• Any commingled interest in a fund in which you hold an equity interest. This appears to cover offshore mutual funds; however, such funds are subject to additional reporting requirements.
• Any joint authority over a foreign account. Both you and any other U.S. co-signatories must report the account.
• Any relationship whereby you have direct or indirect control over an agent or nominee that has authority over foreign account(s) in which you have a financial interest.
• A foreign account in the name of a corporation, partnership or trust in which you own more than 50% of the total value of the shares or beneficial interest or are entitled to more than 50% of the profits or current income.
If you can authorize payments in an account through your signature (or your signature and one or more other persons), you have signature authority over that account. You have “other authority” over it if you can authorize payments by direct communication to the bank or other person with whom the account is maintained (e.g., via telephone, fax or e-mail).
At first glance, these rules might seem impenetrable. And I’m sure it was the IRS’ intention to make it difficult as possible for U.S. persons to legally avoid this reporting obligation. But, buried within the legalese are some opportunities.
Why Keep Your Foreign Investments Quiet?
But first, you may be thinking, “Why bother? I’m not evading any taxes…and besides, this is my tax return, so the information in it is available only to the IRS. Right?”
Sorry…this is wrong…although it’s a very common misconception; the FBAR is not a tax return. Unlike a tax return, the information a FBAR contains is not subject to the stringent disclosure restrictions that apply to tax returns. Indeed, the information in a FBAR may be shared with any other federal agency in any “criminal, tax or regulatory investigation or proceeding.” It may also be shared with “state, local, and foreign law enforcement and regulatory personnel in the performance of their official duties.”
In fact, through FinCEN’s “Gateway” initiative, local, state and even foreign law enforcement officials have direct online access to the agency’s “Bank Secrecy Act” database (including the nearly 200,000 FBARs filed each year).
That means that if Sheriff Bubba thinks you’re driving too nice a car or doesn’t like your taste in clothing, he can log into Gateway and learn if you have an offshore bank account—or if anyone has ever considered your financial affairs to be “suspicious.” There are also numerous examples where information available through Gateway has been disclosed to the press.
In addition, FBAR filings may be disclosed during a lawsuit. This could easily occur in the context of, for example, a divorce. According to attorneys Charles M. Bruce and Lewis J. Saret:
“If the [FBAR] form has been filed, the information, one can anticipate, will be made available pursuant to a court order. If it has not been filed, but should have, the other spouse can be liable for very serious penalties. If the other spouse says that he or she has not filed the form because there are no foreign bank accounts, and the requesting spouse doubts this is true, a court presumably could order the other spouse to request a copy of any and all filings with the IRS Detroit Computing Center.”
Your “Secret” Offshore Portfolio
Have I convinced you that if you legally can do so, you might wish to hold your offshore investments in a non-reportable form?
Several types of investments appear to be legally excluded from reporting if they are purchased without opening a “bank, securities, or other financial account” or using such an account to maintain custody. They include:
1. Real estate. Direct ownership of real property (including a timeshare arrangement) in a foreign country is not a foreign account. (A foreign real estate investment fund would be reportable.) However, real estate holdings are generally a matter of public record in the jurisdiction in which they are made. And if you rent out foreign real estate, the income is generally subject to U.S. tax, and possibly foreign tax as well (although you can credit the foreign tax you pay against your U.S. tax liability on the same income).
2. Safety deposit box or private vault. Valuables or documents placed directly into a foreign safety deposit box or private vault do not appear to constitute a foreign account. To avoid having to personally visit the box each time you wish to add or remove valuables, give an attorney or other trusted intermediary a limited Power of Attorney or other legal authority necessary to perform this function.
Many foreign banks offer safe custody, where the institution maintains custody of cash, securities or precious metals. However, this arrangement usually exists in conjunction with an actual account and the bank may act upon your instructions. This constitutes a reportable account relationship.
is available through private vaults. Since private vaults are not financial
institutions, they are subject to fewer recordkeeping and disclosure requirements.
Some vaults permit anonymous safekeeping arrangements. Most honor Power
of Attorney arrangements. Two foreign private vaults I know of are:
Materials held in a safety deposit box or private vault are not ordinarily insured against theft or other loss. You can usually purchase supplemental insurance, but must disclose the existence and location of the assets to the insurer. For this reason, you may wish to purchase insurance through the auspices of the private vault itself, not your domestic insurance carrier.
3. Precious metals certificates. Precious metals purchased in certificate form and stored offshore do not appear to count toward the US$10,000 threshold for reporting foreign accounts to the U.S. government. Probably the best known and least expensive such certificate is the Perth Mint Certificate (PMC). Your metals are stored at the Perth Mint, in Perth, Australia.
Members of The Sovereign Society’s Council of Experts are two of the approved dealers for Perth Mint Certificates:
Michael Checkan is president of Asset Strategies International, Inc., in Rockville, Md. Toll-free: (800) 831-0007. Tel.: +1 (301) 881-8600. Fax: +1 (301) 881-1936. E-mail: email@example.com. Link: www.assetstrategies.com.
Dr. Erich Stoeger is Chairman of EurAxxess, AG, in. Ebmatingen, Switzerland. Toll-free: (866) 945-8799. Tel.: +(41) 1-980-4281. Fax: +(41) 1 980-4255. E-mail: firstname.lastname@example.org. Link: www.euraxxess.com.
4. Insurance policies. Foreign insurance policies appear to be exempted from reporting as “foreign accounts”. There is no mention of “insurance companies” in Treasury Regulations pertaining to the reporting requirements. Further, an insurance policy is a contract with the insurer taking on specific responsibilities in exchange for a sum of money. This would not appear to constitute an account relationship.
Would a foreign insurance contract that contains securities, such as an offshore variable annuity, constitute a reportable account? Professionals disagree on this issue, and there are no regulations issued to provide formal guidance. Where you have no direct or indirect control over the funds in the account, except for giving an investment manager an explanation of your investment goals, it would not seem that such an arrangement would require disclosure. However, where another party is acting as your agent, nominee, or attorney for your instructions, there is a greater likelihood the reporting requirements would be triggered.
U.S. persons purchasing foreign insurance contracts must make a one-time filing of IRS Form 72013 and pay a 1% excise tax, unless this tax is waived under a tax treaty (as it is with Switzerland).
Income accumulating within a U.S.-tax compliant life insurance contract or variable annuity, including one issued in a foreign country, is tax-deferred. However, there is no tax deferral on foreign single-premium annuity contracts.
of The Sovereign Society’s Council of Experts offer offshore insurance
Sola, c/o NMG International Financial Services, Ltd., Zurich, Switzerland.
Tel.: +(41) 1 266 21 41. Fax: +(41) 1 266 21 49. E-mail: email@example.com.
5. Certain securities. Stocks, bonds or other securities purchased directly from a foreign issuer, or from a bank without opening an account, do not appear to trigger the reporting requirements. Keep your securities in a safety deposit box, private vault or other secure location.
A Final Vital Precaution
I’ve reviewed the investments that I believe to be non-reportable with Sovereign Society Tax Advisor Vernon Jacobs (firstname.lastname@example.org or email@example.com; http://www.vernonjacobs.com) and legal counsel Robert Bauman. Both men believe that the information presented is accurate. However, I highly recommend that you obtain an independent assessment of whether a particular offshore investment you make is reportable or not from a qualified U.S. tax advisor.
In the meantime…best
wishes building your own private, offshore portfolio!