This document outlines the tax obligations for U.S. citizens and green card holders living in Mexico, including the requirement to file U.S. tax returns reporting worldwide income and the potential for tax credits to avoid double taxation. It also details the Foreign Bank Account Report (FBAR) requirements and the penalties for non-compliance, as well as highlights various IRS reporting forms for foreign financial assets and entities. Additionally, it discusses tax benefits for expatriates and increases in IRS audits targeting U.S. expats, while offering services from an experienced attorney in this field.

1. Don D. Nelson, Attorney at Law , Certified Public Accountant
Kauffman Nelson LLP – www.TaxMeLess.com
• ALMOST EVERYTHING YOU NEED TO KNOW
ABOUT US -IRS REQUIRED MEXICO FINANCIAL
& BANK ACCOUNT REPORTING
• and
• US TAXES IN MEXICO
l IRS REQUIRED FORMS CAN BE SIMPLE AND EASY

2. 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 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.
•

3. Mexican taxes and 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
DOUBLE TAXATION.
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 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.

4. FBAR – FORM 114– Report of Foreign Financial and Bank Account
l - Due (Must Arrive by) June30 th 2014 for 2013 calendar year (cannot be
extended for any reason)
l - Must now be filed on line over the internet
l - Must file if your combined highest balances in all foreign accounts exceed
$10,000 US at any time during the year
l - File for foreign personal accounts and foreign financial accounts you sign
on or have right to control, even if you do not own the account.
l - Reporting form, not tax form. You must report foreign interest and
dividends on regular schedules on your tax return.
l - If you have a reasonable excuse for filing late you may be able to get
$10,000 or more per year penalty abated.
l - There can be criminal penalties for late filing or non filing or late filing.
l - Must check boxes on Form 1040 schedule B (bottom of page) to show
foreign accounts and if filing FBAR form
l - Required for foreign pension accounts, foreign trust accounts, foreign
corporation accounts, brokerage accounts, money market accounts, etc.
that you sign on
l - If a foreign bank or financial institution reports your foreign account and you
have not filed the FBAR form you will most likely be assessed high
penalties from the IRS.
l - IRS has programs which can reduce or eliminate potential civil and criminal
penalties such as 2012 OSVDI and Streamlined program.

5. Web address to enter FBAR (FORM 114) data on line:
http://bsaefiling.fincen.treas.gov/main.html
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.
- Name and address of any other signer on account and their social security
number.
- 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 acrobate reader which is free to
download.
- Get number receipt for filing so you have proof the FBAR was filed.

6. INTERCAM Will send you all
Data for your FBAR (form
114) and Form 8938 on the
following form:

7. • 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

8. When You must file Form 8938 with Your Return
Filing Situation
Value on
last day of
the tax
year is at
least this
amount:
Or, at any
time during
the tax year,
the value is
greater than:
Single or Married Filing Separate taxpayers living in the
U.S.
$50,000
$75,000
Married Taxpayers filing jointly living in the U.S.
$100,000
$150,000
Taxpayers not filing jointly who are living outside the U.S. $200,000
and would qualify for the foreign earned income exclusion
$300,000
Married Taxpayers filing jointly who are living abroad and
would qualify for the foreign earned income exclusion
$600,000
$400,000

9. - Same data for foreign
financial accounts as
included on FBAR form
114.
- 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
foreign corporation,
partnership, trust, etc.
- List other foreign financial
assets such as foreign
stocks, promissory notes,
bonds, etc.

10. 4 METHODS TO SURFACE WITH
THE IRS FOR UNFILED RETURNS
OR UNFILED FOREIGN ASSET
REPORTING FORMS
1.STREAMLINED PROGRAM
2. VOLUNTARY OFFSHORE
DISCLOSURE PROGRAM
3. FAQ 17 FOR FBARS AND 5471
FORMS
4. REGULAR DISCLOSURE

11. • Other Special IRS Reporting Forms
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
investments.
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.

12. • Great US tax Benefits of US Expats Living
and working in Mexico
l Foreign Earned Income Exclusion of $97,600 for 2013
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

13. INCREASE IN IRS AUDITS OF US EXPATRIATES
l
-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
and inheritances
-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.

14. US CITIZENSHIP SURRENDER – THE ULTIMATE SOLUTION?
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
surrender.
Cannot be done for Tax Avoidance purposes
In 2013- 2,999 Citizens surrendered their citizenship.

15. • Hey Gringo – Uncle Sam Wants Your
Taxes
• We can help you control Uncle Sam and reduce your taxes
• Don D. Nelson, Attorney at Law, CPA
KAUFFMAN NELSON LLP
• Websites: TaxMeLess.com & ExpatAttorneyCPA.com
• Email: ddnelson@gmail.com

16. • 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. 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
l Blogs: usexpatriate.blogspot.com / us-mexicantax.blogspot.com
l
US Phone in Mexico (949) 860-9606/ (949) 481-4094 / skype: dondnelson
l Email: ddnelson@gmail.com & ustax@hotmail.com
● Don can be reach by phone, email or skype at any time. All tax services are
provided by phone, skype, email, fax, and internet.