MichaelEL
Jul 17, 2009, 6:35 AM
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Do we pay US tax on income in Mexico, even tho we file Mexico returns.
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US and Mexican Tax Interactions
Like I expect some of you have, I have a contracting business in the US. We started a Mexican Corporation for our mini-development project, Ecoterreno, out in the jungle.
Because we have Mexican Bank Accounts, we had to report them to the US Department of the Treasury, Form # TD F 90-22.1 REPORT OF FOREIGN BANK AND FINANCIAL ACCOUNTS, OMB No. 1545-2038 1 for Calendar Year Ended 12/31/2008.
My US CPA gave us another IRS form to fill out, Form 5471 which asks detailed information about our business in Mexico. Apparently, there are major penalties for not filing such a form or for not notifying the IRS of foreign bank accounts in the form above. I understand the purpose is to prevent money-laundering from drug and gun dealers, and to find Americans who are sheltering income and wealth in hidden locations, such as Swiss Bank accounts or foreign financial dealings. I support that purpose.
My CPA said that the "good news" is that we won't face "double-taxation", that we can deduct the taxes we pay Mexico from our American returns.
My understanding is that he is not correct, that when income we make in Mexico is taxed there, and we file all the proper Mexican tax returns, that income is not taxable by the US and that the requirements of the US-Mexico tax treaty is "information exchange" only.
My Mexican CPA says he does not know about US tax law and I should talk to a US tax attorney versed in both US and Mexican tax law, which I don't have.....yet.
Do any of you have information on US-Mexican income and tax interactions? References to tax law and/or articles would be appreciated.
Sorry this is so long and complicated.
Michael
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