Foreign trust?

[Kea]

Client bought a house in Mexico. Due to Mexican law, they could not own it outright (it's within x miles of border or ocean). So they bought it through a bank trust. The bank trust owns the house & they own the bank trust.

Does that mean they now get a "Yes" in the 2nd box on Sch B? I've never had anyone answer yes before.

Does this mean I need to file a From 3520? I tried reading through form and the instructions and I'm totally lost.

It is in a rental pool but has not rented yet - so there is no income (if that is an issue).

Will I need any info from the trust document? If so, what?

Thanks

[Kea]

bump

[Pacun]

bump

You could start by reading the tax treaty between the US and Mexico.

[Kea]

Humm. Didn't think that would be a treaty issue. But I'm not an expert (at all) on foreign issues.

[Pacun]

Humm. Didn't think that would be a treaty issue. But I'm not an expert (at all) on foreign issues.

I bet you Mexico has something like "income directly associated with Mexico" in their tax laws. Most likely, the trust will pay taxes in Mexico and get a credit on taxes paid to a foreign country on the US form.

I am just trying to motivate others to post their answers, anyways.

[Catherine]

Humm. Didn't think that would be a treaty issue. But I'm not an expert (at all) on foreign issues.

Definitely read the treaty - but also read (if available) the trust document. Perhaps it works, essentially, like a grantor trust that is ignored for all intents and purposes since its' function is to make a transaction possible.

You could also post this on other fora - taxproexchange, TaxProfessionals, and others.

Catherine

[Kea]

I'm working on reading the Trust, but it's in Spanish. I keep my dictionary close at hand and can get through most of it. It's not very exciting - just the history of ownership of the property and description of current ownership and heirs.

The house is in a rental pool and did rent once in 2011, but not in 2010. Client does have tax ID (FM3) in Mexico to pay tax. It's my understanding that client will pay that tax, not the trust. Then there will be a capital gains tax when / if the house is sold. But, yes, Mexico does tax Mexico - sourced income. Client does have an accountant there to take care of the Mexican tax return. (I wouldn't mind seeing that, too, but am not looking to add that type of return to my business -- those are filed every 2 months, if there is income!)

Yes the trust was created simply to make the purchase legal. Mexican constitution forbids ownership of land within so many miles of borders and coasts. This was done to minimize problems from invasion. But "recently" (not sure when) they decided they weren't too worried about invasions anymore and wanted to be able to sell to citizens of other countries. So, this bank trust mechanism was set up. Trust owns property, person owns trust with all rights of ownership. (That's about the extent of the history I've learned in this process.)

This sounds like a grantor trust. But, I'll still take time to read the tax treaty.

Thanks all.