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Take the Gold, Leave the Cash

 -- Published: Thursday, 13 August 2015 | Print  | Disqus 

By Ted Bauman

Which would you rather have — a briefcase full of cash, or a briefcase full of gold?

These days, the answer is clear: We’ll take the gold, please. No matter the ups and downs of the market price, it’s still the one thing guaranteed to have value when all else fails — as it must, one day.

But where to keep it? Traditionally, gold bugs focus on beating thieves and safecrackers. (Indeed, a strong home safe is an essential part of any wealth preservation strategy.) But there are other things to worry about too, which is why it’s so important you learn how to hold gold offshore … such as whether Uncle Sam needs to know about your offshore gold stash under requirements like the Report of Foreign Bank and Financial Accounts (FBAR) and the Foreign Account Tax Compliance Act (FATCA).

The answer is no, he needn’t … but only if you own and store your gold in a specific way. Protect against a greedy Uncle Sam by learning how to hold gold offshore.

A Financial Account by Any Other Name

Most people are now aware that foreign financial accounts are reportable to the IRS under FATCA. Both you and the foreign financial institution are obligated to report the details of any offshore accounts if their aggregate value exceeds certain thresholds.

But what about precious metals, like gold? It depends … on the meaning of the term “financial account.”

The easiest way to get your head around this is to ask two questions:

  • First, is the institution that has your gold a bank (as in a safe deposit box)?
  • Second, if it isn’t, do you have to pay “fabrication” fees before you can go and get your gold from storage?

If the answer to either question is “yes,” then your gold holdings are reportable. That’s because in the eyes of the IRS, your gold is in an “other” financial account.

In the case of gold in a foreign bank, the nature of the institution means the gold is considered a reportable financial account, even if it’s in a safe deposit box. Case closed.

If your gold is in a private, non-bank storage facility, such as a secure vault, however, the case is not so simple. Section of the IRS Internal Revenue Manual states that “Other financial accounts generally encompass any accounts in which the assets are held in a co-mingled fund and the account owner holds an equity interest in the fund.” So whether your gold in a private vault — like the Perth Mint — is considered an “other financial account” by the IRS depends on whether the gold is “allocated” or “unallocated.”

Allocated means that you own specific pieces of bullion. Their serial numbers are recorded; this bullion is held separately from other gold; and it is audited regularly in your name. In that case, you can just show up and take those specific bars.

Allocated gold isn’t reportable, because it’s just like a rare stamp, artwork or other wholly-owned physical asset in offshore storage: It’s just a “thing,” not a form of money or a financial contract.

Unallocated storage, on the other hand, means you own a share in a common pile of gold, not specific pieces of metal. There’s no gold with your name on it, and you can’t just show up and take it. To do so, you have to pay a “fabrication fee,” which is essentially a penalty for disinvesting in the common gold pool.

Unallocated holdings are reportable, because you own financial equity in a gold stock, not specific gold.

Getting From A to B

The attraction of unallocated gold programs is that they are inexpensive. You can buy as little as you want, and build up your holding over time. Other than fabrication fees, overheads such as insurance and storage are also lower since you’re sharing them with other investors.

This poses a question: How does one invest in gold on a budget without incurring reporting requirements under FATCA and FBAR?

One solution I recommend is the Hard Assets Alliance SmartMetals® program. Under this service you can buy small amounts of gold in the form of shares of an unallocated stock kept in the U.S. (in Salt Lake City or New York). It’s a financial account, but it’s not offshore — so there are no reporting requirements. It’s just like any other domestic financial account.

When you’ve built up enough equity to match a specific piece of bullion, such as a 1-ounce bar or coin, you can elect to have it transferred to secure, non-bank storage in a private vault in London, Zurich, Sydney or Singapore (my preference). And once it’s there, it’s not reportable.

So no matter what your situation, knowing how to hold gold offshore can be your own little secret … as it should be.

Kind regards,
How to Hold Gold Offshore
Ted Bauman
Offshore and Asset Protection Editor

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