# Nominal Interest Question



## cuerna1 (Mar 7, 2015)

I'm trying to understand the year end statements I've received from our Mexican bank.

It concerns an account which hold 3 different mutual funds. 

Fund 1: We purchased but never sold. The statement indicates positive nominal interest. What does that do the cost basis ?

Fund 2: We purchased AND sold but the statements makes no mention of capital gains/losses. Simply positive nominal interest.

Fund 3: Purchased but never sold and they state NEGATIVE nominal interest.

And none of the numbers make any sense. We have an appointment with the woman at the bank tomorrow but she is customer service not an accountant.

Thanks for your thoughts.


----------



## BBCWatcher (Dec 28, 2012)

Please follow-up with a report on your experience with the customer service agent and the information you receive from him/her.


----------



## cuerna1 (Mar 7, 2015)

Interesting morning. We spoke with an accountant at the bank. While she is not an IRS agent (not even American) we asked her what should we tell the IRS and this is what we learned.

The 'fondos' we are invested in - and even the CDs we own - are handled differently here in Mexico than in the US. They aren't 'mutual funds' like in the US but rather investment instruments that have a valuation at the beginning of each year and changes (growth,loss,tax) occur each day after that until the end of that year. It isn't like you buy something in July 2013 and sell it in August 2014 for a long term capital gain. 

At this point let me say that if we were solely Mexican citizens we would not owe Mexico a penny in due taxes (other than those already held by the bank).

As I mentioned above we had three different scenarios in our 'funds' as well as a CD.

The information we have received from the bank is broken down in the following manner;
Nomnal Interest, Real Interest, Loss, Income Tax Paid.

In all cases we report the income taxes paid to the IRS.

- In the case where there is only nominal interest we report it minus any loss.
- When there is real interest we report it minus any loss
- In the case where we have a negative nominal interest (and no real interest) we report the sum of the nominal interest and the loss.

(soapbox) I don't think it is fair that honest US citizens have to go through these hoops. If the US is going to insist on honesty in financial reporting they need to :
a) provide the proper guidelines/support to the 'little' people - such that they are not required to hire a professional to file for taxes.
b) standardize the financial instruments worldwide so a 'cat is a cat' everywhere.


----------



## Bevdeforges (Nov 16, 2007)

Basically, you're preaching to the choir here. The US system of taxation is somewhat "unique" in the world and does not particularly take notice of the demands placed on its overseas citizens.

The big problem seems to be that the Congress passes tax laws completely unaware of the other financial instruments in existence outside the US. (Actually seeing the recent interaction between Mario Rubio and Secretary Kerry, Congress seems to be pretty clueless in general about what's going on in the rest of the world.)

Generally, what I have always tried to do is to make sure I report everything, but in the simplest way possible. If the IRS has a problem with how you've reported it, they'll be in touch. But if you're in the "modest" category, chances are that they won't bother you. (And basically they have no idea what your various accounts are, either.)
Cheers,
Bev


----------



## cuerna1 (Mar 7, 2015)

(off topic) In the 90's I worked for the world's largest computer company and from time to time had to do some travel. One day - our anniversary - my manager walked into my office at let's say 1PM and said - you need to fly to France tonight - 7PM. He could care less it was our anniversary. Well I flew to Paris (First Class! - I was a grunt) and took the bullet train to Clarmont-Ferrand. Since the French group was picking up the tab for my journey they insisted I commit to a 2 week stay (for political reasons). I believe I resolved the purpose for my trip within 1 day and that left almost 2 weeks to just eat (very well) and explore. Beautiful country - and very friendly people one-on-one. And - when I returned to the US everyone was appreciative that I went


----------



## Bevdeforges (Nov 16, 2007)

Lovely to hear about your "rush" trip to France. DH worked for another US computer company back in the 80's and after we set up our own company here (mid-90s) got a contract with his former employer to do a fairly intense project in Clermont-Ferrand. 

Yeah, I think France gets its reputation for being "difficult" sometimes based mainly on Paris. Paris is a big city - kind of like NYC - but once you get outside of Paris, the place takes on a whole difference ambiance. (And I must say that the IRS staff in the Paris Consulate are some of the nicest, most helpful IRS types I have ever met. A real pity they're closing down all the international offices - all 3 of them.)
Cheers,
Bev


----------



## BBCWatcher (Dec 28, 2012)

You'd have exactly the same issues as a resident of (insert random country here) with an income tax, wrestling with what to do about that Mexican account. Whenever you cross borders you run into this stuff.

I'm a little bit confused about "real interest." Is that calculated after an inflation adjustment? Or is that referring to (nominal) interest paid on an inflation-adjusted bond, similar to U.S. TIPS or I-Bonds? If the former, the IRS doesn't allow that. They only deal in nominal. If the latter, it's still nominal even though the amount of interest paid fluctuates depending on the inflation rate.


----------



## maz57 (Apr 17, 2012)

cuerna1 said:


> (soapbox) I don't think it is fair that honest US citizens have to go through these hoops. If the US is going to insist on honesty in financial reporting they need to :
> a) provide the proper guidelines/support to the 'little' people - such that they are not required to hire a professional to file for taxes.
> b) standardize the financial instruments worldwide so a 'cat is a cat' everywhere.


As long as the US insists on pretending that expats live in the US such problems will continue. Every country has its own flavors of financial accounts and they are mostly unknown to the IRS. 

As an expat filer the IRS basically only knows what you choose to tell them. It's not like they get a steady stream of 1099s from foreign countries. I think you can exercise a little bit of "selective compliance" here. If you report the account and report the income really what do they have to complain about? The IRS doesn't need to know all the internal details of your accounts and if you make it too complicated it will just confuse things (and turn your US return into a nightmare).

Not even the US has the ability to "standardize financial instruments worldwide". And you're right; it isn't fair, but it is most definitely stupid.


----------



## BBCWatcher (Dec 28, 2012)

maz57 said:


> Not even the US has the ability to "standardize financial instruments worldwide".


No, but the U.S. has a great deal of influence. There has been quite a bit of progress in financial and accounting standardization across borders in recent years. Mostly in corporate accounting (GAAP, BASEL), though. More to come, I expect.

"Be careful what you wish for." 

For what it's worth, I go through a similar exercise every year with a bank account in Japan. There's no 1099 on that account, and interest is reported net of taxes (and not well reported in a single annual total somewhere). But it's easy once you figure it out the first time. After the first time it's just an annual ritual of a few minutes near the beginning of the year. The IRS side isn't actually the hard part. They just want two numbers: gross income, and tax owed/paid. Conceptually simple, really. And you know what? Even if the IRS weren't asking, those two numbers are numbers I'd really rather like to know. Otherwise I really don't know what's going on with my own account.


----------



## Bevdeforges (Nov 16, 2007)

BBCWatcher said:


> No, but the U.S. has a great deal of influence. There has been quite a bit of progress in financial and accounting standardization across borders in recent years. Mostly in corporate accounting (GAAP, BASEL), though. More to come, I expect.


Actually, there are international accounting standards that the US has been "forced" to adjust to. (Lovely to see things running the "other" direction for once.)

It's nice that you have the time and knowledge to go back through and calculate your gross interest and tax withheld on that account, but most folks don't bother and the IRS doesn't seem to get too agitated about it until the amounts involved get pretty spectacular.
Cheers,
Bev


----------

