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.
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