QUESTION: Is it safe to say that with the recent HIRE Act, and other pending
legislation, including a revised FBAR form,  there is no legitimate way a
US Citizen can hold any asset offshore without reporting requirements
to the IRS? It use to be foreign insurance products, physical metals, safe
deposit boxes, real estate, etc., were all exempt from reporting
requirements, but now, or soon, they will all be subject to reporting in
the USA.  Is there any financial product or investment that still can be held
off-
shore that would be exempt from USA reporting?

REPLY:  The only information currently available is Tax code section 6038D that
was introduced by the Health Care Act in March, 2010. Apparently, the content of
the 2010 tax law is not yet included in any online copies of the tax code so I
can't give you a link to the exact wording of that law.

Briefly, that new code section requires taxpayers to file a report with their
income tax return to disclose an interest in any foreign financial ASSETS (FFA)
with an aggregate value of more than $50,000. The interpretation of the new law
will be subject to the discretion of the IRS. They have issued a draft of a form
(8938) to be used to report FFAs but have not yet issued any instructions or
interpretations of the law. The law states that it is effective beginning after
the effective date of the HIRE Act -- which is March 18, 2010. It is no yet
clear if that will apply to all reportable assets held after the date of
enactment or whether it will apply to  tax years beginning after 2010.

It seems to me it's somewhat premature to say there is "no legitimate way a US
citizen can hold any assets offshore". But the new disclosure form will
certainly make it seem that way and there will be few exceptions. Also, I doubt
if the IRS would agree with all of your claims about reporting exceptions under
the current law.

The new law refers to the disclosure of stock or securities, financial
instruments or contracts and "any interest in a foreign entity." I expect the
IRS will define an interest in a foreign entity to include any ownership of (or
beneficial interest in) a foreign corporation, IBC, partnership, LLC, foundation
or trust. Since it is rarely practical or legal to own tangible assets directly,
assets like land will be owned by an entity and the entity will have to be
disclosed. Annuities and life insurance will probably be reportable under the
category of financial instruments or contracts. A financial contract would most
likely include any asset such as a gold certificate.

Based on the wording of the new law, precious metals held in your own name might
not have to be reported, but I suspect the IRS will define financial assets to
include gold and silver and possibly other precious metals. It is possible that
collectibles might not have to be reported. Also, FiNCEN is expected to issue
new regulations on the FBAR form in the near future and I'm confident those
regulations will specifically mention gold, annuities and life insurance.

Here are links to some additional information about this new tax code section.

http://ezinearticles.com/?HIRE-Foreign-Account-Tax-Compliance---Foreign-Financia\
l-Assets&id=4478835

http://www.taxattorneycalifornia.net/new-reproting-for-foreign-assets-under-irc-\
%C2%A76038d/

Vern
As required by U.S. Treasury Regulations governing tax practitioners, any
written tax advice contained herein cannot be used by any taxpayer for the
purpose of avoiding certain tax penalties that may be imposed under the Internal
Revenue Code. For further details see
http://www.offshorepress.com/vkjcpa/disclosurerules.htm

Here's a comment received from a group member regarding the memo a few days ago
about how the IRS is alleged to be targeting U.S. citizens who are living
offshore. (Vern)

"In France, as of year end 2010,  the local banks are now asking all their
non-resident clients and depositors for copies of their income tax returns
abroad to prove that they pay taxes "somewhere." Residents of tax havens can
file a statement that their communities do not have any income taxes. They are
for the moment happy with uncertified photo-copies, but if past history is any
guide, they will want more "official" proof one of these days."  (Grandpa)

QUESTION: How can one store their cash, gold and silver in a safe place?

REPLY: Safe from what? The government? Creditors? Burglars? All of the above?

A safe deposit box in a non-bank depository comes to mind, if you can find one.
A small fireproof safe that is stored in some remote place in your home would be
useful for a small part of your emergency funds.

I put "non-bank depository safe deposit" in Google and found a number of
interesting links. Here are a few.

http://www.uncommonwisdomdaily.com/the-pharaohs-treasure-327
http://www.finweb.com/banking-credit/non-bank-places-to-rent-a-safe-deposit-box.\
html
http://www.assetstrategies.com/Keeping_Your_Metals_Safe

Vern
www.vernonjacobs.com

This is the 10th year for the Jacobs Report and there is a loyal list of about
1,700 members who have joined this group. I know that many of you are clients or
subscribers to the International Wealth Protection e-Library or are professional
colleagues. Others of you have bought one or more of our books at
OffshorePress.com. I thank all of you for your business and support.

As much as possible, I try to limit my comments in this medium to discussions
about the tax law or about asset protection issues.

My opinions and editorials are now reserved for my blog at
http://taxangles.blogspot.com/  Unlike this medium, the blog provides a
mechanism to respond for those who wish to do so.

The International Wealth Protection Monitor email newsletter will focus on NEWS
about asset protection, international taxes and what's happening in the
"offshore world". I make an extreme effort to identify the significant news
about cross-border tax laws, regulations and related information. In particular,
the newsletter attempts to help subscribers to keep up-to-date with changes in
the laws that may be relevant to any of my books.

The Tax Angles Blog will provide an outlet for my opinions about the interaction
of taxes, politics and economics.

For relatively new members of this group, there is a lot of free information
available at www.vernonjacobs.com  The primary purpose of the web site for
Offshore Press is to provide information about our various information products.

The Jacobs Report is Free, the Tax Angles Blog is free, the articles at
vernonjacobs.com are free but our books and the International Wealth Protection
Monitor newsletter are not. Your subscriptions and book purchases help to
support the time that I spend answering questions in this yahoo group.

Thanks for your continued support.

Vern
http://taxangles.blogspot.com/
www.vernonjacobs.com

QUESTION: I am an Canadian expat living in the US for 12 years and now US
Citizens.  I had no knowledge of the Insurance Tax (form 720) for which there
was a reminder today.  I now need to find out if I am impacted with my 2 whole
life insurance policies (bought when I was 1 year old and 15 years old) and 2
disability insurance policies (one for me and one for my wife).  1% tax isn't a
great deal, but I am already 12 years behind!

I am sure I am not the only one who didn't know about this.


REPLY: As a general rule, only people involved in some aspect of international
insurance are likely to be aware of this obscure excise tax. Based on the
circumstances you describe, it seems reasonable that you would have no reason to
be aware of the rule because you were a Canadian resident and citizen at the
time you first acquired the policies.

Prior to your question, I hadn't given any thought to the problem of foreign
persons who become green card holders or tax residents who would also be subject
to this tax and would have little reason to be aware of it.

Also, as a general rule, the IRS only asks for back taxes to be paid for up to
six years, with interest.

There is an exemption from the tax if the foreign insurance company is located
in a country with a treaty exemption, but it appears that the U.S. -- Canada tax
treaty does not include such an exemption. For details see
http://www.irs.gov/businesses/small/article/0,,id=186963,00.html#Ch5treaty

For the benefit of others who may be reading these comments, if a treaty
exemption is available it is still necessary to file a Form 8833 with a tax
return in order to make use of a treaty exemption. The tax law is basically
creating a formidable obstacle course even for those who wish to be compliant. A
waiver of any possible penalties that might be imposed should be available for
reasonable cause but that determination is 100% at the discretion of the IRS.

Vern
http://www.offshorepress.com/AICPA/form720.htm

The comments in this memorandum are not intended to be an opinion regarding any
specific tax issues because other tax issues may exist that could affect the tax
treatment of the issues addressed herein. These comments can not be used to
avoid penalties under tax code section 6662(d). For further details see
http://www.offshorepress.com/disclosureruls.htm

The following is about the question yesterday regarding the excise tax on
premiums paid to foreign life insurance companies.

"I handled this exact type of case two years ago involving the Section 4371
federal excise tax assessed on premiums paid by a U.S. citizen or U.S. resident
to a foreign insurer or foreign reinsurer (i.e., an insurance company located
outside the U.S.) and related reporting requirements (Forms 720).  In my
client's case, he had a life insurance policy with a foreign insurer located in
India of which he was both the insured and the payer of the premiums on the
policy.  I filed quarterly Forms 720 plus prepared a statement of reasonable
cause for the late filings.  The IRS did not assess late-filing penalties or
interest on the Section 4371 federal excise taxes owed with the filing of the
Forms 720.  Notice that Form 720 is filed quarterly.  In the case I handled,
there was no exemption from the Section 4371 federal excise tax in the
U.S.-India Income Tax Treaty.

John E. Mitchell, CPA
Rowlett, TX  (Dallas, TX Metroplex)

The following comment and reply is about the memo (# 900) on 1/19 regarding the
1% excise tax on premiums paid to foreign insurance companies.

Comment: Vern, I must admit I'm not too familiar with the Form 720, but wouldn't
it be like almost every form and have a reasonable cause exception? You
referenced treaties and going back 6 years, but his facts scream reasonable
cause.  (Kevin Packman, JD, <Kevin.Packman@...>)

REPLY: I did mention that "Based on the circumstances you describe, it seems
reasonable that you would have no reason to be aware of the rule."  And, the
instructions to the Form 720 do state that late payment penalties can be avoided
due to reasonable cause. I agree that it would be unreasonable for the IRS to
impose penalties in the circumstances described in message # 900. But I also
feel obligated to warn people that penalty waivers are entirely at the
discretion of the IRS -- which means that a refusal to grant a waiver has to be
pursued in court after the penalty and interest is paid.

Here is a link to more information about the reasonable cause exception.

http://www.traderstatus.com/IRSpenalties.htm

Vern

As required by U.S. Treasury Regulations governing tax practitioners, any
written tax advice contained herein cannot be used by any taxpayer for the
purpose of avoiding certain tax penalties that may be imposed under the Internal
Revenue Code. For further details see
http://www.offshorepress.com/vkjcpa/disclosurerules.htm

Due to medical problems, I may not be able to respond to as many questions in
the next few months. However, I'm optimistic about a full recovery and hope to
resume my normal work schedule when I'm back to normal.

Vern

I'm back at work on a very limited basis and hope to be able to respond to a few
questions from time to time -- but not as many as in the past.

Many thanks to those of you who extended your get well wishes and prayers.

Vern

QUESTION: My client -- who is a US Citizen -- was a beneficiary of her late
dad's estate. The deceased was a Citizen of Australia for many years.

He left her for arguments sake 7 million dollars in cash, Australian dollars.At
the time of death that amount of cash was worth 4 million in US dollars. The
cash was kept in Australia  for one year. ( for argument sake say it earned zero
in australia for that one year) One year later the funds were brought into a US
bank account and converted to Us dollars.. the australian dollar increased in
value and the 4 million Us was now worth 5 million us dollars.

According to IRC section 988 is that one million dollar gain ordinary income or
capital gain?? And if cap gain, must such treatment be disclosed on the return
separately under the disclosure rules??

REPLY: As far as I can determine, it is a capital gain and would be disclosed on
Schedule D. However, the inheritance should have been reported on Form 3520.

IRC Section 988 deals mainly with the tax treatment of currency gains or losses
in connection with a business or with the administrative expenses of an
investor. It also deals with gains or losses from non-business (personal)
transactions. The capital gain and loss rules are derived from Section 1221.

Vern
As required by U.S. Treasury Regulations governing tax practitioners, any
written tax advice contained herein cannot be used by any taxpayer for the
purpose of avoiding certain tax penalties that may be imposed under the Internal
Revenue Code. For further details see
http://www.offshorepress.com/vkjcpa/disclosurerules.htm

I'm still on medical leave for the treatment of some cancer tumors.

The "bad" news is that the first chemo treatments provided mixed results. There
was no growth in the tumors but there also was no reduction. The "good" news is
that the tumors didn't grow.

It seems that treating cancer is a process of trial and error. There are
different combinations of chemicals that can be used so I'm now on a new
combination that will hopefully be successful -- but it will be about 8 more
weeks before the next round of tests.

Meanwhile, it also seems that chemo treatments have a cumulative impact. With
each additional treatment, I have less energy and my memory is less reliable. So
I will have to continue with my "time off" from answering questions for at least
a couple of months.

Regrets

Vern