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An important ruling on foreign financial accounts

March 1, 2011
Tulum, Mexico

Last night my partner and I held our monthly subscribers-only teleconference for premium members, and one of the hot topics was the ambiguous nature of laws.

Everywhere in the world, laws are riddled with errors, discrepancies, omissions, and double think. Often these ambiguities are intentional– a result of political bargaining or lobbying to maintain a back-door loophole that only affects a small percentage of the population.

More often than not, though, the ambiguities are unintentional, derived from the haste and incompetence of lawmakers. Whatever the reason, there are some rules that are so opaque that legal volumes are filled with case studies and court interpretations.

US tax code and offshore regulations are great examples.  Current law requires US taxpayers to report ownership interest and signature authority over foreign financial accounts (“FFAs”) if the total value of those FFAs exceeds $10,000.

Seems clear, right? Wrong. There has been a lot of debate over the last few years about what specifically constitutes an FFA. This is an important distinction since, as you could imagine, the IRS can impose nasty penalties for not reporting.

Central to this issue are firms like GoldMoney which store precious metals on behalf of customers in exchange for fees or high purchase premiums. Do these constitute FFAs? It’s been unclear for quite some time.

On one hand, individuals who purchase precious metals through gold money are effectively making an investment, and the underlying asset is being held by a custodian overseas. This is similar to buying commodities or shares through a Swiss broker, a case which clearly meets the existing definition of an FFA.

On the other hand, since gold does not meet the standards of a monetary instrument as defined by the US government, paying a firm like GoldMoney to hold personal assets offshore is no different than paying fees to an overseas storage facility to stash your antique collection or extra bedroom set.

Well, the Financial Crimes Enforcement Division of the IRS has just issued a new interpretation of the regulations. Bottom line: GoldMoney counts. If another human being or firm takes charge of your gold and holds it in custody, this constitutes an FFA and triggers reporting requirements.

Bear in mind, the reporting requirements are simple: you tick a box on Schedule B of your 1040 when you file your taxes, and you fill out a separate form TDF 90-22.1 by June 30th annually which provides details on your FFAs for the previous year.

This recent ruling will apply retroactively to 2010, so if you had a GoldMoney account in 2010, you’ll need to fill out the forms this year.

It appears from this ruling that offshore safety deposit boxes that you control do not constitute FFAs, i.e. if you hold gold in a private vault in Switzerland, and that gold is technically controlled by you because you keep the key and vault code, this would not be an FFA.

Again, though, this issue is left a bit unclear. Go figure, when the bureaucrats try to clear up the regulatory ambiguities, they still leave plenty of holes.

On that note, I also find it ironic that the Financial Crimes Enforcement Network is the body that issued this ruling. It certainly begs the question what holding gold overseas has to do with financial crimes…

Sure, they always use drug trafficking, terror financing, and money laundering as an excuse for everything these days, but I think it’s an important indication that Uncle Sam is viewing anyone who doesn’t swallow their fiat lies hook, line, and sinker with a suspicious eye.

In any event, it’s good that there’s at least some clarity on the issue. Some people worry that having to disclose their financial details to the government means that their money isn’t safe, even overseas. They think that their home government will still be able to confiscate it if they file the reports.

I disagree with that logic. If you keep your money and your assets in your home country, there are armies of bureaucrats at the state/provincial and federal level who can freeze you out of your own accounts and confiscate assets whenever they want.

If your money is offshore, outside of their jurisdiction, they don’t have the authority. Anyone who will want to go after your offshore assets will have a series of insurmountable obstacles in front of them that span diplomatic, procedural, legal, and regulatory challenges.

In most cases, it’s just not worth it.

Let me put it to you this way… if a thief really, truly wanted to steal your car, s/he would be able to do it, right? So does this mean that you should never lock your car, hide valuables from plain sight, engage a car alarm, and use other security tools? Of course not.

Make it a bit more difficult for them, and the felons will move on to the easier targets.

In the meantime, all it takes for peace of mind is a few annual disclosures, and I have no doubt that it’s well worth it.

Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.

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About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

Comments on this entry are closed.

  • DJ

    I hold silver, not gold, in my goldmoney.com account. Does that make a difference? Thanks!

    • Diogenes


    • Cogitator

      The law says, “money, credit, securities, or gold.” So silver, platinum, and palladium would not be subject to reporting.

  • Diogenes

    Having Gold in an overseas safety deposit box is kind of like having a high concrete wall with razor wire and guards around your house to stop burglars. The wall makes it so much more difficult for the burglars to get through, that they basically don’t stand a chance unless they somehow get their hands on a tank. Getting a tank is expensive and probably makes it a not worthwhile expense for robbing your house.

    There are a broad spectrum of potential burglars: national governments,state governments,local governments, business associates, former spouses, business associates,etc,etc. Keeping all your Gold in the country of your citizenship and living base means being fully vulnerable to all of them. As of this moment, keeping Gold in a safe deposit box overseas means being vulnerable to nothing but a capital gains tax if you sell the Gold, and even then you don’t have to reveal the location of none sold Gold.

    Only one of the potential burglars has any chance to be able to obtain the ‘tank’ necessary to grab your overseas Gold, but hasn’t yet used that option. The way I see it, the recent ruling shows both a positive and a negative message. The first negative is that by asserting that Gold money must be reported, another Potential freedom at least has been decisively taken away. The second negative is that governments often take away freedoms step by step, thus implying the next penny to drop could be the requirement to disclose all overseas Gold. The positive is that they didn’t simply require all overseas Gold of every type to be reported right off the bat.

    The fact that they didn’t means that they don’t yet believe they have enough power to get away with that in a single announcement, and instead will probably try to do it step by step. If the dollar collapses fast enough and enough businesses and citizens start doing transactions and savings in Gold, the next step of the reporting of all property everywhere in the world might be delayed at least by popular opposition.

    However, even if the next step is implemented, having Gold overseas and a second passport are still pretty much mandatory freedom safety steps. First, the biggest burglar is not the only burglar, and no matter who grabs ones money, the money is still gone. Second, having Gold overseas puts your money outside of the US and thus able to invest and live outside the US even after domestic US Capital controls are implemented. Third, by having Gold overseas now, one at least will Have the Choice at a future date to potentially give up citizenship in response to flat out property confiscations. To many that idea will sound pretty strange right now, but I assure you it won’t at all within just a couple years. At minimum It’s better to at least have the ability to make a future potential choice than no choice making ability at all.

  • Bill Massey

    Yes, like a security specialist told me about 30 years ago … “Bill, locks keep honest people, honest, and you should use them.”

  • Lieglord

    Simon, you wrote, “If your money is offshore, outside of their jurisdiction, they don’t have the authority. ” I think it may be important to note that the U.S. does get some authority when such overseas nation has a tax treaty with the U.S. In my opinion it is prudent to do any offshore structuring in a NON-TAX TREATY NATION

  • Diogenes

    Also wanted to add-the situation of citizens fleeing a country that has become rapacious and taking their Gold with them has happened many times in history. Russia and the USSR for the past 100 years, Vietnam during and after the war, Germany before ww2 and countless other times. In fact, keeping ones savings in Gold and fleeing rapacious countries is an option that pretty much everyone in the world is aware of except Americans.

    We have a much bigger advantage than Germans of the 1930’s and Vietnamese of the 70’s in cheap air travel, overseas safety deposit boxes, the internet and the Sovereign Man premium information and networking service. Americans think the US is exempt from the laws of economics, and that a fall from imperial hubris that has happened like clockwork in history to other empires absolutely can not happen to them. They are wrong, it’s just that simple.

    Preparing now might even save you from being forced to submit to the new TSA DNA gathering and analysis machine.

  • goldbug

    Give ’em time -and the gold in a safety deposit box will magically become a “financial account.” After that, the gold under your mattress will have to be disclosed…after all, there is a “custodian” sleeping on top of it…

  • Maldek

    Simon you clearly have been living with regulations like this for a very long time. Dont underestimate them – if there is a wish of knowing there is also a wish of taking.

    Reading your email gave me some thought. I am not an US citizen but still regulations like these are so outrageous that even their simple existance would rule out the US as a country of residence for me.

    Who on earth gave these bureaucrats the RIGHT to demand such information from EVERY citizen? Treated like a criminal?
    What the hell is going on with these people!? Who on earth they think they are?

    If ANY goverment on this planet would try to impose rules like these – no place would be too far to run. Seriously the IRS (and others) are a bunch of thiefs who take way too many rights into their own hands.

    As I understand the american constitution, it gives its citizen the right to own and carry arms for the event that the goverment claims rights it simply is not supposed to have.

    The TSA treatment on airports is not enough?
    Reporting the seize of your financial underwear is not enough?
    Rampart devaluation of the U$ to fund socialist policies is not enough?

    Where are you people drawing the line?

    As long as the IRS and the FED are allowed to exist, there will never be true freedom in the united states.

    If you can not change the facts, you can at least get the hell out of there.

    All the best,

  • Peter Larson

    What about the Perth Mint Certificate program Simon? Can you get an absolutely sure ruling on what the allocated and the unallocated holdings constitute? Are they a foreign financial account? Some people have said the unallocated certificate is for a pooled account and thus a financial account and the allocated certificate backed holding is not. I have a friend who is quite worried about this since the person who sold the Perth Mint Certificate idea to him suggested the unallocated certificate program would not have to be declared. If he declares it now after having had it for many years now, they might charge him with a crime since they would say they always deemed it to be a financial account whereas the buyer thought it was not. It seems that this person is in a damned if you do and damned if you do not situation. What should this person do? Keep it a secret or declare it and risk getting nailed?

    • Diogenes

      Imo it’s plain as day that ‘pooled’ accounts involve a third party and are thus required to be reported. Keeping it ‘secret’ would definitely be a huge mistake. What your friend needs to do as is always the case is talk to a good lawyer.

  • mike

    I hold silver, not gold, in my goldmoney.com account. Does that need to be reported to the IRS? Or is it only gold over 10k right now? Thanks!

  • P H

    I am just learning about all this.

    So I have gold or silver in an offshore holding situation. If things REALLY go to hell in the US and I am still here, how do I know I will actually be able to access it?

    Say that martial law was imposed after the dollar crashes and the chaos breaks out. How would I hope to get my my gold or silver?

    All this sounds very nice unless the worst case scenario really happens.

  • Cogitator

    The IRS ruling says, “money, credit, securities, or gold.” So a GoldMoney account denominated in gold must be reported, but not one in silver, platinum or palladium. By changing the metal one would seem to avoid the reporting requirement.

    • TC

      I like your logic and workaround with silver and palladium. Are you completely 100% sure on the exclusion of silver and palladium (it only applies to gold only), though?

      • Cogitator

        I quoted what the law says, and since it specifically mentions gold, and does not mention silver, platinum, and palladium, I think the only logical conclusion one can draw is that only gold requires reporting, and the others do not. I am not a lawyer, but I’m just reading the law, and making my statements from what it says.

    • Diogenes

      The regulators almost certainly wrote ‘gold’ instead of ‘precious metals’ out of pure ignorance. Despite that, since any goldmoney metal can be exchanged at any time for other metals or currencies, and it can also be used as an e-currency, that makes it a type of foreign currency checking account-since you can literally write a type of electronic check against it or transfer metal to cash conversions from it into dollar bank accounts.

      The US government has made it a point to vigorously prosecute any US citizens who attempt to run a precious metals bank or transaction company, so not reporting any goldmoney accounts is Guaranteed to be a big mistake.

      btw-there is an additional reporting requirement for 2011 for any electronic transaction system that involves both 200 transactions and more than $20k. So if you have more than 200 goldmoney transactions and a + $20k balance, you will have to report it on 2 different forms. It took a couple years of hearings to work out the details of that, and surprise, surprise the government pushed for it to be as expansive as possible. Your far safer assuming any reporting requirements are Broader, not narrower. Total property reporting is clearly their goal and they intend to pursue it.

      Is that fair? Of course not, and it’s also a reality backed by jail for US citizens.

  • Chris

    Yet another reason I believe that physical outside of your country of residency and or citizenship is a must.

  • Dave

    As the govt continues to merge their data from the DMV, FBI, banks and the IRS, they’ll be able to create a complete profile of each citizen. Now, if you declared your offshore assets to the IRS, what is to stop a corrupt official from framing you and then working with a judge to force you to repatriate those assets? Sure, maybe the govt can’t force another jurisdiction to hand over your assets, but they probably won’t have to either because the people demanding those assets may have the power to put you in jail or ruin your life in other ways.

  • joe_bob_gonzales

    regarding Homeland InSecurity and FUD. dont mean Elmer.

    I was in Sales for 27 years before retiring. and a regulatory analyst with the old ATT (pre breakup) before entering sales. more money, less corporate bullshit.

    worked for intl companies in software, high tech consulting, and electronic legal publishing. sold to lawyers and C level types in silicon valley, government, and finance (brokers/mortgage banker types)

    I have to tell you that even with really smart people like this, FUD worked as a sales tool.

    Fear, Uncertainty, and Doubt.

    after I retired, and had time to read for fun and general education, I came across a concept called the Hegelian Dialectic. (ts not new stuff, but my focus had been elsewhere…what can I say.)

    that is, Synthesis, AntiThesis, and Synthesis.

    I then realized that governments have been using this crap to control populations forever.

    1. create a bogey man (say, Al Queada and osama bin laden (who it is generally agreed in other countries, died several years ago),

    2. then show the evil this bogeyman can do. although how a dead man can issue new threat tapes when required to keep the game going is an interesting concept.

    3. and then say……hey, give me money and more power and I will Protect you. (from a bogeyman they created in the first place.).

    2 perfect examples of this:

    1. the Reichstag fire…..set by Nazis and which brought Hitler into power. legitimately.

    2. 9/11. need I say more? and so the solution is: You have to give up your freedoms in order to protect you from people who hate your freedoms.

    what the fuck? and the public bought this crap? I shake my head in sorrow every day

  • Watauga

    Do you need to report overseas holdings even if you don’t file taxes? If so, how?

  • Jpyke

    Can anyone give me the exact web location of the IRS clarification of the reporting requirements for FFA’s mentioned in this article? I can find no mention of it in any of the Enforcement Division rulings.

  • Robert

    “I disagree with that logic. If you keep your money and your assets in
    your home country, there are armies of bureaucrats at the
    state/provincial and federal level who can freeze you out of your own
    accounts and confiscate assets whenever they want.If your money
    is offshore, outside of their jurisdiction, they don’t have the
    authority. Anyone who will want to go after your offshore assets will
    have a series of insurmountable obstacles in front of them that span
    diplomatic, procedural, legal, and regulatory challenges.”

    Not true. Once they know you have assets outside their jurisdiction they can levy a tax on you.  While technically they can’t reach those overseas assets they don’t need to if they can reach your person.

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