Mexico Tax Tip Number 4

By don d. nelson

Items can cause audits are listed below.
a. Ownership of a foreign mutual fund and failure to file the special forms required for foreign passive investment companies.
b. Ownership of foreign partnerships and foreign corporations in which you own the majority interest. (If you own 10% or more of a Mexican corporation you must file form 5471)
c. Large. Inheritances or gifts received from nonresident donors when you fail to file form 3520 to report those gifts or inheritances.  Even if the property an assets are located abroad you must report them to the IRS. The penalties are huge for not reporting foreign inheritances, but there is no tax on foreign inheritances if you file this form in a timely manner.
d. Unusually large income from outside the US with unusually large deductions offsetting most of that income so little tax is paid.  This might not cause an audit if your paid substantial foreign income taxes abroad and you are claiming a foreign tax credit to offset your US tax on that income.
e. Claiming the foreign earned income exclusion when you spend a lot of time in the USA but are claiming you earned all wages or earning in Mexico.
f. Failure to file FBAR form 114 when required. ALL of the banks in Mexico are reporting accounts owner by Gringos to the IRS each year. If you have not filed form 114, the IRS will charge you a penalty of $10,000.
The IRS Offshore Voluntary Disclosure Program is ending this coming September. If you have not been filing time is running out to enter this program and avoid extremely high penalties and criminal penalties for failure to report your foreign and Mexican income to the USA
Remember the IRS can audit your return up to three years after it is filed and up to six years if you omit 25% of your income.  The statute of limitations never runs out if you should have filed a US tax return but failed to.  Dual Citizenship has no bearing on the requirement that you file a US tax return each year. If you want to avoid IRS audits or need representation when the IRS does audit your expat or international tax return email us at :  Our website is at Our US phone number is at 949-480-1235. In Mexico call 624-131-5228.