Is That Mexican Donation Tax Deductible?

BY: ORLANDO GOTAY

Sometime back, I noticed some interesting language in the US-Mexico tax treaty. The treaty is an agreement established in order to minimize double taxation between the two countries. The interesting part was in Article 22, which allowed deductions against US income tax for contributions to Mexican charities. Intrigued, I picked up the phone.

The SAT, which is the Mexican IRS, publishes a regularly updated list of all recognized charities, much like its American counterpart. This lengthy list even has a section of entities that are authorized to receive “donations from abroad.”

The treaty says that deduction amounts are, among other things, limited to income received in Mexico. Ok, I get that. Normally, US tax-deductible charitable contributions have to be made to US charities — that would be the “501(c)(3)” organizations you have heard of.

I decided to take a look at the IRS side to make sure this was as it appeared to be. Finding someone within the IRS who had any clue about this was a task by itself. Finally, I located an IRS attorney in Washington. Friendly guy, but he answered my questions with lots of “oh, hmm, ehmms.”

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.” As it turns out, 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 might have been quietly shelved after Trump took office this year. I don’t think the Trump administration wants to resuscitate anything that seems to benefit Mexico in any way.

What burns me is that there is no IRS guidance on this point. So beware! Someone can make a donation to a Mexican charity in good faith, relying on the treaty and hoping for a US tax deduction, only to get nailed for it later.

Many folks tell me things in Mexico are often not what they appear to be. This may be one of them, but the blame seems to be on the other side.

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 or Facebook: GotayTaxLawyer.