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News Link • TAXES: Federal

Form 8938: Not a Prelude to a Wealth Tax…This Time

• Lew Rockwell/Mark Nestmann

In my last blog entry, I described the latest salvo against offshore financial privacy from the IRS: the requirement to file a tell-all form annually with your tax return detailing “foreign financial assets” with an aggregate value exceeding $50,000.

The IRS recently issued a draft version of this Form 8938, along with preliminary regulations on how to complete it. They regulations don’t specify what you don’t need to report, but assuming they don’t change dramatically between now and the time they’re issued in final form, the following types of assets appear to remain non-reportable:

Foreign real estate. If you own real estate outside the United States in your own name, I don’t know of any requirement to disclose that ownership on Form 8938 or on Treasury Form 90-22.1 (the “FBAR” form). However, you must also report and pay tax on any income from offshore property. And, if you own property through a foreign entity, you must disclose the existence of that entity on Form 8938 and file a separate information or tax return for it annually. Foreign life insurance or annuity policies. A foreign issuer of a life insurance or annuity policy could be considered a “counterparty” according to the definitions in the instructions for Form 8938. However, the examples listed in the draft instructions say nothing about foreign life insurance or annuity policies. But, you need to report these policies on the FBAR, as you can read here.

Precious metals investments. It’s clear that if you hold precious metals through a bank account, you must report the existence of the account on both Form 8938 and the FBAR. But, if you hold precious metals in a safety deposit box or private vault box to which you have direct and exclusive access, they appear to be non-reportable. Other storage arrangements may or may not be reportable on the FBAR, but not on Form 8938, as precious metals don’t appear to be a “specified foreign financial asset.” The safest recommendation is to report any type of offshore storage of precious metals in which you don’t have direct and exclusive access on the FBAR.

There’s much more to come in the continuing U.S. vendetta against all-things offshore. An increasing number of offshore banks and service providers won’t even deal with U.S. clients anymore, a legacy of the USA PATRIOT Act, over-zealous IRS investigations, and new regulations that force many offshore brokers who deal with U.S. residents to register with the Securities & Exchange Commission.


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