Recently, several American Sovereign Society members asked me if they must acknowledge ownership of gold or other metals stored offshore to the U.S. government.
Unfortunately, neither the IRS nor the U.S. Treasury has provided direct guidance on this subject. As a result, I generally recommend that my clients report such ownership, although there appear to be some exceptions.
First, a little background. U.S. citizens and residents have an annual obligation to report the existence of all “foreign bank, securities or ‘other’ financial accounts” if the aggregate value of those accounts exceeded US$10,000 at any time during the preceding year. Those failing to do so face a fine up to US$250,000, imprisonment up to five years, or both. (In an earlier blog entry, I described how non-U.S. persons have the same obligation if they are "in or doing business" in the United States.)
The report, which the Treasury Department cleverly calls Form TD F 90-22.1 (link here), is due by June 30 of the following year. Thus, you must file this form by June 30, 2009, if you had any reportable foreign account relationships anytime in 2008.
You have a separate obligation to disclose any "reportable" foreign accounts on Schedule B of Form 1040. Hopefully you already made that acknowledgment when you filed your 2008 tax return. If not, you should file an amended return and make the required disclosure (check "yes" on line 7a of Schedule B).
The Treasury Department and the IRS construe the term "financial account" very broadly. The definition unquestionably includes bank, securities, and other accounts that hold financial instruments. However, it does not include individual bonds or stock certificates. This is an important distinction. If you have a foreign brokerage account that contains stock, this is a foreign financial account. If you hold individual shares of the stock directly, it is not reportable.
By analogy, the same rules would presumably apply to gold or other precious metals held offshore. If you hold the metals in a safety deposit box or private vault, without opening a bank or other financial account, you don't appear to have any reporting obligation. (However, at many foreign banks, you must open an account in order to rent a safety deposit box.) On the other hand, if you purchase the metals through a foreign bank account and the bank stores the metals in its vault as part of your account holdings, the relationship would be reportable.
What if you arrange for a company to purchase gold or other metals on your behalf and that company stores those metals on your behalf in a foreign bank's vault? While nothing is certain in life, other than death and taxes, a strong case can be made that this is not a "foreign financial account" if the following conditions apply:
- The company does not itself sell the metals but only brokers purchases and sales
- The metals are held together in a designated area of the foreign bank's vault
- Each bar or coin is identified by a unique, certified number.
- The bars or coins in the vault are individually packaged and labeled so that it they are readily identifiable as your property.
- You can take physical possession of the metals at any time.
Naturally, the IRS might disagree with this analysis. And if you enter into such an arrangement, I highly recommend confirming my interpretation with your own tax advisor.
Copyright © 2008 by Mark Nestmann
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