Simon Black (Do I Have To Report My Offshore Gold…?) asks whether custodial gold “accounts” (e.g., James Turk’s Gold Money) fall under FATCA provisions and his people think so. However, gold kept in a safety deposit box would not fall under FATCA:
What’s more, in all of those 544 pages, there is not a single mention of the words, “gold”, “silver”, or “precious metals”. So there’s still quite a bit of mystery with respect to the question, “Do I have to report my offshore gold…?”
I’m still having my team go through the rules; after an initial read, though, the language of the regulation does suggest that custodial gold institutions (like GoldMoney, etc.) should be reported. Offshore safety deposit boxes (like Das Safe) do not.
This is good news for “structuralists” like myself. In a discussion with Just Me, I learned that my suggestion of opening a few extra accounts to get one’s total over 25 (thus avoiding a detailed FBAR) could be “structuring”. Structuring is the practice of breaking up a single large transactions into multiple transactions below the reporting threshold. See what happened to this Greek American couple: My Big FAT IRS case. A US Person in Canada could withdraw funds from their FATCA covered account, until it is below $50,000, and then buy legal tender gold coins (Maple Leaf). These coins would go into safe storage–meaning it would be safe from burglers and from the snooping noses of the IRS, for such coins would not be reportable under FATCA, FBAR, or Form 8938. But almost certainly, it would be a violation of United States law for you or me to exercise our Canadian freedom to buy legal tender coins minted by the Royal Canadian Mint and legally purchased in a legitimate Canadian business, providing all kinds of jobs to Canadians. You would become a structuralist.
For those readers in Canada, I suggest that you take few seconds and take a deep breath. Breath in that Canadian air. Isn’t that good? That’s because you are breathing freedom–freedom from the tyranny of the United States.
Bear in mind also the ramifications of these legal tender coins for Form 8854. The current retail buy price of the Maple gold (1 oz of super fine gold, purity of 0.9999) is about $1650 (See Canadian PMX in the Toronto Area), but its face value under legal tender laws is $50 CDN. So let me ask the question: when reporting on Form 8854, does one report the legal tender value or the intrinsic value of legal tender coins? If you had ten million US quarters, you would have to report their face value on Form 8854 (US $2.5 million). It would be illegal to report only the intrinsic value of the coins (ca. $500,000). This is because the US quarter is a legal tender coin and its reportable value is what is marked on the coin. So therefore, if you have 6,000 Gold Maple Leaf coins, you would be required to report CDN $300,000 on Form 8854. Accuse me of being a structuralist vis-a-vis United States law. Just do it! But I am obeying the laws of Canada where I live.
There are some people who say that gold is not a good investment, such as the crony capitalist extraordinaire Warren Buffet. Others point to the gold chart and say that this is why gold is a bad investment. Well, I admit that that argument is slightly counter-intuitive.
I think you’ll find that having any precious metals in physical form in a designated (i.e. yours) safety deposit box is unreportable, but the minute it becomes fungible and certificated (i.e. you don’t own a particular bit of metal, just have a receipt of some kind that may be redeemed for metal from some big pile in the bank) it will be a FATCA reportable asset.
*This appears to be an example of one way legal loopholes end up in US tax regulations.
@p33t, that’s exactly what Black means by a custodial account like Gold Money.
@Roger, loophole or not, the Canadian has the right on Form 8854, whose taxes are not even collectable in the US in any case, to report what is legal tender in Canada. Even a law in the United States saying that one can’t do that would make nary a difference.
A Canadian would never have to pay the exit tax provided that all his assets are in Canada. Why, because the CRA will not collect for the IRS against a Canadian citizen.
*@Petros, I agree totally. This is just an example of how extraterritorial legislation enacted by the US Congress with regulations written by the IRS to implement it displays their ignorance about how the rest of the world functions.
The interesting parargraph in Black’s article comes at the end when he states that his sources tell him the banks outside the US are now welcoming USP’s again but he makes no mention of privacy waivers or the fact that these banks are basically being expected to root their client bases and turn over anyone they suspect that the US would suspect of having US tax obligations, which I found a bit disingenuous.
But why are loopholes, which wouldn’t apply to the average expat anyway, a surprise? The US taxcode is complicated and riddled with loopholes for the exact reason of accommodating wealthy people who can afford to have their taxes done for them.
I don’t know if I fully understand what one is trying to achieve here. If you are someone who is thinking of expatriating and your assets are somewhere close to the limit ($2 million?) then you buy physical gold and then report the face value of the coins in this expatriation form to the IRS? Thus falling below the limit to file and pay U.S. taxes for years after expatriating? Is that the idea?
*a, as reported two days ago, the US competence centre for private bank Coutts, understands that more financial institutions will likely be rejecting US clients:
Mooley, this is just an example of how the wealthy legally avoid paying more tax than the average person, who has neither the reserves or the expertise on their side to do the same.
Swiss, exactly. Black is not referring to the average middle class expat. He has some interesting info, and sometimes valuable commentary to share, but he is a businessman first and his blog is about his business. Banks might be motivated to take on the high end USP client but small fry? Doubtful.
*Some Swiss banks, so I understand, are setting up FATCA-compliant subsidiaries specifically for US persons. They have, so I am tola, a minimum balance requirement of US $1 million and a monthly service fee of US$1,000.
@Mooley, well if it must be spelled out, then you have the basic idea of my structuring proposal.
@a, Please note that having “assets” over 2 million is not that hard and it doesn’t presuppose that you are wealthy. Suppose you are a middle class widow or widower who has lived in the same house in Vancouver or Calgary for the last 45-50 years. Now your house alone could put you well over a million dollars–now count RRSPs, TFSA, and other financial assets, and you could be over 2 million. This is not a wealthy person–this is a person who has a major asset that inflation and the housing bubble has appreciated–house rich, cash poor–because once you pay the tax on the RRSP, let’s say at an average rate of 30%, then there is precious little left for you to live out the rest of your retirement, when you consider that you may need extended care and may be you would rather leave some of the money to your children or to charity than give it to the United States in the form of an exit tax.
So let’s not call the retired person who now may have as much as 25-40 years left to live on $2 million + wealthy, ok?
It’s certainly comparing apples and oranges, depending on where one lives. And, don’t forget those defined benefit pensions at Present Value.:
Petros, point taken. Though I wasn’t really talking about the kind of wealth that is basically dependent on having to sell a house or liquidate a retirement fund. I don’t think that is who Black blogs for and I don’t think that he would consider that being “rich”. I know that I don’t. A house is only a viable asset if you can sell it. Houses can gain value over time but they can do the opposite too if a market goes soft or worse, bust. And as Roger’s comment highlights, banks aren’t going to be too interested in folks whose assets are not a bit more liquid.
http://www.businessweek.com/articles/2013-01-23/missing-114-billion-from-u-dot-s-dot-banks
Withdrawn: 114 Billion From Big U.S. Banks
Now that’s an interesting title. The reasons for the largest one-week withdrawal since 9/11 came fast and furious:
1. expiration of the TAG — no need to know what that is, it was discounted as as reason anyway
2. start of the year “noise” — that darn first quarter is always “wacky” and now we have fiscal cliff drama, increased payroll tax … whatever
3. ordinary investors may just be seeking change they can count on (or not) — this might be a case of market exuberance, money drifting from boring deposits to exciting gambling chips
4. “the law of elasticity is finally catching up with deposits” — but don’t put too much stock in this reason either
5. “one week is just a very thin slice” — which just means they want to see a bigger slice before they will concede that 114 billion is significant but they will be keeping an eye on the situation
If the Bloomberg would ask a Brocker, the Brocker might also suggest that the money has gone bye-bye back to the country of its origin because the big mean FATCA bully is in the hood and some foreigners have decided to keep their stash closer to home.
@a, the banks may not be interested in those illiquid assets as they are not reportable under FATCA. But the Form 8854 requires a person to report on total net worth. The house-rich retiree, then has a dilemma because most of that is capital gains and the $600,000 exemption would be eaten up quickly.
So if you are going to renounce, and you would be a covered expatriate, then you must restructure your affairs such that you are not covered. This is what I did by renouncing well before I ever reached the $2 million net worth stage. With the spectre of hyperinflation looming, many of us could be covered in a matter weeks.
You are right about Simon Black; he writes for middle of the road wealth. People living in the United States wealthy enough to consider expatriating as matter of wealth preservation don’t have to be super wealthy, but they are often small business owners; if I were to hazard a guess, they would probably have assets exceeding $1 million. These are people wealthy enough to become a victim of the tax system too poor to afford the tax lawyers and accounts to create systems whereby they protect themselves–and obviously not crony capitalists like Buffet who profit from the system.
@ Petros Thanks
Regarding whether or not $2 Million makes you rich: Here in Switzerland the U.S. $ was once worth 1.75 Swiss Francs (less than 10 years ago). It’s now worth 0.90 Swiss cents. A single family house in a major city costs 1 Million Swiss Francs. Add to that a Swiss company pension, etc.and you can get there really fast. *
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@Mooley:
Due to the remote possibility that I could become a covered expatriate, I have explored ways to restructure my finances before relinquishment. These are some thoughts:
1) US IRA: I would plan to convert my conventional IRA to a Roth IRA, incurring the tax bill immediately and reducing my US IRA assets by the tax due amount.
– This should be palatable since the expatriating taxpayer will have to pay the same amount in taxes as a result of the expatriation.
2) Swiss Säule 2/3: Same concept as US IRA. Cash out Swiss Säule 2/3 pension accounts paying taxes due on them. Again, the idea is to declare the Swiss (and US IRA) pension amounts post-tax for Form 8854 purposes.
– Since Säule 2/3 funds can normally be used to buy a primary residence, pay down a mortgage on a primary residence, fund a new business, etc., it might be possible to put these post-tax funds to use, depending on a person’s circumstances.
3) Swiss tax prepayment: Pay any taxes due for the current year prior to relinquishment/ renunciation date, reducing the declarable assets by the taxes paid.
4) Family gifts: give family members the annual maximum of $13k each to reduce assets.
5) Annuity: An attorney claimed in an article that the value of certain kinds of annuities would not have to be declared on Form 8854 since they would be owned by the insurance company. I located this article with google some weeks ago but unfortunately did not bookmark it. At any rate, I would get a second or third opinion before acting.
I found the discussion on valuing gold coins at their legal tender amount to be intriguing. I understand Sfr 10/ 20 gold Vrenelis are still legal tender and the case could be made for valuing them at face amount. As you know, pre-1968 silver coins are still in circulation at their face value although their silver content value is around double the face amount.
*I can’t help but wonder if what kind of a box you might find yourself in if you were to use the difference between your acquisition cost and face value of gld coins to justify a capital loss in determining the market value of your financial assets for exit tax purposes. Does anybody have any thougts on this aspectof determining the value of gold coins? The loss on a substantial amount in gold coins could offset the capital gain on a lot of other things and make the exit tax zero.
@Mooley/ Roger:
My point on the valuation of legal tender coins is as follows:
If I take one Sfr 20 Vreneli, a Swiss gold coin that was produced until 1949 and is still considered to be legal tender, to the corner store for a carton of beer for Sfr 11, the clerk is legally obliged to accept this coin as legal tender and give me Sfr 9 back also in legal tender. (The clerk will then promptly remove the Sfr 20 Vreneli from the till and replace it with a Sfr 20 note in her purse since the coin’s gold content is worth around Sfr 300). Although these coins are still legal tender, they are horded and they do not circulate for payment purposes.
For guidance on the definition of a monetary instrument, which would allow face amount valuation, I consulted the US Customs and Border Protection website which has the following statement about importing gold and gold coins:
“There is no duty on gold coins, medals or bullion but these items must be declared to a Customs and Border Protection (CBP) Officer. … This includes currency, ie. gold coins,
valued over $10,000. The FINCEN definition of currency: The coin and
paper money of the United States or any other country that is (1) designated as legal tender and that (2) circulates and (3) is customarily accepted as a medium of exchange in the country of issuance.
If you have doubt whether your gold/gold coin is considered a monetary instrument it is in your best interest to declare the item(s) with a CBP Officer, so you do not give a false declaration.”
My opinion: to the extent that the IRS uses the same or a similar definition as US Customs for a monetary instrument/ currency, the claim that the Vreneli gold coin could be valued at its face value for Form 8854 purposes does not likely hold water since it does not meet the definition of a monetary instrument, i.e., it does not circulate, allowing valuation at face value. It would therefore have to be valued at its market value.
@Innocente, well, we have a definition of currency from FinCen. Thanks for digging that up. That is for making a declaration at a border where they may search you and find your maples on you. Well, nowhere on Form 8854 is there indication that your possessions may be searched and seized if you make a “mistake” about what is currency. Thus, you can make the declaration on the Form 8854 and then you have reasonable cause afterwards in the remote possibility that they would search your safety deposit box in Canada. I’m of the opinion that that violation of one’s rights won’t happen until the United States invades Canada.
If the Nazis come to the door and they ask you if you have Jews in your attic, do you say, “Yes, here they are?” Or do you tell them no to avoid a crime from being committed? The Canadian filling out Form 8854 must do so in a way that avoids a crime from being committed: the crime is the atrocity of the United States trying to tax a person who earned their wealth in Canada. It is a crime against the person and the sovereignty of Canada.
Your conversion of your IRA is good idea. Some Canadians who have retained earnings in their businesses and RRSPs could likewise take withdrawals until they have paid enough taxes to bring their net worth under $2 million.
@Petros:
Thanks for challenging my comment. In retrospect, instead of offering an opinion, which might not be applicable, I would suggest that anyone looking at this approach to reduce assets consider a methodology, such as:
1) Determine IRS definition of monetary assets/ currency
2) Review for any relevant court cases for monetary asset/ currency definition
3) If no IRS definition or relevant court cases, find other relevant USG definitions of monetary assets/ currency. Use the one most applicable to your case.
4) If no relevant definitions located, develop a reasonable definition
5) Determine whether legal tender gold coins can be valued at face amount or market value for Form 8854 purposes
Changing pre-tax assets to post-tax: even though the taxpayer is granted an indexed $600k no-tax capital gain allowance, to avoid going over the $2 million asset limitation and becoming a “covered expatriate”, it might be beneficial to sell some of pre-tax assets and pay the taxes prior to expatriation, reducing the taxpayer’s total assets in the process. There are various kinds of pre-tax assets where this technique could be used, e.g., financial securities with capital gains, business assets, etc.
@Innocente, I’d like to ask another question:
(6) If I convert some of my wealth into legal tender gold coins or even ingots or bars, which I put in a safe place, the contents of which will never fall into the scrutiny of the FATCA rules, and that safe place is also outside the United States–i.e., in Canada, Switzerland, etc.–what are the chances that the United States government is going to find out about it?
Again, I stress that it is never wrong to refuse to answer a question honestly, when the question itself is an inappropriately violating the expat’s basic human right–the right to change one’s nationality. When dealing with extortion, one must act with guile and deflect the attention of the thief with adeptness.
I’m confused again – why are you talking about face value of coins? If you have a huge wad of cash it is not reportable to the IRS is it? they want to know about financial accounts with financial institutions. On the personal side if you have a collection of anything that is not registered anywhere why would you fel obliged to report it to anyone? 8938 talks about specified foreign assets and FBAR talks about financial accounts – gold or any other ‘valuable’ falls into neither camp. You could buy tons of gold jewellery or stamps worth millions and not have to mention them under either regulation.
I see you are talking about the expatriations forms which are different I guess, however given that you probably reside outside the US and said assets are also in your possession I still don’t understand why you are worrying about them?
*p33t
Clearly the coins are not bank a acounts for FBAR repeorting purposes, but might they not be assets that have to be valued for Exit Tax threshold and determining the amount of that tax if you renounce US citizenship?