FBAR and US Taxes for Expatriates - Intercam Presentation , Ixtapa, Mexico
Don D. Nelson, Attorney at Law , Certified Public Accountant
Kauffman Nelson LLP
www.TaxMeLess.com / www.expatattorneycpa.com
• ALMOST EVERYTHING YOU NEED TO KNOW ABOUT
US -IRS REQUIRED MEXICO FINANCIAL & BANK
• US TAXES IN MEXICO
IRS REQUIRED FORMS CAN BE SIMPLE AND EASY
Current Status of International Taxes and the
US Internal Revenue Service
- Virtually every country in the world have agreed to
participate in FATCA – this includes most countries which
previously were “secrecy havens.”
- US now has other agreements with over 60 countries to
exchange tax information (going both directions) and the list is
growing daily. Mexico has signed one of these agreements.
- A US Citizen or green card holder must file a US income tax
return each year and report their worldwide income to the IRS
even if they also pay and file taxes in their country of residence .
How Mexican taxes effect your US tax return:
l * US Taxpayers get a dollar for dollar credit for any income taxes paid in
Mexico against their US income taxes on the same income. Therefore NO
l *Taxes withheld from your Intercam Account on Interest and Dividend
income can be used to offset the US taxes on the same income.
l * BE CAREFUL ABOUT: The Hacienda in many parts of Mexico is now forcing
Americans renting their taxes to pay Mexican Income Taxes on the Income
and IVA (16%) on the gross rental receipts.
l * IVA is deductible on your US tax return as a rental expense and the Mexican
Income taxes can be claimed as a foreign tax credit offsetting your US tax on
the same income.
FBAR – FORM 114– Report of Foreign Financial and Bank Account
Information to IRS
Due June 30 following end of calendar year
Cannot be extended – filed on line separate from your tax return
Must file on line or your tax return preparer can file on line for you.
File if combined highest balances of accounts you sign on exceed $10,000
US at any time during calendar year
Foreign accounts include stock brokerage accounts, safe deposit boxes,
Must file for all accounts you sign on even if do not own account
Filed in additional to form 8938 (if that form is required)
Statue of limitations on FBARs is 6 years
Penalties for not filing or filing late can be $10,000 or more up to greater of
$100,000 or ½ highest balances for year.
Criminal penalties for not filing can be up to 5 years in prison.
Must answers questions on FBARs at bottom of Schedule B on your
personal tax return.
Web address to enter FBAR (FORM 114) data on line:
Information Required for Form 114 for on the internet:
- Your name, address, social security number and birth date
- Name of foreign bank or financial institution and its mailing address
- Your Account Number
- Highest balance in US dollars during the calendar year
- You can use to exchange rate for end of year form www.Oanada.com.
- Name and address of any other signer on account and their social security
- If you sign on an account owned by another, you need to put their name
and address and your relationship to them.
- When filing on line must use adobe acrobat reader which is free to
-Get the numbered receipt for filing so you have proof the FBAR was filed.
-If you file jointly with spouse must also fill out Form 114A and keep with your
tax returns for 5 years.
INTERCAM Will send you all
Data to use for your FBAR
(form 114) and Form 8938 on
the following form:
• Form 8938 - Report of Foreign Financial
Assets (REQUIRED SINCE 2011)
l Must filed with personal tax return if (a) file as US single resident
with $50,000 or more in foreign financial assets; (b) file as US
resident with $100,000 or more in foreign financial assets; (c) Living
abroad with foreign financial assets of $200,000 or more if filing single
or $400,000 or more if filing jointly.
l Foreign financial assets include bank accounts, stock accounts,
contracts to receive payment, foreign stocks, foreign bonds, foreign
promissory notes, foreign partnership or trust interests, gold held by
another in your behalf, foreign pension plans, etc.
l Real estate is not included in definition of foreign financial asset
unless held in foreign corporation, trust, partnership or foreign LLC
l $10,000 penalty for failure to file
When You must file Form 8938 with Your Return
last day of
year is at
Or, at any
the tax year,
the value is
Single or Married Filing Separate taxpayers living in the
Married Taxpayers filing jointly living in the U.S.
Taxpayers not filing jointly who are living outside the U.S. $200,000
and would qualify for the foreign earned income exclusion
Married Taxpayers filing jointly who are living abroad and
would qualify for the foreign earned income exclusion
- Same data for foreign
financial accounts as
included on FBAR form
- Also include number of on
forms 5471, 8865, 3520
also included in returns
- Do not have to list foreign
real estate held in your own
personal name (but do
have to list if title held in
partnership, trust, etc.
- List other foreign financial
assets such as foreign
stocks, promissory notes,
4 METHODS TO SURFACE WITH
THE IRS FOR PAST UNFILED
RETURNS OR UNFILED FOREIGN
ASSET REPORTING FORMS
1.STREAMLINED ROGRAM (BEST)
2. VOLUNTARY OFFSHORE
DISCLOSURE PROGRAM ( NO
3. FAQ 17 FOR FBARS AND 5471
FORMS (NO PENALTIES AT ALL)
4. REGULAR DISCLOSURE
• Other Special IRS Reporting Forms Possibly Required
l Mexican corporations ( Form 5471)
l Foreign trust forms (Forms 3520 and
3520A) no longer have to be filed for
MexicanFideicomiso's effective 6/6/13 per
Revenue Ruling – still required for other
foreign trusts and foreign pension plans
l Mexican Partnerships (Form 8865)
l Passive Foreign Investment Companies
(8621) These include all foreign mutual
funds. Money market funds, and foreign
corporations that just invest in passive
l Failure to file any of these forms can result
in adverse US income tax consequences
and huge civil and criminal penalties which
are now being assessed by the IRS.
• Great US tax Benefits of US Expats Living
and working in Mexico
l Foreign Earned Income Exclusion on US return of $97,600 for 2013
for wages and self employment income.
l US foreign tax credits for income taxes paid in Mexico
l Foreign Housing Exclusion or Deduction (if earning income through
work – and earnings exceed foreign earned income exclusion.
l Using a Mexican corporation to avoid paying US social security taxes
of self employed.
l Electing for US tax purposes flow through benefits for Mexican
corporations will eliminate double taxation and allow you to take tax
credits - a must for Mexican real estate held in a Mexican corporation
INCREASE IN IRS AUDITS OF US EXPATRIATES
-Big increase in audits due to GAO discoveries of inaccurate
claims by expats
-Usually done by mail
-You will be required to provide written documentation for
deductions and income
-IRS often does lifestyle audits to determine if your assets
and lifestyle match your reported income. You do have
opportunity to explain other sources of assets including gifts
-IRS does have a tax treaty and other agreements with -exico
to exchange information with each other and cooperate.
BEST WAY TO AVOID AUDITS:
-Report all foreign assets and income as required and if
anything unusual is on return, attach a written explanation.
-Stay within statistical guidelines for your income level with
respect to charitable contributions, and other deductions.
Questions Received from Americans in Mexico
1. Do I have to report my rental income in Mexico on my US
2. How do you suggest I file if I have a Mexican spouse?
3. I am a dual US-Mexican Citizen. How does that benefit me
for US taxes?
4. Do I have to pay US gift or estate taxes on my assets in
5. If I have not filed US taxes in many years, what will happen
when I cross the border back into the USA?
6. What happens on my US tax return when I sell my personal
residence in Mexico?
Questions Received from Americans in Mexico
7. How does the IRS audit me here in Mexico?
8. Can I deduct business and other allowable expenses on my US
tax return if I do not have a factura?
IS US CITIZENSHIP SURRENDER – THE ULTIMATE SOLUTION?
First Need Citizenship in another country- such as Mexico
Can be done without exit tax consequence if have net worth of less than $2 million US
and paid less than $157,000 average income taxes in the past 5 years
Must be current on all required IRS Tax Filings
No guarantee the State Department will later allow you to get visa or Citizenship after
Cannot be done for Tax Avoidance purposes
In 2013- 2,999 Citizens surrendered their citizenship.
• Hey Gringo – Uncle Sam Wants Your
• We can help you control Uncle Sam, defend your legal
rights, and reduce your taxes
• Don D. Nelson, Attorney at Law, CPA
KAUFFMAN NELSON LLP
• Websites: TaxMeLess.com & ExpatAttorneyCPA.com
• Email: firstname.lastname@example.org
• More about Don
l Don D. Nelson is a California Attorney, Certified Public Accountant who
has assisted Americans with their US taxes in Mexico for over 23 years. As
an attorney he offers his clients the complete confidentiality and legal
protection of “aattorney client privilege.” He is a partner in Kauffman Nelson
LLP – Expatriate and International Tax CPAs
l Don is a graduate of the University of Southern California Law School, and has been
with Ernst & Young, Price Waterhouse Coopers and Deloitte Touche. He has taught
at UCLA and was an Assistant Professor at California State University Los Angeles.
l Websites: TaxMeLess.com ExpatAttorneyCPA.com
l Blogs: usexpatriate.blogspot.com / us-mexicantax.blogspot.com
US Phone in Mexico (949) 860-9606/ (949) 481-4094 / skype: dondnelson
l Email: email@example.com & firstname.lastname@example.org
● Don can be reach by phone, email or skype at any time. All tax services are provided
by phone, skype, email, fax, and internet.