How privacy and portability may both affect tax liabilities
- Published: Nov 4, 2014, 8 AM
I’ve been speaking with collectors and investors in Asia and Europe about the advantages that owning art or collectibles, particularly coins, offer to people concerned with the privacy and portability of their assets.
Then along comes FATCA — the Foreign Account Tax Compliance Act, a law designed, just as it sounds, to ensure that Americans with bank accounts outside the U.S. don’t escape taxation. While it is perfectly legal for Americans to hold funds offshore, in some cases this has been done without paying the appropriate taxes when the funds are earned.
A U.S. taxpayer who earns income anywhere in the world cannot avoid paying income tax by keeping his or her earnings overseas. Some of us deal with overseas clients, and many coin dealers buy and sell overseas, where having local accounts is helpful, if not necessary.
Americans have always been required to disclose foreign bank accounts on a tax form. But with FATCA, the United States has pressured foreign banks that do business in the U.S. to disclose accounts held in their overseas branches by U.S. citizens.
The penalties are quite severe, including possibly exclusion from the U.S. market for banks that have long histories and substantial investments here. The extensive paperwork involved with FATCA-related disclosures has led to banks all over Europe asking their longtime American coin dealer clients to close their accounts. European bankers have told me it’s just not worth risking punishment under FATCA, and having to do all that extra work just to service Americans who aren’t their primary client base anyway.
Even safe deposit boxes, which dealers use just to store coins they purchase at auctions and shows in Europe and Asia, are reportable if they are connected with bank accounts, resulting in banks asking that the boxes be emptied immediately. I know a U.S. dealer who, after more than 30 years of having a box at a Swiss bank, was asked to close it and remove its contents on 30 days’ notice.
Bastions of bank secrecy such as Switzerland and Luxembourg have bowed to U.S. pressure and begun sharing account information. These countries and others have enacted their own versions of FATCA and made bilateral agreements with the U.S., facilitating a two-way information flow. With information flows come suspicions and in some cases subpoenas and visits by the financial police, without any crimes having been committed.
But guess what? Rare coins held overseas (or in the United States by foreign citizens) are exempt from FATCA reporting. Yes, the IRS was asked, and in a simple answer declared that “tangible assets for investment” and “precious metals for investment, such as gold” are not “financial assets” subject to FATCA. Other countries’ laws that mimic FATCA likewise exempt rare coins.
Rare coins are one of the few investments remaining that do not require registration or government reporting upon purchase or sale.
Many law-abiding Americans, who simply want their assets private and portable, have bought coins partly for that reason. Now investors all over the world are learning that governments, which treat the holding of financial assets overseas as evidence of criminal activity, have made an exception for rare coins. A small light in a darkening investor landscape.