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A way around FBAR/8938 reporting using LockSmart?

IMG Auteur
Publié le 18 décembre 2015
662 mots - Temps de lecture : 1 - 2 minutes
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Rubrique : Marchés

I am often asked by US residents whether precious metals are reportable under IRS and FinCEN foreign asset/account reporting obligations:

  • Form 8938, Statement of Specified Foreign Financial Assets
  • FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)

According to the IRS comparison of these requirements, “precious metals held directly” is not reportable.  So what does “held directly” mean? The IRS’ own Q&A confirms that safe deposit boxes are not reportable but otherwise provides no explanation of the term.

Mark Nestmann says that “direct ownership means you don’t hold the assets in any type of account” and that “assets you hold in a box at an offshore private vault to which only you have access may also to be non-reportable” but that “you must report offshore holdings of physical gold offshore to which you don’t have exclusive access on the FBAR”  (my emphasis).

Simon Black confirms this interpretation, saying that “gold in a ‘gold account’ does need to be reported, like GoldMoney. But storing coins or bars in a safety deposit box offshore does not”.

The most detailed analysis I have come across is from Michael DeBlis, III, Managing Partner at DeBlis Law, who, like Nestmann, sees access as the key to determining reportability:

“In a case where unrestricted access is granted by the owner to the foreign financial institution (or person engaged in the business of banking), it would indicate that the vault is a financial account and an FBAR is required if the currency notes exceed the reporting threshold. On the other hand, where the owner maintains exclusive control over the vault and does not give the foreign financial institution (or person engaged in the business of banking) access, reporting currency cash notes stored in such a vault is not required regardless of value.” (my emphasis)

This means that to avoid having to report your offshore gold and silver you need to store it in a safety deposit box, or similar, to which only you have the key such that the custodian/operator does not have unrestricted access without you being there.

Of course the problem with this arrangement is that if you need to sell your metal, you have to fly over and physically visit the storage operator to withdraw your metal so that it can then be delivered to the bullion dealer (which may be the same person operating the facility). This obviously adds significantly to the cost and makes such transactions uneconomic.

It is therefore with interest that I came across a new product by mobile/cell phone accessory firm Dog & Bone called LockSmart. It is a keyless Bluetooth padlock which is controlled from your phone, and allows you to “share your ‘key’ with someone in a different region, city, state –even country –in an instant. And could securely share multiple ‘keys’ instantly, yet still enjoy the confidence to, just as quickly, take those ‘keys’ away”.

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One could argue that a safety deposit box or similar secured with LockSmart would satisfy the “exclusive control” and “restricted access” requirements, but allow you to remotely give access to your metal to your custodian to remove and ship your metal as directed, and then upon relocking the box you can withdraw your digital key and thus restrict access to the box again. Sure, you have to trust the custodian not to take all of your metal out and/or follow your instructions, but that is the same trust one has to have with conventional, and reportable, storage facilities.

Of course I am not guaranteeing that such an arrangement would satisfy the FBAR/8938 requirements, which would probably hinge on how much “restriction” constitutes “directly held”, and you should get your own tax advice. I would note that even if metal stored under such conditions was not reportable, the fact is that if you have a reasonable value of gold and silver, the US government would be able to trace that you had purchased it by following bank transfers to the bullion dealer.

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