October 6, 2011 - Phil Hodgen

IRS on fideicomiso structures as “foreign trusts”?

One of the Eternal Mysteries of (Tax) Life:  Is a fideicomiso a “foreign trust” for U.S. income tax purposes?

In an Information Letter from late 2010 and released in early summer this year (and published in Tax Notes Today in September, 2011), the IRS Chief Counsel’s office side-stepped the question.  🙂  (Sorry, Grace!)

Release Date: NOVEMBER 17, 2010

Published by Tax Analysts(R)

UIL: 6048.00-00

Release Date: 6/24/2011

Date: November 17, 2010

Refer Reply To: GENIN-141622-10 – CC:INTL:B01:* * *

Dear * * *:

This is in response to your request for general information regarding the infor-mation reporting obligations with respect to Mexican fideicomisos that own certain Mexican residential real property on behalf of U.S. persons who are not also Mexican citizens.

Under section 6048(a) and (c) of the Code, ((All references to sections of the Code are to sections of the Internal Revenue Code of 1986, as amended.)) a U.S. person who makes a transfer to or receives a distribution from a foreign trust generally is required to report certain information on Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. Under section 6048(b) of the Code, a U.S. person who is treated as the owner of a foreign trust under the grantor trust rules (sections 671 through 679 of the Code) is required to complete Part II of Form 3520 and to ensure that the foreign trust files Form 3520-A, Annual Information Return of Foreign Trust with U.S. Owner. Section 6677 of the Code imposes significant penalties (up to 100 percent of the gross reportable amount) for failure to comply with section 6048.

The rules for determining whether an entity is classified as a trust for U.S. federal income tax purposes are found in section 301.7701-4 of the Procedure and Administration Regulations. The rules for determining whether an entity that is classified as a trust is a foreign trust are found in section 7701(a)(31)(B) of the Code and section 301.7701-7 of the Procedure and Administration Regulations. Any U.S. person who transfers property to or has an interest in a Mexican fideicomiso that is classified as a foreign trust must comply with section 6048.

This letter provides general information only and does not constitute a ruling. See Rev. Proc. 2010-1, section 2.04, 2010-1 I.R.B. 7. If you would like a definitive determination as to whether a particular fideicomiso is classified as a foreign trust for U.S. federal income tax purposes, you must request a private letter ruling pursuant to the procedures set forth in section 7 of Rev. Proc. 2010-1.

We hope this information has been helpful to you. If you have any questions, please contact * * *, Identification Number * * *, at * * * (not a toll-free call).


M Grace Fleeman

Senior Technical Reviewer, Branch 1 (International)

What Ms. Fleeman is saying is:

“We’re not telling you that your particular fideicomiso is a trust and we’re not telling you your particular fideicomiso is NOT a trust.  All we are saying is that if it IS a trust you have to file Form 3520.”

The question of whether a fideicomiso is a trust (or not) as the IRS defines a trust — this is a question on which reasonable minds differ.

Americans Living Abroad