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Tuesday, June 17, 2008 - Vol. 10, No. 145
Today's comment is by Mark Nestmann, our Wealth Preservation & Tax Consultant and President of The Nestmann Group.
It's that time of year again where almost every American with a "foreign account" must "tell all" to the U.S. Treasury Department.
This means you if you have a foreign account or accounts with a total value of US$10,000 or more. (In other words: It's NOT US$10,000 per account.) If so, 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.)
Trust me: It's definitely worth your time. If you don't report your foreign account, you could face serious penalties. For starters, you could be prosecuted. In fact, 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. Let me put this another way: You would likely receive a shorter prison sentence if you were convicted of manslaughter rather than willfully failing to file your TD F form each year!
If you merely forget to file your 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.
Even With the Extra Form: It's Still Worth It!
But should this form stop you from opening up a bank account or taking your retirement plan abroad? Absolutely not.
In the grand scheme of things, it's one extra filing requirement a year that takes only a few minutes to complete. In return, you receive superior investment potential (I'm talking about markets that your U.S. broker won't touch), additional asset protection, and the security of knowing that any busybody can't peer into your private financial affairs.
Plus, let's face it: As an American, you are already subject to penalties, fines, and possible jail time if you don't file your income taxes each year. So think of this form as an addition to your income tax return, and just take care of it.
Ok now what does the IRS consider a "foreign account?"
What Exactly You Need to Report
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, let's say you've formed a foreign corporation, but someone else operates its foreign account on your behalf. If that's the case, 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, just to make sure you're in compliance.
What the IRS Doesn't Need to Know About Your Private Affairs
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 is a "tell all" form that you'd rather not file. However, my advice is to file it even in borderline situations, just to be safe.
And as I said, the extra forms are worth it in the long-run. So rip the Band-Aid, get it over with and enjoy the fruits of your account abroad for the rest of the year.
MARK NESTMANN, Wealth Preservation & Tax Consultant,
President of The Nestmann Group
www.nestmann.com
EDITOR'S NOTE: For more details on exactly what you need to report, (and what you can keep to yourself), check out Mark's newly updated book, The Lifeboat Strategy. Click here for details on how to secure your own copy. |
"Will the Last One Out Kindly Turn Off the Lights?"
Our good friend, Rob Vrijhof sent us a brilliant email yesterday from Switzerland that I thought I'd share with you.
In case you haven't met Rob at one of our conferences or read his work here in the A-Letter, Rob has been a trusted Asset Manager for years. His company WHVP manages million dollar global investment portfolios and his insights are always first-rate. He's also been on our Council of Experts for the better part of the last decade.
Okay introduction over...onto his email:
According to Rob, he's been diversifying a portion of his clients' portfolios into the Japanese markets. Specifically he's got his eye on a leading pharmaceutical company that, according to Rob, has the potential for solid returns in the months to come.
I have to agree with him on Japanese stocks. As you may know, my colleague Eric Roseman and I have been bullish on Japanese stocks for some time now. We have several best buys in our Sovereign Individual portfolio (in our members-only newsletter) that's long on Japan right now. So it's kind of refreshing to see the leading money managers around the world are starting to catch on to this trend.
But what really caught my eye about Rob's email was his take on the Fed meeting coming up a week from tomorrow:
"Also hear that the Fed might hike interest rate sharply this year, if they do we kindly ask that the last person leaving the USA to please turn off the lights."
That's a good one Rob...Don't look now but the European Central Bank looks poised to hike rates too - perhaps even sooner than the Fed. Don't worry, we'll keep a light on for you!
MIKE BURNICK, Senior Editor & Global Markets Analyst |
What Can the FX Market Do For You?
Every so often, you may hear one of our experts refer to the "FX" market, or the "Spot" market here in the A-Letter. They're often talking about how to trade, and squeeze profits from this US$3.2 TRILLION market - the market that just happens to be 70 times bigger than any stock market.
But today, we thought we'd take a small step back and give you a background on our favorite monster market - and tell you exactly what the FX market can do for you.
In a nutshell, Forex (an acronym meaning foreign exchange) refers to the market where the value of the world's money - all money - is measured and constantly valued. And this valuation is a key element in the efficient flow of world trade and capital from one nation to another.
Forex is the most efficient, liquid, free, exciting, and potentially profitable market in the world for retail and institutional investors. This market beats stocks, bonds, and commodities on each and every key benchmark you can think of when deciding to trade a particular market.
You can use every strategy you have learned from trading stocks and add in a few more when trading Forex. It doesn't matter if you are an aggressive short-term trader who loves the daily price action, or an intermediate-term speculator shooting for the sweet spot of a trend, or a buy and hold for the long-term investor; the spot Forex market offers it all.
And yet amazingly with all of these attributes, Forex still seems an arcane and secretive place most retail investors, and many institutional investors, still know very little about.
ERIKA NOLAN, Publisher |