Many people who expatriate abroad (or at least expatriate their precious metals to a safer overseas location) leave with some nagging concerns. One of the chief of these has to do with their gold and other tangible valuables that they take with them and store overseas as part of their move or efforts to get their valuables out of the United States. It really is important for you to know how the Internal Revenue Service will treat your gold holdings that you keep outside of the U.S. and its territory. This matters hugely when you consider that all foreign bank accounts must be reported to the IRS every year on income tax filings and forms.
But what about gold, silver, platinum, and palladium? Will you be required to report these precious metals holdings to the American tax man? The good news (which is actually quite surprising) is a qualified no. No because gold which you directly hold does not have a reportable requirement on the FBAR or Form 8938 of the IRS (The FBAR is the dreaded Report of Foreign Bank and Financial Accounts which the IRS requires of its poor subjects living abroad even when they are no longer U.S. based residents.)
Yet it is a qualified no because when you choose to sell the gold or other precious metals, you now have what amounts to an IRS reportable transaction. This means that in effect you are not required to report your gold holdings to the grasping IRS in the majority of overseas holding cases.
If this sounds confusing, it is probably because it really is. We are now on the slippery slope of semantics and definitions here.The definition of “directly holding gold” in and of itself is not so simple as you might think. You are holding your gold directly if you physically own gold bullion coins, bars, ingots, or rounds and then inventory them in a secured vault. To the IRS, it is irrelevant whether or not you choose to vault these valuable precious metals within the United States or actually in a more secure offshore jurisdiction such as Dubai, the Cayman Islands, or Singapore.
Yet you still must be careful with this definition of “direct gold holdings.” To the IRS, you do not own it directly if your form of possessing the precious metals is via gold or silver mining stocks in the stock market, gold certificates, or gold or silver futures contracts on a commodities exchange. What they are saying in other words is that only by holding physical gold which you personally enjoy direct unhindered access to will it be considered an asset that is entirely your own private affair. If you are unclear on the nuances of this, it is a highly recommended idea to visit the IRS website directly to get any questions that you still have on this subject answered.
The Rules on Self Directed IRAs and the Precious Metals
It is also worth knowing that even your Self Directed IRA is allowed to hold gold and the other major precious metals these days. What is more surprising still is that now these precious metals holdings can also be inventoried within a foreign-based secure vault facility. This can be done in part by establishing an offshore IRA LLC which will help you to maintain such a tangible asset according to the IRS’ stringent guidelines.
Yet even this is not so straight forward as it initially seems. Your administrator of the account will be required to report any and all appreciation within the Gold IRA account. The good news is that at least you will not have to file either the FBAR or IRS Form 8938 every year.
By the way, this reasoning is also the case for any types of other physical assets which you acquire for investment purposes. Physical or tangible assets refer to any antiques, art, jewelry, collectibles, and classic cars. When you maintain such assets outside of the territory of the United States, then you do not have to report them on either your FBAR or the Form 8938 from the IRS. For Self Directed IRA account purposes, this is irrelevant, since such retirement accounts are not permitted to hold any jewelry, antiques, art, collectibles, or classic cars in any case.
The Rules on Foreign Safe Deposit Boxes
You might also be personally curious about the rules on foreign safe deposit boxes vaulted in foreign banks. The good news is that you are not required to report such safe deposit box holdings in foreign banks and even their actual existence. You would have to make the IRS aware of any foreign bank accounts however. Note the important distinction between the two different assets. Safe deposit boxes are not foreign bank accounts which means that such forms do not cover them in any event. Should your safe deposit box only contain such items as jewelry and gold, you will have nothing to report.
Selling Gold Overseas Is Also Complicated Tax Wise
Now to the other key part of the tricky question, what are you obligated to report when you finally sell your foreign-held gold and other precious metals, presumably overseas? This also depends on who you sell them to in the end. Should you sell off your tangible valuables such as gold holdings to a foreigner, then this represents a foreign sales contract, and it is a reportable asset according to the IRS. The Internal Revenue Service puts it this way on their website:
“The contract with the foreign person to sell assets held for investment is a specified foreign financial investment asset that you have to report on 8938, if the total value of all your specified foreign financial assets is greater than the reporting threshold that applies to you.”
What in the world does this mean? It simply states that should you sell off your gold holdings or other collectible assets to a foreign resident who is a United States’ person, then you will not incur a reportable transaction in the sale itself. However, should you sell the identical assets to a foreign resident who qualifies as a foreign person, matters are quite different.
Here is yet another opaque consideration for you. Assuming that the total value is a significant one, then you will have to report said foreign transaction to the IRS on their Form 8938. It means that you should choose your physical asset buyers with great care and even do some background screening before concluding any financial transactions with physical assets. Otherwise you will complicate your financial life while overseas needlessly.
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