Mexican Charities and IRS Tax Deductible Contributions

Sometime back I noticed interesting language in the US-Mexico tax treaty.  The treaty is an agreement for the purpose of minimizing double taxation between both countries.  Article 22 allowed deductions against US income tax for contributions to Mexican charities.  Intrigued, I picked up the phone.

 

The SAT, the Mexican IRS, publishes a regularly updated list of all recognized charities, much like its American counterpart.  The lengthy list even has a section of entities that are authorized to receive “donations from abroad”.  I was excited, because there it was in the treaty.  Authorized Mexican charities, check.  The treaty says that deduction amounts are among others, limited to Mexican sourced income. Ok, I get that.  Normally, US tax-deductible charitable contributions have to be made to US charities—the “501(c)(3)” organizations you may know about.

 

I decided to look on the IRS side to make sure this was as it appeared to be.  Finding who within the IRS had any clue about this was a task by itself.  Finally, I located the right IRS attorney in Washington.  Friendly guy, but with lots of “oh, hmm, ehmms”.  Those tell me I am on to something I should not have asked about.

 

Asked if the IRS recognized the Mexican charities list, he replied he knew about the list. Pressed again, he admitted no, no recognition.  Somewhat cornered, he explained that “something had changed” in Mexican law that made all Mexican charities unrecognized for purposes of the American tax deduction.  I asked “what changed, and when?” More ahems.  Despite the treaty, no deductions are allowed because there is no recognized Mexican charity that can receive US tax deductible contributions.  None? Sounds wishy-washy to me.

 

Eventually the friendly IRS lawyer did say that the Treasury Department was in conversations with Mexico on the subject. My conversations took place in October of last year.  Something tells me those conversations may have been quietly shelved after January.  I don’t think the Trump administration would like to resuscitate anything that seems to benefit the Mexico in any way.

 

What burns me is that there is no IRS guidance on this point.  I’m sure Mexican charities may do great work.  Beware! Someone can make a donation to a Mexican charity in good faith, relying on the treaty and hoping for a US tax deduction, later getting “nailed” for it.  Many folks tell me things in Mexico are often not what they appear to be.  This may be one of them, but the blame may be on the other side.

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By Orlando Gotay, Tax Attorney

 

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Orlando Gotay
Lawyer
Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court and other taxing agencies.
His love of things Mexican has led him to devote part of his practice to the tax matters of U.S. expats in Mexico. He can be reached at tax@orlandogotay.com, online radio at mixlr.com/orlandogotay