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It's Time to Bare Your Soul to the U.S. Treasury

June 10, 2008
It's Time to Bare Your Soul to the U.S. Treasury
It's that time of year again where almost every American with a "foreign account" must "tell all" to the U.S. Treasury Department.

http://nestmannblog.sovereignsociety.

If you have a foreign account or accounts with an aggregate value of US$10,000 or more (NOT per account), you must file Form TD F 90.22-1 by June 30. You must also declare that you have a foreign account or accounts on Schedule B of your personal tax return. (Click here for the link to the form.)

Prosecutions for failing to report foreign accounts have risen sharply in recent years. If you "willfully" fail to file the form, or acknowledge your account(s) on Schedule B, you face a fine up to US$500,000 and a five-year prison sentence. Being convicted of manslaughter is likely to result in a shorter prison sentence then willfully failing to file the TD F form!

If you negligently fail to file the form, you're subject to a civil penalty of US$10,000. And that's for each year you fail to file the form, going back at least to 2004, when Congress imposed the civil penalty provision.

According to Treasury regulations, a "foreign account" isn't merely a foreign bank account, but numerous other types of offshore relationships. You must report a "financial interest in or signature authority, or other authority over any financial accounts, including bank, securities or other types of financial accounts in a foreign country."

For instance, if you've formed a foreign corporation, but have someone else operate its foreign account on your behalf, you still must file the TD F form, because you have a "financial interest" in the account. Also, if you have a debit card connected to a foreign account, and you can use the debit card to withdraw money from it, you clearly have "other authority" over the account.

Some IRS agents even claim that a foreign annuity or life insurance policy represents a financial account, even though there are no specific Treasury regulations in this regard. I've always recommended reporting these contracts as "foreign accounts," although plenty of advisors disagree with me. But I'd rather be safe than sorry.

What about "electronic gold" accounts? Again, there are no specific regulations saying you need to report them. But my recommendation is to disclose them as well, if only to head off an investigation by an over-zealous IRS agent.

Fortunately, a few items appear to be non-reportable:

Real estate. Direct ownership of real property (including timeshare arrangements) in a foreign country doesn't constitute a foreign account. But you're required to report income from your real estate holdings, wherever they're located.
Safekeeping arrangements. Valuables purchased outside the United States and placed directly into a non-U.S. private vault don't appear to trigger the reporting requirements.
Warehouse receipts and similar instruments. Certificates that represent ownership of a specified quantity of precious metals or other commodity, stored outside the United States, may not be reportable. A certificate should provide for "allocated" or "non-fungible" storage to qualify. This means you own specific barrels, bars, coins, etc. that are stored in your name and not available to meet other claims of the warehouse company. Commodities held in non-allocated, pooled, or fungible form may be reportable.
I realize the TD F form is a "tell all" form that you'd probably rather not file. However, my advice is to file it even in borderline situations, since the consequences of NOT filing are severe, should you get caught.

Copyright © 2008 by Mark Nestmann

Posted at 01:10 PM in Offshore Investment | Permalink | Comments (0)

By sloopskipper on Jun 23, 2008, 05:30 in Off Topic.

aztec says on Jun 23, 2008, 06:03:

I completed both forms at least four years ago. Is there any difference? (Form TD F 90.22-1 and Tax return)

0 funny, 0 helpful.

sloopskipper says on Jun 23, 2008, 06:27:

I see the URL in my post was truncated. http://nestmannblog.sovereignsociety.com/ should work, and I think there is a link in the original article to download the current version 90.22-1

But now I see the link in the article also seems to be hosed.

You can get it here:

http://www.irs.gov/pub/irs-pdf/f90221.pdf

0 funny, 0 helpful.

aztec says on Jun 23, 2008, 07:22:

Checked it out. It is exactly the same form.

0 funny, 0 helpful.

sloopskipper says on Jun 23, 2008, 08:21:

Good!

I was a little nervous as I sorta ignored the question when I filed. But I don't keep much in my Panamanian accounts, only enough for local bills.

I was relievd to see that $10,000 figure.

0 funny, 0 helpful.

goin_south says on Jun 23, 2008, 12:24:

Hell! It's time to go grow sugar cane in Brazil ;-)

Ciao! Gustav.

0 funny, 0 helpful.

sloopskipper says on Jun 24, 2008, 10:20:

I appears that one thing to remember is that, if you create a corporation and the corp. is the legal owner of real-estate, IRS says it must be reported, if foreign holdings (bank accounts corporation(s) exceed $10,000 at any time during the tax year.

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