In this post, I’ll tell you how to avoid reporting offshore gold, foreign owned real estate, and several other types of assets to the United States. The IRS has locked down most asset classes, but there are loopholes in the filing requirements.
If you’re an American living, working, or investing abroad, you’re inundated with IRS reporting demends. The US government wants to know exactly what you have and where it’s located. And some of the forms required, such as 5471 for foreign corporations with its myriad of schedules and subsections, are so complex that only an expensive CPA can prepare them for you.
Adding insult to injury, the US has turned foreign bankers in to unpaid IRS agents through Foreign Account Tax Compliance Act. This highly controversial law requires foreign banks with American clients to report each and every transaction to Uncle Sam. The high costs of compliance, and fear of running afoul of FATCA, has caused the majority of offshore banks to close their doors to Americans.
Finally, the US Justice Department has been on a marketing blitz for the last few years targeting offshore investors. They search out and imprison a few unlucky Americans with unreported offshore bank accounts each year around tax time – April and October 15. They hang these pelts on the wall and put out press releases on the capture.
This has proven to be a very profitable fear based marketing campaign. From 2009 to 2014, over 45,000 citizens have come forward voluntarily, paying $6.5 billion to the Treasury in taxes, interest and (mostly) penalties. This is a great ROI on their advertising budget.
- For more on this topic, check out my article on the IRS Offshore Voluntary Disclosure Program
Against this backdrop, it’s hard to believe reporting loopholes exist for offshore gold and offshore real estate, but they do. Here’s how to avoid reporting offshore gold, foreign owned real estate, and several other types of assets to maximize your privacy abroad.
The trick is to hold assets that don’t need to be reported in your personal name. Any and all offshore corporations, limited liability companies, foundations, or trusts must be reported to the IRS. It doesn’t matter what assets it holds, or none at all. If you have an offshore structure, you have forms to file.
When you setup an offshore structure, it’s the structure which is reported. And, because the form requires you to list all assets and transactions within the structure, your assets get reported by extension. The same goes for IRS Form 8938, Statement of Specified Foreign Financial Assets. Many asset classes are excluded from reporting, but any offshore company or structure must be shown on 8938.
I’ll get to the specifics shortly. First, let me address the asset protection issue presented.
The fact that holding assets in your name, rather than in an offshore structure, increases privacy leads to an interesting conundrum. Securing your after tax money in a corporation provides a solid layer of protection. Placing that corporation inside of an irrevocable offshore trust creates an impregnable fortress that will keep your cash and foreign assets secure for generations.
Is it preferable to keep the assets private and away from prying eyes, or is it better to build a wall around those assets, disclosures be damned?
I believe asset protection is not about hiding. It’s about building that impregnable fortress. Even if the creditor has a roadmap to your protection plan, the assets should be so well guarded that they can’t be reached.
On the other hand, I see the benefit of secrecy. Of having some assets off of the board and others behind battlements secured by archers.
Back to the point. Here are the assets which, when held in your name offshore, are not reportable to the IRS. For more information, see the IRS Q&A for Form 8938.
- Physical foreign currency (that is, cash under your mattress or in a safe deposit box, and not in a bank or brokerage account, is not reportable).
- Foreign Real Estate *
- Tangible assets for investment, such as art, antiques, jewelry, cars and other collectibles
- Precious metals for investment, such as gold and silver held by you or in your safe deposit box **
* Foreign real estate held in your name is exempted from the offshore filing requirements, such as Form 8938. If the property is a rental, then you still must report your income and expenses on your personal return using the standard form, Schedule E, which is attached to your 1040. This form asks for the address of the rental, which would tell the Service that the property is offshore. Also, different depreciation methods are used for foreign real estate on Schedule E than are used for domestic property.
** I am referring to physical gold you have possession of. Not gold certificates or gold backed securities. Only physical gold qualifies as a non-reportable asset
In addition, a safe deposit box at a foreign financial institution need not be reported on Form 8938. A safe deposit box is not a foreign asset nor a foreign account. Hold the safe deposit box, or the assets within in an offshore structure, and you need to report the structure. Have no structure, and you need not tell the IRS where your assets are.
I hope you have found this article helpful. For more information on how to buy gold offshore, form an offshore asset protection structure, or invest abroad, please contact me at email@example.com or call (619) 550-2743 for a free and confidential consultation.