Look Out, The Big Tax Guys Are Talking Among Themselves
By Orlando Gotay
By now, you may have heard that under the FATCA law, the US Treasury and the Mexican Tax Service (SAT) have entered into agreements to exchange financial information. The purpose is to discover those who have assets or income in one country that should have been reported and taxed by the other.
The traded information is by no means equal. Mexico provides the US Treasury much more sophisticated and complex data, and Mexico is already working with what it has.
The Mexican journal El Economista recently reported that the SAT is already taking steps to provide the next batch of account information in September. To that end, it published two amendments to the Mexican tax regulations, instructing banks how to sift through accounts with indicia of ownership or control by US persons. This applies to accounts, whether one actually owns the money or just has signature authority over it, for both personal and business accounts. The scope goes far beyond what we know as bank accounts. A wide range of financial instruments and arrangements is also reportable.
Your local bank may send a letter informing that for regulatory purposes you may have to provide documentation proving that you are a US person. Failure to reply could cause the bank to close the account or to classify you as a recalcitrant account holder.
Pretty soon, US persons who own or have signature authority over foreign financial accounts whose total value exceeded US$10,000 at any time during 2015 must prepare a Foreign Bank Account Report for the U.S. Treasury. Treasury already issued official rates for the Mexican peso, 17.3620 per US dollar.
Assuming only one peso account, if at any time it had a balance of 173,620 pesos, it may be reportable. For multiple accounts, the maximum value of each is added up. Accounts with negative values count as zero.
It’s easy to see how this is not an exercise that should be left for the last minute. Consider there are substantial penalties for failing to file accurate FBARs (Foreign Banks and Financial Accounts) on time. FBAR records should be kept for at least six years. Dual nationals and so-called “accidental Americans” who ignore that they may have US filing obligations may come in for a less than pleasant surprise.
The SAT will also comb through the southbound data, and no doubt it will also try to identify those who should have been reporting in Mexico, but were not, in case someone thought the U.S. could be a fiscal paradise.
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 US expats in Mexico. He can be reached at email@example.com.