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I am considering setting up an individual (taxable) brokerage account in Mexico to buy some equities on the mexican exchange and also purchase a peso denominated CD possibly, however I am concerned about the tax treatment and accounting issues:

1. The application does not require a SSN or Tax ID so obviously I don't think they report anything to the IRS.

Correct. That means you'll have to be vigilant with your recordkeeping.

2. Are capital gains , dividends, and interest income all treated the same as a regular domestic account ?

Yes. US citizens are taxed on their worldwide income. If you pay Mexican income tax there's the US foreign tax credit. Now's a good time to mention that you should check to see if there are any treaty provisions which alter things.

3. I normally use Turbo tax so if these sources of income need to be reported differently or with additional paperwork, will the turbo tax package accomodate this ?

No problem. You will have to do the conversion to $US.

4. They charge quite a few fees that are not customary in the US such as application fee, fee to setup account ect. Can these be added to my return as investment expenses ?

Yes. Schedule A miscellaneous itemized deductions.

5. Last and most importantly, statisically am I more likely to be audited if I have a foreign brokerage account ?

Beats me.

I plan on spending 12mo abroad in 2006 so an IRS audit would be especially unpleasant under the circumstances.

Hey, it's the Internal Revenue Service! They do onsite audits of US citizens all over the world.

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