wishes, subsequent variances to the original document, or other trust documents.

2. Write a cover letter to Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409 with a copy to Philadelphia Offshore Identification Unit, Internal Revenue Service, South Bldg Room 2002, Philadelphia, PA 19154, Attn: Charlie Judge, Offshore Unit DP S-611. In the letter you are required to explain why you are filing delinquent returns, that is, why you are filing late. Many people were not aware that their fideicomiso was a reportable trust in the US and only found out when they heard about the amnesty available until September 23. That should be a sufficient reason. Or, you don't read Spanish and did not know fideicomiso means TRUST!

C. Completing Form 3520

1. Page 1. For all years, if this is your first filing, check "Initial Return" after A and "Individual" after B

2. Next, under "Check All Applicable Boxes," check the first and second box for the year of purchase or any year you made and paid for an improvement. For years you did not make any improvements (such as building, painting, new palapa roof, new water pump, i.e., did not transfer money to the trust) just check box two saying you are the owner of a foreign trust.

3. Fill in information on lines 1-3 for yourself (ID is your SS#), Name of Trust and EIN, address for trust is your bank’s address, and you are the US agent unless a CPA files for you. Skip 4a unless an owner died during the year. Check NO after “did foreign trustee appoint a US agent,” (you are appointing yourself).

4. Page 2. If you checked box 1 about transfering money by purchase or improvement then complete lines 5a, 6a, and 8-11 (probably No, Yes, N/A, Yes, No, No)

5. At the top of page 3 write N/A (not applicable) for lines 15-17 and 19 but complete line 18 with Yes (for summary), Yes (for trust document), and N/A for c,d,e, and f.

6. Page 4. Complete line 21 using MX for Mexico country code in both spaces and enter date trust was created (from Fideicomiso). On line 22, check NO, and on line 23 enter amount paid for property (including closing costs) and improvements for the given year from your trust balance sheet (or print out several copies and enter amount for successive years

7. Write N/A for Part III, page 5 and the same for page 6

8. After you print out the return for the first year (2003 or later) cross out the 2008 at top of first page and write the year, 2003, and similarly for other years. Sign bottom of first page. Remember you will need two copies of each page.

D. Form 3520-A. Since Mexican Banks do not file this form for you, you are asked to fill it out to the best of your ability.

1. Fill out the same information for Name of trust, Owner, Agent, and Trustee as you did on form 3520.

2. On page 1, line 2, check the NO box. Check YES for parts a and b if you are attaching a Summary and copy of the fideicomiso. Write in N/A for c,d, and e.

3. Page 2, Part II write in N/A (unless you reported income from your property)

4. Part III is a “best of my ability” section. You may wish to use if in a different fashion, On line 9, column B, you can enter total cost of property and improvements at beginning of year in question from the balance sheet you made earlier. In column C write the amount of any new improvements made during the year, if any, and in the space above that write “improvements for 2003” or year you are working on, and in column d enter total for property and improvements at end of year by adding b and c. Also enter the values of column b and d on lines 11, 17, 20 and 21. Attach your balance sheet to the page later to show where your amounts came from.

5. Page 3. Enter the tax year on line 5, value of property and improvements at end of year (if you are sole owner) on line 9, all other information about name of trust, etc, as before, and at the bottom cross off “Trustee,” sign your name and state title as Owner-Agent.

6. Write N/A or NO DISTRIBUTIONS on page 4

7. Go through steps 1-6 for remaining years. You should only have minor changes on pages 2 and 3. Just make copies of the other pages.

E. Assemble two sets of documents with the following items and mail to the two addresses given above under B,2, Make sure you include the following:

1. Cover letter explaining why you are filing past returns late

2. Copies of 3520s for each year

3. Copies of 3520-As for each year

4. Copy of Fideocomiso (and summary if you choose to write one)

5. Remember, the deadline FOR THE FORMS TO REACH THE IRS IS OCTOBER 15, 2009.


Last edited by tom137 on Mon Sep 28, 2009 7:51 pm; edited 5 times in total (Reason for editing : To correct spelling and clarify one item.)

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