The American Institute of CPAs (AICPA) has pushed the federal government since May 2007 to issue a revenue ruling regarding Mexican Land Trusts (MLTs), also known as Fideicomisos. The AICPA’s tenacity paid off on June 6, 2013 when the Internal Revenue Service (IRS) and U.S. Department of the Treasury issued Rev. Rul. 2013-14, which provides clarity for tax preparers and simplifies filing requirements for many taxpayers.
MLTs are currently required because, under the Mexican Constitution, non-Mexican persons may not hold direct title to residential real property in certain areas of Mexico. The holding in the revenue ruling means that many U.S. taxpayers finally have certainty on the U.S. tax treatment of such common MLTs, and will no longer need to incur the expense and burden associated with preparing and filing the Form 3520 and Form 3520-A foreign trust reporting forms on a protective basis.
The ruling is similar to a private letter ruling issued on July 30, 2012 (PLR 201245003), but provides guidance that similarly situated taxpayers can rely upon. Rev. Rul. 2013-14 does not apply if the MLT owns any other property or is permitted or required to engage in any activity beyond holding legal title to the Mexican real property. Therefore, tax practitioners will continue to review trust agreements to evaluate these points.
The AICPA sent a letter of appreciation to the IRS and Treasury on June 24, 2013 for issuing the revenue ruling. AICPA Tax Executive Committee Chairman Jeffrey A. Porter stated, “We greatly appreciate the time and effort that went into developing this Rev. Rul. 2013-14 and are pleased that it was issued.”
Related AICPA requests and information are available on the AICPA foreign trust reporting webpage.