Recently, the chief of SAT (Mexico’s equivalent to the IRS) announced that his agency has begun receiving information on U.S. bank accounts held by residents of Mexico with interest paid greater than US$10.
This information helps SAT determine how many Mexicans have accounts in the United States, types and amounts of income and the banks where the accounts are held.
SAT has also disclosed that Mexico has also provided information to the U.S. Treasury on U.S. “persons” living here. According to the agreement, reported bank accounts include those with a balance of US$50,000 or over as of December 31, 2013.
While SAT referred to accounts held by “American residents” in Mexico, the agreement fine print reveals it is far broader in scope. Reportable accounts have any of a number of “U.S. indicia”: U.S. citizenship, U.S. place of birth; U.S. mailing address or phone numbers, and other indications of being a “U.S. person” such as standing instructions to transfer money to stateside accounts.
Mexico reports not just personal accounts. It is required to report information of Mexico business entities that have “U.S. persons” as “controlling persons.” So if a Mexican business has U.S. persons with authority over financial accounts, those accounts are reportable to the U.S. Treasury too.
What is Mexico required to report? Name, tax ID number, address, bank name, account number, and average monthly balance of the reported account. Later on, Mexico will also report interest and gross proceeds from the sale of assets credited to the account (such as sales of securities) held in custodial accounts.
Mexico will cross-reference with its own databases in an effort to detect those who have U.S. assets or income that should have been reported to Mexico but wasn’t.
The United States will match information in a similar way. U.S. persons that meet thresholds were already required to file information returns, “Foreign Bank Account Reports” and “Forms 8938” to declare “specified foreign financial assets.”
The good news about all this automated reporting? Deep in the bowels of the Mexico-U.S. agreement, “a fideicomiso (trust) the assets of which consist solely of real property” is not reportable by Mexican authorities to the United States. But if your Mexican fideicomiso does not meet IRS requirements, it is reportable by you on your federal tax return as a “foreign trust” anyway.
The U.S. Foreign Account Tax Compliance Act (FATCA) has turned tax reporting for U.S. persons a high stakes game and it is already making it so for persons of other nationalities.