By Don D. Nelson, CPA, Attorney, CPA – US International & Expatriate Tax Expert
If you, as an American who does not have Mexican citizenship, own a home or other residential real property located in the “restricted zone” close to the coast in Mexico, the Mexican constitution has been construed to require that you own it in a bank trust called a “fideicomiso.” The Mexican bank acts as trustee and you as the equitable owner of the real property are the beneficiary. The trust has a term of 50 years and can be renewed thereafter.
Under US tax law the fideicomiso meets the definition of a “foreign trust.” That means you are required to file Form 3520 when you initially establish the fideicomiso or foreign trust and for each year thereafter. The Trustee is suppose to file form 3520A for each year of the fideicomiso’s existence but in Mexico does not. Therefore under US tax law you as the beneficiary must file that form to avoid penalties being assessed against you personally. The Form 3520 must be filed by the extended due date of your personal tax return. Form 3520A is due on March 15 of each year for the previous calendar year. You can apply for an extension of time using Form 7004. These forms must be filed for any foreign trust controlled by a US citizen or those of which a US citizen is the beneficiary. This rule includes “asset protection trusts” created in other foreign countries also.